Investor Lawyers Blog

Aon Hewitt Accused of Kickback Scam with Financial Engines in 401(K) Lawsuit

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

A 401(K) participant is suing Aon Hewitt for its purported involvement in a kickback scam involving Financial Engines. Aon Hewitt is not the first company to be subject to such allegations involving the 401(K) advice provider.

According to a participant in the Caterpillar 401(k) Retirement Plan, the alleged “covert kickback operations” cost retirement savers millions of dollars as a result of the excessive fees paid to Financial Engines for managed-account services. The complaint contends that the service fees were much higher than needed because of an agreement between Aon Hewitt and Financial Engines in which the latter paid the former kickbacks.

The kickbacks were purportedly a substantial percentage of the fees that Financial Engines charged, even though Hewitt and its sister companies, which are also defendants in the 401(K) lawsuit, didn’t provide any investment advisory services in exchange for the payments. According to plaintiff Cheryl Scott, Aon Hewitt received a 20-25% kickback.

Puerto Rico Defaults on More Debt Payments

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

The Puerto Rico government has defaulted on more debt payments that were due to bondholders. The U.S. Territory did not meet the February 1, 2017 due date on $312 million in principal plus interest. The default includes Puerto Rico General Obligation bonds that are supposed to be constitutionally protected.

The Puerto Rican Government Development Bank owes $279 million of the defaulted debt. A spokesperson for Puerto Rico’s Aqueduct and Sewer Authority, however, said that the Commonwealth paid $295 million of interest, which was due on some of the debt.

Puerto Rico owes $70 billion of debt and the island has been embroiled in financial troubles for over three years. The territory has struggled to pay back the debt it owes, defaulting more than once on payments that were due. Last weekend, Puerto Rico’s federal oversight board voted to extend the stay placed on litigation against the island for debt payments that have been missed. The stay was supposed to lift on February 15, 2017. Now that date is May 1, 2017.

The island’s new governor, Ricardo Rosselló, was also granted an extension for when he has to turn in a fiscal blueprint, mapping out how Puerto Rico plans to restore its fiscal health. He now has until February 28, 2017.

Securities Cases: NY/NJ Port Authority Accused of Not Disclosing Municipal Bond Risks, FINRA Expels Lawson Financial for Fraud, and SEC Brings More FCPA Violation Charges

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

Port Authority Admits Wrongdoing Related to Failure to Disclose Municipal Bond Risks to Investors

The Port Authority of New Jersey and New York will pay a $400K to resolve Securities and Exchange Commission charges accusing the municipal issuer of knowing about the municipal bond risks involved a number of NJ roadway projects yet failing to tell investors who bought the bonds that would pay for these projects about the risks. The Port Authority admitted wrongdoing.

According to the SEC’s order, the Port Authority sold $2.3B of bonds even though there were questions as to whether certain projects exceeded their mandate and might not be legal to execute. Despite these concerns, the Port Authority did not mention the municipal bond risks in offering these documents.

SEC Cases Seeks to Hold Companies Accountable for FCPA Violations

Already this year, the SEC has brought and/or settled a number of civil cases involving alleged violations of the Foreign Corrupt Practices Act. Early last month, Biomet, a medical device manufacturer, agreed to pay over $30M to settle parallel Justice Department and SEC probes over purported repeat FCPA violations.

Criminal Cases: Hedge Fund Manager is Sentenced for Bilking Veterans of $1.8M, Charges Brought Over $81M Ponzi Scam Involving Hamilton Tickets, and Indictment in $17M Ponzi Scam is Dropped

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

Chicago Hedge Fund Manager Gets Over Four Years in $1.8M Fraud
Clayton Cohn is sentenced to more than four years behind bars and he will pay $1.55M in restitution for targeting military veterans in a $1.8M hedge fund fraud. Cohn is an ex-US Marine. He pleaded guilty to the criminal charges against him.

Cohn is accused of pretending to be a successful hedge fund manager to persuade clients to invest with his Marketaction Capital Management. Of the over $1.8M that was invested,he lost more than $1.5M and spent at least $400K on his luxury lifestyle and business investments.

The US Securities and Exchange Commission had brought civil charges against him in 2013 when they accused Cohn of soliciting investors through his Veterans Financial Education Network. The non-profit was supposed to help veterans handle their money. Instead, he diverted some of their funds toward himself. The regulator stayed its case against him following the federal indictments. Now, the civil fraud charges will proceed.

Deutsche Bank Fined $630M Over $10B in Bogus Trades That May Have been Tied to Russian Money Laundering

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

Deutsche Bank AG will pay UK and US regulators $630M in fines to settle allegations that it did not stop approximately $10B in suspect trades that may have involved laundering money out of Russia. The trades at issue were mirror trades between the German lenders offices in New York, London, and Moscow. They took place between ’11 and ’15.

It was during this time that Russian blue chip stocks were purchased in rubles for clients and sold in the same amount of stocks at the equivalent price through Deutsche Bank’s London office soon after. As a result, reports The Guardian, funds were transferred through the bank to accounts abroad, including in Latvia, Estonia, and Cyprus.

Deutsche Bank is accused of not getting information about customers that took part in the mirror trades. As a result, the bank’s DB Moscow executed over 2400 pairs of mirror trades. Sellers were registered in locations offshore. Shares in Russian companies were paid for in rubles, the sellers were paid in dollars.

Securities Fraud Cases: Ex-Jefferies Bond Trader is Convicted Again, RBS Puts Aside $3.92B for Expected Mortgage-Backed Securities Fraud Settlement, and Judge Won’t Overturn Jury’s Findings In Miami Municipal Bond Fraud Case

Published on: January 29, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Another Jury Finds Ex-Jefferies Group Trader Guilty of RMBS Fraud
A federal jury has convicted Jesse Litvak of one count of securities fraud. The ex-Jefferies Group LLC (JEF) bond trader was tried again on allegations that he bilked customers of $2M when he inflated the prices that he claimed he paid for residential mortgage-backed securities. As a result of his claims, professional investment managers and hedge funds paid too much for bonds.

Another jury had found Litvak guilty of fraud two years ago. However, in 20015, a federal appellate court dismissed parts of the RMBS fraud case against him. The securities fraud charges were retried before a new jury.

During this trial, prosecutors claimed that Litvak’s customers had totally relied on him for bond pricing information. His legal team, however, argued that his customers were sophisticated investors and did what they wanted regardless of his advice.

SEC Cases: Citigroup to Pay $18.3M for Overbilling Clients, Strategic Capital Management is Banned Following $1.3M Cherry Picking Scam, & 10 Investment Advisory Firms Settle Pay-to-Play Violation Charges Involving Pension Fund Fees

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

Citigroup is Accused of Overcharging At Least 60 Investment Advisory Clients
Citigroup Global Markets (C) will pay $18.3M to resolve Securities and Exchange Commission charges accusing the firm of overbilling clients and misplacing client contracts. According to the regulator’s order, at least 60,000 investment advisory clients were overcharged about $18M in unauthorized fees because Citigroup did not confirm the accuracy of the billing rates in its computer systems compared to the fees noted in client contracts and other documents. The firm also purportedly improperly collected fees even when clients suspended their accounts. The SEC says that the billing mistakes took place over a 15-year period.

The regulator also contends that the investment advisory firm has been unable to locate about 83,000 advisory contracts. Their absence made it impossible for Citigroup to correctly validate whether the fees that clients were billed are the same ones that they negotiated.

The SEC believes that affected clients paid Citigroup about $3.2M in excess fees.

JPMorgan and Schwab Are Sued in 401(K) Lawsuits

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

Participants in JPMorgan Chase & Co.’s (JPM) $21B 401(K) plan are suing the bank. The plaintiffs, who have filed a proposed class-action securities case, claim that the firm caused employees to pay excessive fees of millions of dollars.

According to the complaint, JPMorgan and a number of committee and board members were in breach of their fiduciary duties when they purportedly kept proprietary mutual funds that came from affiliate companies and the bank in the retirement plan for several years even though these options were almost identical to less expensive funds that were not only available but also were performing better.

The plaintiffs contend that during the class period at issue—from ’10-’15—about half of the investment choices in the retirement plan consisted of proprietary funds. They are accusing JPMorgan of keeping up business deals that were lucrative for the firm with BlackRock Institutional Trust Co. , which allowed BlackRock to inundate the 401(k) plan with its funds.

Windsor Street Capital Charged in Connection with Pump-and-Dump Scam

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

The US Securities and Exchange Commission has filed an administrative case against Windsor Street Capital and John D. Telfer, its ex-anti-money laundering officer. The regulator’s enforcement division claims that the New York-based broker dealer did not file Suspicious Activity Reports for $24.8M of suspect transactions, including those connected to an alleged pump-and-dump scam.

The regulator claims that Windsor Street Capital, at the time known as Meyers Associates LP, and Telfer should have been aware of the suspect circumstances involving a lot of these transactions and conducted a probe—in particular, into transactions involving William Goode and Raymond Barton. These men are microcap stock financiers accused of running a multi-million dollar pump-and=dump scam.

The SEC has filed separate charges against them, as well as against Kenneth Manzo, Matthew Briggs, and Justin Sindelman. The five of them are accused of acquiring shares of dormant shell companies that were supposed to be part of the dietary supplement industry, falsely marketing products and news related to the company, and then dumping the shares onto the market for investors to buy at inflated rates.

SEC Issues $7M Whistleblower Award

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

The US Securities and Exchange Commission is awarding $7M, to be split between the three whistleblowers who helped the regulator go after an investment scam. This latest whistleblower award, the second issued this year, ups the collective total that the SEC has granted to 41 whistleblowers to $149M.

Of the $7M, about $4M will go to the whistleblower who gave the SEC information that helped start the regulator’s investigation. The other two whistleblowers, who provided additional new information during the probe, will split the $3M.

To date, SEC enforcement actions resulting from whistleblower tips have led to over $935M in financial remedies. Whistleblowers who provide the tips that lead to successful enforcement actions resulting in at least a $1M remedy are eligible to receive 10-30% of the money collected. Because the SEC is committed to protecting the identity and confidentiality of whistleblowers, details from these enforcement cases that could reveal their identities are kept confidential.