Investor Lawyers Blog

Ex-Hedge Fund Manager Pleads Guilty to $9M Investment Scam that Defrauded Investors Nearing Retirement

Published on: May 18, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Tamer Moumen, an ex-hedge fund manager, has pleaded guilty to wire fraud. He now faces up to 20 years in prison for a $9M investment.

Moumen defrauded over 50 investors. Many of his investors were close to retirement age. He advised dozens of them to liquidate retirement accounts, among other investments, and let him handle their funds.

Moumen used their funds to support his own spending, including the purchase of a $1M home, and also to pay back earlier investors. Moumen claimed to manage tens of millions of dollars through Crescent Ridge Capital Partners. He told clients he was a successful trader even though he lacked experience managing hedge funds and had lost money investing in securities before.

Ex-Nomura Head Traders Charged With Securities Fraud

Published on: May 18, 2017 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission is charging two-ex Nomura (NMR) head traders with fraud. Kee Chan and James Im ran Nomura Securities International Inc.’s commercial mortgage-backed securities desk. The regulator claims that they purposely lied to customers to inflate profits for themselves and the firm. As a result, said the SEC, the two of them made an additional over $750K in trading profits for the desk. They received healthy bonuses as a result.

Commercial Mortgage-Backed Securities
CMBSs are asset-backed securities that have commercial real estate loans as their underlying assets. These debt obligations are often called bonds. CMBSs are illiquid securities.

According to the Commission, while serving as trade intermediaries with customers seeking to sell and buy CMBSs on the secondary market, Im and Chan made it seem as if they were working out bond purchases with a third-party seller at more than what Nomura paid to obtain the bonds. Im even allegedly told a customer that he had sought to deceive on purpose. Meantime, Chan is accused of modifying a customer email to protect his lie regarding a bond’s bid price.

Hedge Funds and Pensioners Scramble For Debt Payment Owed To Them By Puerto Rico

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

In the wake of Puerto Rico’s bankruptcy filing, hedge funds are competing with the U.S. territory’s workers to get paid. The island has guaranteed retirees and workers $49 Billion in benefits. However, the federally appointed oversight board expects that it will have to cut pension costs by 10%.

Even worse for bondholders, they could get less than 25% of what bondholders are owed. This is true even for bondholders with General Obligation debt, which was supposed to have been constitutionally guaranteed. Creditors that own COFINAs, Puerto Rico sales tax bonds, are being offered up to 58 cents on the dollar should the territory’s finances get better. Both sides will appear in federal court in San Juan Puerto Rico in an attempt to try to work out a deal.

It was just recently that Puerto Rico’s oversight board submitted for Title III bankruptcy protection to help lower Puerto Rico’s $74 Billion of debt and deal with the Commonwealth’s pension crisis. Under Title III, the island can make pension recipients accept reduced benefits.

Court Upholds Ambac Assurance to Higher Burden of Proof in MRBS Fraud Case Against Countrywide

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

In Manhattan appeals court, a panel for the Appellate Division, First Department ruled that Ambac Assurance Corp. must prove all common law fraud elements in its mortgage-backed securities case against Countrywide Home Loans. The insurer, which underwrote 17 residential mortgage-backed securitizations, filed its RMBS fraud lawsuit against Bank of America’s (BAC) Countrywide in 2010.

Bank of America purchased Countrywide in 2008. That same year, the bank settled civil fraud charges related to questionable mortgage practices from before the 2008 financial crisis by agreeing to pay $16.65B to state and federal authorities.

According to the RMBS fraud case, Ambac put out insurance policies that were irrevocable and without conditions when it guaranteed a number of principal payments plus interest to investors that backed Countrywide RMBSs. The financial guaranty insurer is now accusing Countrywide of breaking warranties and contractual representations involving securitizations and its business practices, as well as of putting out false statements about its loans and operations and, as a result, fraudulently compelling Ambac to issue certain policies.

Ex-Essex Holdings CEO Gets 15 Years For $33M Ponzi Scams

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

A district court judge has sentenced Navin Shankar Subramaniam Xavier, formerly the CEO of Essex Holdings Inc., to 15 years behind bars because of his involvement in two fraud scams. Xavier pleaded guilty to two wire fraud counts in January.

He ran Essex Holdings from 9/2010 through 5/2014, raising over $30M from almost 100 investors who bought promissory notes that were supposedly for investments in shipping, sugar transportation, and iron ore mining in Latin America. Xavier used forged paperwork, including a bogus financial statement. He promised return rates to get prospective customers to participate. He used most of the funds for his and his wife’s expenses, including luxury cars and jewelry, cosmetic surgery, and wedding bills. He also used newer investors’ funds to pay earlier investors until the Ponzi scam failed. According to evidence brought to court, investors lost more than $29M.

In a separate fraud, Xavier used the company to secure $1.2M in payments and about $1.5M of commercial real estate from the South Carolina Coordinating Council for Economic Development (SCCCED). These were supposed to go toward developing an industrial property into a rice packaging facility and a diaper plant. Documents submitted in court indicate that the defendant gave the SCCCED fake financial documentation so the contract would go to him. He also provided other fake financial paperwork, including bogus contractor invoices, so he would get paid. He again used a chunk of the funds for his own living expenses.

Insider Trading: SAC Capital Advisors Settles with Investors, Former Portfolio Manager Seeks New Trial, and Jury Convicts Ex- MLB Player

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

Ex-SAC Capital Advisors LP Portfolio manager Mathew Martoma is asking for another trial. Martoma is serving nine years behind bars after he was convicted for insider trading in Wyeth LLC and Elan Corp. stock based on illegal tips and making $275M in the process. He believes his conviction should be overturned because of a ruling issued by the US Supreme Court last year.

The Supreme Court case involved a man accused of engaging in insider trading after his brother-in-law, a former Citigroup (C) investment banker, gave him the illegal tip. The nation’s highest court upheld the conviction against Bassam Salman in a unanimous ruling. The justices said that a person could be convicted for sharing insider tips with a friend or relative regardless of whether or not there was a profit for the tipper.

Martoma is accused of obtaining confidential information from two physicians involved in clinical trials for an Alzheimer’s drug. His defense attorney is contending that the prosecution did not bring enough evidence to demonstrate that the person who tipped Martoma shared the information because he was paid money. The lawyer also claims that instructions the jurors received were flawed because they allowed for a conviction on the grounds of the promise that the tipper was motivated by the possibility of friendship instead of because of a preexisting personal connection. Prosecutors are arguing that the financial relationship between Martoma and one of the physicians, who testified that he was paid $1K/hour for consulting with Martoma, was sufficient to support the earlier conviction.

Texas Securities Fraud Cases by Investment Promoters Lead to Civil and Criminal Charges

Published on: May 11, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Two investment promoters are accused of running an advance fee scheme from what they claimed was a Dallas-based investment advisory firm. According to an Emergency Cease and Desist Order entered by the Texas Securities Commission, the Mark Diaz and Raymond Hill offered to buy investors’ stock under the condition that those selling would have to cover transaction costs. The two men promoted their alleged Texas-based securities fraud through social media, bogus websites, forged documents, and supposed IRS affiliations.

Two websites they set up had names similar to Cain Capital LLC, which is a firm that is actually registered with the SEC. According to the Texas regulator, one of the bogus websites directs visitors to a regulator filing that the real Cain Capital submitted to the SEC, as well as to that firm’s Twitter and Facebook pages.

Both sites and the social media accounts are not connected to Cain Capital in anyway. The two men are accused of sending unsolicited email that included documents with Cain Capital’s name in the letterhead to prospective investors.

Hedge Funds Under Investigation Over Bond Valuations

Published on: May 11, 2017 | by Shepherd Smith Edwards & Kantas, LLP

According to Bloomberg, US prosecutors are conducting a criminal probe into whether hedge funds inflated the value of bonds to enhance the fees they were paid. Sources told the news media outlet that prosecutors want to know whether hedge funds solicited fake price quotes from brokers, which would have let the funds artificially raise the value of illiquid securities in their portfolios.

Just this week, a witness in the residential mortgage-backed securities fraud criminal trial against three ex-Nomura Holdings Inc. traders—they are accused of lying about RMBS prices to clients—stated under oath that he had given a Premium Point Investments LP trader fake quotes. The witness, ex-broker Frank DiNucci Jr., claims that two of the defendants, Michael Gramins and Ross Shapiro, are among the ones that trained him to lie to customers about bond prices. DiNucci, who pleaded guilty to fraud and conspiracy and making misrepresentations,previously worked at Nomura. He also worked at Auriga USA LLC and AOC Securities LLC.

Because certain securities are hard to price, hedge funds depend on brokers and third parties for estimates and quotes to determine how to value debt. Holding artificially inflated securities in the portfolios can allow a hedge fund to tout a better performance and get paid more for performance and management fees. It also allows them to conceal when some holdings do poorly.

SEC Cases: Barclays Will Pay $97M for Overcharging Clients, Regulator Accuses Ex-Staffer of Securities Fraud, Whistleblower is Awarded Over $500K, and Two Chinese Citizens Face Penny Stock Scam Allegations

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

Barclays Must Pay Back Sales Charges, Advisory Fees
The US Securities and Exchange Commission announced that Barclays Capital (BARC) has settled securities charges accusing the firm of overbilling clients. As part of the resolution, which includes paying over $97M, Barclays must pay back advisory fees and mutual fund sales charges to clients that were affected. The firm is settling without denying or admitting to the SEC’s findings.

The SEC’s case involved three sets of violations resulting in almost $50M in client overcharges. According to the Commission, two of Barclays advisory programs charged over 2,000 clients for services that were not conducted as presented. Meantime, 63 broker-dealer clients paid too much in mutual fund sales charges or fees because Barclays recommended that they purchase more costly share classes even though there were less expensive ones available. Also, over 22K accounts paid Barclays excess fees because the firm made billing mistakes and miscalculations.

Ex-SEC Staffer Accused of Securities Fraud
The SEC has filed charges against David R. Humphrey, one of its ex-employees, for securities fraud related to trades that he made. Humphrey worked with the regulator from 1998 to 2014.

Securities Cases: Verto Capital Settles Life Settlement Charges, Couple File Broker Fraud Claim Against NY Life Securities, JCPenny to Settle Texas Class Action Lawsuit for $97.M, & Cetera Admits to Charging Investors More For Mutual Funds

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

Financial Firm and Its CEO Settle Life Settlement Fraud Charges
The US Securities and Exchange Commission announced that Verto Capital Management and its CEO William Schantz III have settled civil charges accusing them of running a Ponzi-like scam involving life settlements. As part of the settlement, Verto Capital and Schantz will pay over $4M.

According to the regulator’s complaint, the two of them raised about $12.5M through promissory note sales that were supposed to pay for the firm’s purchase and sale of life settlements. The notes were sold mostly through insurance brokers in Texas.

Investors who were religious were the main target of the alleged fraud.They were allegedly told that that the securities were short-term investments that were at low risk of defaulting.