Investor Lawyers Blog

SEC Insider Trading Cases Lead to Civil Charges, Frozen Brokerage Accounts, and Restitution

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

In a Securities and Exchange Commission case linked to parallel criminal charges, the regulator has filed insider trading charges against Avaneesh Krishnamoorthy, the risk management VP of a New York-based investment bank. Krishnamoorthy is accused of trading on confidential information prior to the acquisition of a publicly-traded tech company by a private equity firm. He allegedly made about $48K in illicit profits. Also charged as a relief defendant is his wife Shreya Achar.

According to the SEC, Avaneesh Krishnamoorthy began trading in Neustar Securities after learning that Golden Gate Capital was going to buy the company. He used two brokerage accounts that his employer didn’t know about. Golden Gate Capital had approached the investment bank about financing the acquisition.

Meantime, the U.S. Attorney’s Office for the Southern District of New York has filed its own case against Krishnamoorthy. He faces one criminal securities fraud charge.

FINRA Files Complaint Against Ex-Broker Over Variable Annuity Sales to Elderly Customers

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

The Financial Industry Regulatory Authority has put out a disciplinary complaint against Walter Marino. The former broker worked for Legend Equities Corp. in Palm Beach Gardens, Florida at the time he allegedly facilitated variable annuities sales that were unsuitable for two of his older clients. According to the regulator, Marino recommended exchanges of non-qualified VAs to the customers without having reasonable grounds to guide them toward these investments.

FINRA said that Marino earned about $60K in commissions. Meantime, the customers lost over $82K because of surrender charges they were forced to pay and they did not benefit financially. Not only that but because Marino didn’t apply the tax-free exchange provision of the Internal Revenue Code, the customers ended up with substantial tax liabilities.

Now, the regulator wants Marino to disgorge his ill-gotten gains and pay the customers full restitution for the variable annuity fraud.

SEC Files Broker Fraud Charges Alleging Unsuitable Investments Involving Exchange Traded-Funds and Exchange Traded-Notes

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

The US Securities and Exchange Commission has filed charges against broker Demitrios Hallas accusing him of making unsuitable investments in five clients accounts and misappropriating over $170K from these customers. The regulator is seeking a permanent injunction and the return of ill-gotten gains, along with interest and penalties.

According to the SEC, Hallas repeatedly traded investments that were not appropriate for these customers. In just over a year, the broker allegedly traded 179 daily leveraged ETFs and ETNs. both of which are generally “risky, complex, and volatile.” The net loss involving all positions was about $150K.

His customers were not experienced or sophisticated investors and they could not handle the degree of volatility and risk to which he exposed them. Meantime, Hallas made about $128K in fees and commission.

Whistleblower Awarded Almost $4M by SEC

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

The US Securities and Exchange Commission has awarded almost $4M to an individual who gave the regulator specific details regarding “serious misconduct” and provided help, including “specialized” expertise and knowledge, during the agency’s probe into the allegations. In its release announcing the award, the SEC did not provided more details about the case because to do so might give away the identity of the whistleblower, which it always seeks to protect.

Since the SEC Whistleblower Program was established in 2011, the agency has awarded 43 individuals about $153M for voluntarily giving the agency useful and original information that ended up rendering a successful enforcement action Already, such actions stemming from whistleblower-provided information has resulted in over $953M in financial remedies imposed against those found to be have engaged in misconduct or other wrongdoing. Whistleblowers can be awarded anywhere from 10-30% of the money collected if that sum is $1M or greater.

As we mentioned, typically the identities of SEC whistleblowers are kept confidential. One of the reasons for this is so that the whistleblower is protected from professional or financial retaliation, especially if the individual blew the whistle on an employer.

Securities News: Deutsche Bank Fined $157M For Violating Volcker Rule, CFTC Charges Couple With Hedge Fund Fraud, & SEC Accuses Oil and Gas Promoter of Inflating AUM

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

Federal Reserve Imposes First Fine to a Bank Over A Volcker Rule Violation
For violating the Volcker Rule’s ban on making risky market bets, Deutsche Bank (DB) must pay a $157M fine for not making sure its traders didn’t make such bets and for allowing its currency desks to engage in online chats with competitors, during which time they allegedly disclosed positions. It was just last year that the German lender admitted that it did not have sufficient systems in place to keep track of activities that could violate the ban.

Under the Volcker Rule, banks that have federal insured deposits are not allowed to bet their own funds. They also are supposed to makes sure that when their traders help clients sell and buy securities, they aren’t engaging in bet making.

For the system lapses, the Federal Reserve fined Deutsche Bank $19.7M. The remaining $136.9M fine is for the chats and because the bank purportedly did not detect when currency traders were revealing positions or trying to coordinate strategies with competitors.

Securities Fraud: Former Merrill Lynch Broker Admits to Bank Fraud of More than $8M, Theranos Investors Claim Company Threatened Bankruptcy if Sued, & Arkansas Retirement System’s Pension Fund Agrees to More than $28M Settlement

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

Ex-Merrill Lynch Broker Pleads Guilty to Bank Fraud

Jeffrey Kluge, a longtime Merrill Lynch broker, has pleaded guilty to defrauding two banks of more than $8.7M. His bank fraud ran from 2001 through November 2016.

Kluge’s plea agreement said that he committed bank fraud by fabricating account statements under Merrill Lynch’s name and pledging fake collateral to the banks so he could set up multi-million dollar credit lines. For instance, in 2001 he was able to get a $150K credit line with Alliance Bank in Minnesota by telling the financial institution that he had enough municipal bond funds as collateral. In fake account statements he sent the bank as evidence of these bond holdings, Kluge concealed from Alliance Bank that he had already promised the assets in the accounts for loans from the firm.

In 2007, Kluge was able to get a $1M credit line from Platinum Bank, which is also in Minnesota. His bank fraud scheme defrauded Platinum Bank in a similar fashion.

SEC Charges Texas Oil and Gas Promoter With Securities Fraud

Published on: April 19, 2017 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission is charging Matthew Fox and his Wayne Energy LLC with securities fraud. The regulator brought its Texas securities case in federal district court in the city of Sherman.

According to the Commission’s complaint, Fox raised about $950K for a joint venture that was supposedly involved in reworking and recompleting an oil and gas well. However, contends the SEC, Fox raised the funds by recycling offering documents from another oil and gas company that he previously ran (that company failed) rather than customizing the paperwork to this new venture and its specific risks.

Prior to setting up Wayne Energy in 2015, Fox had run Frisco Exploratory Company and it is the latter’s offering documents that he used. The Commission claims that the offering documents made a false statement, which was that Wayne Energy would not commingle its own money with the joint venture’s funds. The documents also falsely stated that the oil and gas company was licensed as an operator with the Texas Railroad Commission.

SEC Investigates Statim Holdings After Hedge Fund Investors Are Promised They Won’t Lose Any Money

Published on: April 17, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Bloomberg reports that according to sources, the US Securities and Exchange Commission has launched a probe into Statim Holdings. Inc., an Atlanta, Georgia-based financial firm, after the latter told investors in its main hedge fund that there was no risk of financial losses for investing. The regulator’s investigation comes in the wake of a state probe by the Georgia Securities Division. Statim is helmed by Joseph A. Meyer.

Meyer told investors in the Arjun fund’s main share class that they would never sustain financial losses. However, they have to commit their funds for a decade or lose 50% of their principal should they decide for early redemption.

The hedge fund manger has said that he uses a computerized system that he designed and he invests the bulk of clients’ funds in Treasury bonds. In 2015 Bloomberg News placed Arjun at number eight in its list of hedge funds that had assets ranging from $250M and $1B. BarclaysHedge has given 17 awards to Arjun.

SEC Investigates Statim Holdings After Hedge Fund Investors Are Promised They Won’t Lose Any Money

Published on: April 17, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Bloomberg reports that according to sources, the US Securities and Exchange Commission has launched a probe into Statim Holdings. Inc., an Atlanta, Georgia-based financial firm, after the latter told investors in its main hedge fund that there was no risk of financial losses for investing. The regulator’s investigation comes in the wake of a state probe by the Georgia Securities Division. Statim is helmed by Joseph A. Meyer.

Meyer told investors in the Arjun fund’s main share class that they would never sustain financial losses. However, they have to commit their funds for a decade or lose 50% of their principal should they decide for early redemption.

The hedge fund manger has said that he uses a computerized system that he designed and he invests the bulk of clients’ funds in Treasury bonds. In 2015 Bloomberg News placed Arjun at number eight in its list of hedge funds that had assets ranging from $250M and $1B. BarclaysHedge has given 17 awards to Arjun.

Securities Fraud: Ex-Broker Gets Prison Sentence for $1.2M Elder Financial Fraud, Massachusetts Man Admits to Bilking Neighbors, & More Than Two Dozen 27 Parties Under Fire Over Alleged Stock Promotion Scams

Published on: April 17, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Former Wells Fargo and LPL Financial Broker Receives 41-Month Prison Term for Elder Financial Fraud
Robert N. Tricarico, an ex-broker for both Wells Fargo Advisors (WFC) and LPL Financial (LPLA), will serve 41 months behind bars and pay restitution of over $1.2M after he pleaded guilty to elder financial fraud. The Securities and Exchange Commission, which brought a civil case against Tricarico, has barred him from the securities industry.

Court documents note that from 1/2010 to 6/2013, Tricarico was the financial adviser for a sick and elderly investor. He misappropriated over $1.1M from her by writing a number of checks to himself without the client’s consent, misappropriated checks written to her, liquidated her coin collection, and used her funds for his own expenses.

He has also admitted to bilking two other victims of $20K when he falsely represented that their money would go toward a business venture. He kept their money for himself.