Investor Lawyers Blog

SEC Cases: Man Who Claimed to Be Real Estate Manager to Pay over $500K and Fuel Cell Company Executives Face Criminal and Civil Charges Over Investor Fraud

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

Arizona Man to Pay $500K To Settle SEC Fraud Charges
James P. Toner will pay over $500K to settle charges accusing him of taking investors’ money. The Arizona man claimed to be a real estate manager and allegedly told investors that he would be personally managing three real estate ventures in which they were buying interests. The stated purpose of every investor’s offering was to buy a residential property in the Phoenix area. The property was to be renovated and then sold at a profit.

According to the SEC’s securities fraud complaint, Toner raised at least $915K from 18 investors from mid-’13 through ’14. The investors lost about $682K. Toner is accused of misappropriating about $51K of investor money that he purportedly tried to hide through bank account transfers. (The regulator’s complaint stated that Toner was paid $31K in undisclosed management fees even though he never actually managed the offerings, and that he flat-out stole $20K from an investor.)

Toner also purportedly did not perform any due diligence when he entrusted a real estate broker to manage the investments. This broker was later sent to jail for other crimes.

Self-Dealing Allegations: New York Life Settles 401(K) Case for $3M & Lawsuit Against T. Rowe Price Claims Plan Participants Paid $27M More in Fees

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

New York Life Settles Self-Dealing Allegations
New York Life Insurance Company has settled a 401(K) lawsuit accusing the company of self-dealing in its 401(k) plans. The case involved a MainStay-branded S&P 500 index mutual fund that plaintiffs believe was retained out of the insurer’s self-interest even as participants saved less money than they would have if they had been able to invest in non-proprietary funds that were less expensive.

The lawsuit alleged that class members had paid about $3.9M in excessive fees. The plaintiffs accused the mutual life insurer of committing breach of fiduciary duty under ERISA.

New York Life and its subsidiaries own and run the MainStay funds.

Texas Securities Fraud Leads to Expulsion for Red River Securities and $24.M in Investor Restitution

Published on: February 16, 2017 | by Shepherd Smith Edwards & Kantas, LLP

A Financial Industry Regulatory Authority hearing panel has expelled a Plano, Texas-based brokerage firm from the industry, barred its CEO, and ordered both of them to pay customers $24.6M in restitution. Red River Securities LLC and Brian Keith Hardwick are accused of engaging in fraudulent sales involving five oil and gas joint ventures. Of the more than $25M that customers invested in the oil and gas offerings, they were paid distributions of under $500K in total.

According to the Texas securities case, the regulator claims that over a four-year period, Hardwick and the Texas brokerage firm purposely and fraudulently misrepresented and left out material facts related to interests in oil and gas joint ventures that were issued by affiliate Regal Energy LLC issued. Also, contends the SEc;

· The oil and gas ventures failed to properly represent how much income was distributed to investors in other Regal Entity joint ventures.

Securities Cases: LPL Financial Fined $900K for Record-Keeping Issues, NY-Based Broker Deal to Pay $100K for Trading Surveillance and Compliance Failures, and Private Equity Adviser is Barred Over Improper Fund Withdrawals

Published on: February 15, 2017 | by Shepherd Smith Edwards & Kantas, LLP

FINRA Fines LPL Financial $900K

The Financial Industry Regulatory Authority has fined LPL Financial (LPLA) for either not sending or failing to create records showing that it had sent over 1.6 million mandatory account notices to customers over a 36-month period. Under industry rules, account notices have to be sent to customers at three-year intervals which is when a determination of suitability is evaluated. FINRA said that LPL did not send more than 25% of such written notices over a period of seven years.

The financial firm accepted the self-regulatory organization’s settlement but is not denying or admitting to the findings. However, an LPL Financial spokesperson said in an email that the firm had self-reported the matter and was committed to “enhancing” structures for compliance and risk management.

Morgan Stanley to Pay $8M To Settle Exchange Traded-Fund Investment Charges

Published on: February 14, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Morgan Stanley Smith Barney (MS) has consented to pay a penalty of $8M to resolve Securities and Exchange Commission charges accusing the firm of wrongdoing involving single inverse exchange-traded fund investments. Morgan Stanley admitted wrongdoing as part of the settlement.

According to the SEC’s order, Morgan Stanley failed to adequately put into place procedures an policies to make sure that clients comprehended the risks involved in buying inverse ETFs and did not procure signatures from several hundred clients on a client disclosure notice that stated that these ETFs are usually not suitable for investors intending to keep them longer than a trading session unless the securities are part of a hedging or trading strategy.

Morgan Stanley persuaded investors to buy single inverse ETFs in accounts, including retirement accounts. Securities were held-long term. As a result, many of these advisory clients suffered losses.

CFTC Orders Citigroup to Pay $25M for Spoofing, Supervisory Failures

Published on: February 13, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Citigroup Global Markets Inc. (C) has been ordered to pay $25M penalty by the U.S. Commodity Futures Trading Commission to settle charges alleging spoofing in US Treasury futures markets. The regulator is also accusing the firm of not doing a diligent enough job of supervising agents and employees that were involved with the spoofing orders, which purportedly took place between 7/16/2011 and 12/31/2012.

Spoofing

Spoofing involves a trader making an offer or bid but with the intention of calling off the bid or offer before it actually goes through. According to the CFTC’s order, through five traders, Citigroup took part in spoofing over 2500 times in different Chicago Mercantile Exchange (CME) U.S. Treasury futures products. The spoofing strategy purportedly applied involved making offers or bids of at least one thousand lots but with no intention of allowing them to be executed.

Securities Fraud: Prison Sentence Issued in $39M Ohio Penny Stock Scam, SIPC Warns About Fraud Invoking Its Name, & Investors Sue Banc of California

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

Eight People Implicated in $39M Penny Stock Fraud Get Prison Sentences, Must Pay Restitution
In Ohio, eight people were sentenced to prison terms ranging from almost two years to a dozen years for their involvement in a penny stock scam that caused investors to suffer $39M in losses. One of the defendants, Zirk de Maison, received the 12-year sentence. He was ordered to pay $39.1M in restitution. The other defendants also were ordered to pay restitution in lower amounts.

According to prosecutors, the defendants conspired to bilk investors and potential ones in a number of public issuers. They did this by putting out millions of shares and artificially controlling the price and volume of the shares that were traded. This was accomplished through undisclosed commissions paid to brokers, boiler room operators, and promoters who got investors to invest, as well as through the fraudulent concealment of ownership interests in the companies in which the funds were invested.

In some instances, brokers and ex-brokers were paid illegal kickbacks of sometimes up to 50%. Clients were not told of these payments. The co-conspirators used most of investors’ money to enrich themselves. Some of the defendants were boiler room owners.

Ex-Financial Adviser To Mike Tyson, Glen Rice, and Dikembe Mutombo Pleads Guilty to Criminal Fraud

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

Brian J. Ourand, a former Live Nation Entertainment and SFX Financial Advisory Management Enterprise executive, has pleaded guilty to wire fraud. Ourand admitted to embezzling almost $1M from heavyweight champion Mike Tyson, NBA basketball stars Glen Rice and Dikembe Mutombo, and another athlete.

According to prosecutors, Ourand began defrauding clients in 2003. They say that he used the funds to pay for hotel stays, tanning sessions, gambling activities, private school tuition for a girlfriend’s relative, and other expenses.

Ourand was charged in 2015 with multiple criminal counts, including wire fraud, mail fraud, and aggravated identity theft. As part of his plea agreement, the former financial adviser will repay the money he stole from the athletes.

SEC Charges Connecticut RIA with $3.95M Fraud, Ex-Morgan Stanley Financial Adviser with $5M Securities Scam

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

The Securities and Exchange Commission has filed fraud charges against Sentinel Growth Fund Management and its owner Mark J. Varacchi. The regulator is accusing the Connecticut-based investment advisory firm of stealing at least $3.95M from investors. Over $1M was allegedly used to resolve private litigation in which Varacchi was the defendant.

According to the Commission, Sentinel Growth Management Fund and Varacchi misrepresented to investors that their money would go to hedge fund managers to be invested. Instead, the investment advisor firm allegedly commingled investor money and manipulated account balances, activities, and investment returns as part of a securities fraud.

Now, the SEC wants disgorgement and penalties brought against Varacchi and his firm in this investment advisor fraud case.

Benchmark Fixing: Former Deutsche Bank & Barclays Traders Plead Not Guilty to Euribor Rigging and Royal Bank of Scotland Will Pay $85M Penalty to Settle US ISDAFIX Manipulation Allegations

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

In London, six traders have pleaded not guilty to charges accusing them of trying to rig Euribor, which is the Brussels-based equivalent of the London Interbank Offered Rate (Libor). Euribor is key in establishing the rates on financial contracts, loans, and other financial products around the world.

The defendants include former Deutsche Bank (DB) trader Christian Bittar, current Deutsche trader Achim Kraemer, and former Barclays (BARC) traders Philippe Moryoussef, Colin Bermingham, Carlo Palombo, and Sisse Bohart. They are charged with one count of conspiracy to defraud through the making or obtaining of false or misleading Euribor rates in order allegedly enhance trading profits.

The criminal charges are related to a probe by the Serious Fraud Office. Five other traders from Deutsche Bank and Societe Generale were previously charged.