Investor Lawyers Blog

Proposed Tax Ruling Could Bar Oil and Gas Pipelines from Structuring as Master Limited Partnerships

Published on: April 13, 2018 | by Shepherd Smith Edwards & Kantas, LLP

Last month, the Federal Energy Regulatory Commission announced plans to stop oil and gas pipelines from being able to structure themselves as Master Limited Partnerships (MLPs) in order to get an income tax allowance for rates that are cost-of-service. Under the existing model, MLP customers pay a price that is regulated, part of which takes care of corporate tax charges.

Master Limited Partnerships aren’t required to pay corporate taxes since they pass through entities that distribute pre-tax earnings to unitholders. The latter are the ones that pay the taxes.

Any new rule related to this matter would likely not go into effect until 2020. Still, the government agency’s news affected trading on a number of MLPs, including the Alerian MLP ETF (exchange-traded fund), Energy Transfer Partners, TC PipeLines, Williams Partners, Crossamerica Partners, and several others.

Firm Executives Reportedly Were Aware of Domestic Violence Allegations Against High-Earning Morgan Stanley Broker for Years

Published on: April 11, 2018 | by Shepherd Smith Edwards & Kantas, LLP

According to the New York Times, even though Morgan Stanley (MS) executives have known for years about the domestic violence allegations against Douglas E. Greenberg, who was one of their leading brokers, the firm continued to allow him to stay employed in its wealth management division. However, after the NY Times tried to contact the firm about him, Greenberg was finally suspended, pending review. Now, the media is reporting that Greenberg has been fired. Still, a number of the former-Morgan Stanley broker’s exes have retained their own lawyers in light of the fact that he wasn’t let go until now.

Four women have come forward accusing him of domestic abuse. Court filings indicate that not only did Greenberg’s accusers go to the police seeking protection against the now former Morgan Stanley financial adviser, but also, according to one of the women’s attorneys, the firm was issued a federal subpoena notifying it about at least one of the allegations. Morgan Stanley was also aware that Greenberg was charged for allegedly violating a restraining order.

Still, no action was taken against Greenberg, who belonged Morgan Stanley’s exclusive Chairman’s Club as one of the firm’s highest earning brokers. Ironically, the members of this club are expected to maintain certain standards when it comes to “conduct and compliance.” Greenberg is considered one of the leading wealth managers in Oregon. Firmwide, he was among Morgan Stanley’s top 2% of brokers when it came to bringing in revenue.

Santander Securities Will Shut Down Its San Juan, Puerto Rico Branch in May

Published on: April 6, 2018 | by Shepherd Smith Edwards & Kantas, LLP

Santander Securities LLC has notified its Puerto Rico clients by letter that its San Juan branch will shutter its doors to the public on May 25. Santander Securities (SAN) is Banco Santander’s investment division. The move is part of the investment wing’s plan to move to a service-only model rather than its model that involves offering investment advice and soliciting sales. A scaled down staff will stay on at the branch after it closes.

Santander Securities in Puerto Rico has come under close scrutiny over the last five years. It is one of the investment firms that came under fire beginning in 2013 when Puerto Rico bonds and bond funds saw a steep drop in value and tens of thousands of investors sustained huge investment losses. Many of these investors should never have even purchased such volatile securities, which were always too risky for their portfolios and not in line with their investment goals. Yet Santander Securities brokers, as well as brokers from UBS Puerto Rico (UBS-PR), Banco Popular, and other investment firms, pushed them on clients, often in very high concentrations.

According to Bloomberg, between late 2012 and 2013, Santander Securities marketed and sold more than $280 million in Puerto Rico closed-end funds and municipal bonds, even as it shed its own holdings of these same securities. In 2015, the investment bank resolved allegations brought by the Financial Industry Regulatory Authority (FINRA) accusing the firm of deficiencies involving its structured product business, including its handling of reverse-convertible securities sales to retail customers in Puerto Rico.

Texas Megachurch Pastor and Financial Planner Are Accused of Senior Investor Fraud

Published on: April 2, 2018 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission has filed senior investor fraud-related charges against Houston pastor Kirbyjon Caldwell of the Windsor Village United Methodist Church and financial planner Gregory Alan Smith. The regulator is accusing them of defrauding older investors of over $1M through the sale of pre-Revolutionary Chinese bond interests.

Smith runs the Smith Financial Group. The SEC permanently barred him from associating with brokerage-firms in 2010 after he was accused of misappropriating investor money. Caldwell is the senior pastor at reportedly one of the biggest Protestant churches in the US.

According to the regulator, in 2013 and 2014, the two men solicited older investors in an attempt to sell them bonds that they claimed were valued at billions of dollars when, in truth, the bonds were “collectible memorabilia” that lacked any “meaningful investment value.”

Barclays Settles DOJ’s Mortgage-Backed Securities Fraud Case for $2B

Published on: April 1, 2018 | by Shepherd Smith Edwards & Kantas, LLP

Barclays Capital Inc. (BARC) and a number of its affiliates will pay $2B to settle the United States government’s civil case alleging fraud involving the underwriting and issuance of residential mortgage-backed securities. The settlement comes after a three-year probe. The case is US v. Barclays Capital Inc.

The US accused Barclays of taking part in a fraud to sell three dozen residential mortgage-backed securities deals, causing investors to suffer billions of losses. More than $31B of Alt-A and subprime mortgage loans were securitized and over half of these went on to default. The RMBSs were sold leading up to the 2007 financial crisis.

The bank and its affiliates allegedly misled investors about the quality of the loans backing the RMBS deals, including purposely misrepresenting key features of the loans that involved. The British bank, meantime, maintains that it did not mislead investors about the quality of the loans. The government, however, contends that Barclays committed wire fraud, mail fraud, bank fraud, and violated the Financial Institutions Reform, Recovery, and Enforcement Act of 1989.

Investment Fraud: Man Who Pretended to be Financial Adviser Pleads Guilty to $13M Scam, Ponzi Fraudster is Accused of Bilking Friends & Coworkers, and Real Estate Scammers Must Pay Back Investors $30M

Published on: March 31, 2018 | by Shepherd Smith Edwards & Kantas, LLP

Man Accused of Targeting Religious Congregation Members Admits to $13M Fraud

Sung “Laurence” Hong has pleaded guilty to money laundering and wire fraud, as well as to pretending to be an investment adviser so he could bilk clients of almost $13M. His plea agreement states that Hong mostly targeted members of religious organizations.

This is not the first time Hong that was caught for investor fraud. He served three years in prison after defrauding a neighbor of about $800K. Now, he may end up back in jail for decades.

SEC Files Case Against Man Accused in $250K Ponzi Scam

The US Securities and Exchange Commission has filed charges against Niket Shah, who is accused of stealing over $250K from coworkers and friends in a Ponzi scam. The regulator’s case comes in the wake of complaints brought by investors.

HSBC Settles Libor Rigging Lawsuit for $100M

Published on: March 31, 2018 | by Shepherd Smith Edwards & Kantas, LLP

To settle a private securities lawsuit in the US alleging Libor manipulation, HSBC Holdings Plc. (HSBC) has agreed to pay $100M. The bank is accused of conspiring to rig the London interbank offered rated (Libor) benchmark. The plaintiffs in the lawsuit are a number “over-the-counter” investors, including Yale University and the Maryland city of Baltimore, that dealt directly with banks belonging to the panel tasked with determining the key benchmark interest rate. Now, a court will have to approve the preliminary settlement.

The plaintiffs sued 16 banks for alleged Libor rigging in 2011. According to their case, HSBC and other banks conspired together to submit artificially low borrowing costs so that they could appear more financially robust and increase earnings. These lower borrowing costs led to a lower Libor, which had an adverse effect on institutions and persons that invested in pension funds, money market funds, mutual funds, the bond market, a number of derivative products, and bank loan funds.

Libor is the benchmark used to establish rates on hundreds of trillions of dollars of transactions, including those involving credit cards, student loans, and mortgages. It also allows the banks to figure out what it would cost them to borrow from one another.

Allegations of FCPA Violations, Inflation Schemes, and Improper Audits Lead to SEC Fraud Cases

Published on: March 29, 2018 | by Shepherd Smith Edwards & Kantas, LLP

To settle an Securities and Exchange Commission case, Maxwell Technologies, Inc. and one of its former sales executives and officers, Van Andrews, have agreed to pay $2.8M and $50K in penalties, respectively, but without denying or admitting to the regulator’s allegations. They are not, however, admitting to or denying the SEC’s finding that they were involved a fraudulent revenue scam that inflated the energy storage company’s reported financial results.

The regulator’s order said that the company acknowledged revenue from ultracapacitor sales “prematurely” so as to better fulfill the expectations of analysts. Andrews is accused of inflating revenues through secret customer deals and by doctoring records to hide the scam from outside auditors, as well as company finance and accounting staff.

As part of his settlement, Andrews is barred for five years from taking on an officer or director role in a public company. Also settling charges against them related to this matter are ex-Maxwell CEO David Schramm, who will pay almost $80K in disgorgement and prejudgment interest, plus a penalty. Ex-Maxwell controller James DeWitt will pay a $20K penalty. The two men are accused of not doing an adequate enough job of addressing red flags indicating that misconduct may have been afoot.

Wedbush Securities Faces Failure to Supervise Charges Over Broker’s Pump-And-Dump Scam

Published on: March 28, 2018 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission has filed civil charges against Wedbush Securities Inc. The regulator is accusing the brokerage firm of not supervising registered representative Timary Delorme, 59, and disregarding warning signs that she was involved in a pump-and-dump fraud that targeted retail investors. Delorme has settled the SEC’s charges against her.

According to the SEC, Delorme took part in certain trades to manipulate the stocks. She received benefits, which were paid to her spouse, for getting customers to invest in microcap stocks that were part of a pump-and-dump fraud run by Izak Zirk Engelbrecht, who also has been subject to civil, as well as criminal charges. Engelbrecht, previously called Izak Zirk de Maison before adopting his wife’s last name, is accused of running the scam that involved microcap company Gepco Ltd.

Also, Delorme and her husband are accused of selling shares for Engelbrecht and sending him the money for the sales while she was paid a commission. This purportedly allowed Engelbrecht to hide the sales.

Aegis Capital to Pay Over $1M to the SEC and FINRA to Settle Allegations Involving Low-Priced Securities and Anti-Money Laundering Violations

Published on: March 28, 2018 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority has fined Aegis Capital Corp. $550K for inadequate supervision and anti-money laundering systems related to its low-priced securities sales. According to the self-regulatory organization, the firm’s supervisory system that oversees trading involving delivery versus payment (DVP accounts) was not designed in a manner reasonable enough to properly “monitor and investigate” trading in the accounts, especially those involving securities transactions that were priced low.

With DVP accounts, a broker-dealer making the trades does not have to be holding the securities that are bought and sold. FINRA said that Aegis did not “adequately monitor or investigate” seven DVP customer accounts, a number of which belonged to foreign financial firms, in which trading involved the liquidation of billions of dollars of such securities. These transactions resulted in millions of dollars in proceeds. A number of these institutional clients made the transactions for underlying customers whose identities Aegis did not know.

The SRO found that Aegis failed to mark these transactions as suspect even after a clearing firm highlighted that there were anti-money laundering-related red flags. Aegis is settling FINRA’s case but without denying or admitting to the regulator’s findings.