Investor Lawyers Blog

Retiree Files $1M Securities Arbitration Claim Against Morgan Stanley

Published on: January 6, 2017 | by Shepherd Smith Edwards & Kantas, LLP

An investor who is retired and suffering from health issues is seeking $1M from Morgan Stanley (MS). The investor, a former inventor, claims that the broker-dealer did not properly supervise the financial adviser who handled his multi-million dollar account. He filed a Financial Industry Regulatory Authority claim and is accusing the firm of breach of fiduciary, negligence, unauthorized trading, excessive trading, fraudulent inducement, and significant tax liability.

The investor believes that over-concentation in risky sectors and over trading in too many individual stocks occurred, causing significant damage to his retirement funds. Among the investments that were involved were oil and gas investments, including Master Limited Partnerships. The claimant claims that Morgan Stanley hid the risks involved, even as the financial adviser engaged in a purportedly deceptive investment strategy. The result was that the investor’s account became heavily concentrated in risky investments.

The alleged broker negligence also purportedly caused tax consequences for the investor while benefiting Morgan Stanley with transactions costs of over $1M. The unsuitable taxable gains that were created by led to investment losses for the investor, even as the broker claimed that the investor’s account was profiting.

SEC Awards Whistleblower $5.5M

Published on: January 6, 2017 | by Shepherd Smith Edwards & Kantas, LLP

In its first whistleblower award this year, the Securities and Exchange Commission is awarding a tipster who worked for a company accused of wrongdoing and had gone directly to the agency with what he knew with $5.5M.

According to The National Law Journal, This is the first time since the SEC began granting whistleblower awards in 2013 that a whistleblower did not have to abide by rules established by the 2010 Dodd-Frank Act. Under those rules, whistleblower tips need to be submitted in writing by fax, mailed, or submitted through the regulator’s website in order for the person providing the information to be eligible for an award. This whistleblower, however, had started working with the Commission on the case before the tip could be eligible for the awards authorized under Dodd-Frank. This latest award means that the SEC has now awarded 38 whistleblowers a total of $142M.

Meantime, the Commission continues to take action against companies that retaliate against whistleblowers. Last month, the regulator announced that SandRidge Energy Inc. settled charges accusing it of using illegal separation agreements and taking retaliatory action against a whistleblower who had brought concerns to the oil and gas company’s attention regarding the way that reserves were calculated. SandRidge is not denying or admitting to the SEC’s findings. It will, however, pay a $1.4M penalty.

Ex-Jefferies Group Bond Trader Gets Another Trial in RMBS Fraud Case

Published on: January 3, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Jesse Litvak, a former Jefferies Group LLC (JEF) bond trader, is scheduled to go on trial again. It was just two years ago that a jury found him guilty of fraud when he misled customers about the price he paid for residential mortgage-backed bonds.

The criminal charges against him were originally brought by the US attorney’s office in Connecticut three years ago. Prosecutors accused him of bilking customers of $2M when he inflated the prices of what he’d actually paid for the bonds. Because of purported misstatements, professional investment managers and hedge funds overpaid for the residential-mortgage-backed bonds. Meantime, Litvak allegedly made $100K more for his firm for every transaction than was disclosed to his customers.

The jury, in 2014, found that Litvak violated securities laws and they found him guilty on 15 criminal counts, including multiple counts of securities fraud. Litvak had pleaded not guilty to all of the charges. He was then sentenced to two years in prison and ordered to pay a $1.75M.

Halliburton to Pay $100M to Settle Securities Fraud Class Action Lawsuit Originally Brought in Dallas

Published on: January 2, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Halliburton Co. (HAL.N) has agreed to settle a securities fraud class action case for $100M. The case, brought in Dallas, accuses the oil field services providers of misrepresenting its possible liability in asbestos lawsuits and the benefits it expected from certain construction contracts, as well as a merger from nearly twenty years ago.

Lead plaintiff Erica P. John Fund Inc. filed the complaint in 2002 after the US Securities and Exchange Commission began investigating Halliburton’s accounting for revenue made from certain construction projects. The securities case accused the company of misleading investors when it purportedly understated its liabilities in the asbestos cases, overstated revenue from construction, and inflated the benefits of the Halliburton-Dresser Industries merger.

Former US Vice President Dick Cheney, who was chief executive of the company during the period at issue, settled the regulator’s charges against him for $7.5M in 2004. However, the lawsuit against the company has gone on for years.

Refusal to Testify Before Finra Over Securities Allegations Lead to Industry Bars for Former Merrill Lynch, RBC Capital Markets, and JP Morgan Brokers

Published on: January 2, 2017 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory has barred a broker who worked at Merrill Lynch for almost half a century from the securities industry. Louise J. Neale left the broker-dealer and voluntarily ended her registration with the firm last year during an internal probe about her supervisory performance involving fund transactions. She later refused to testify about her resignation before FINRA. This is a violation of the self-regulatory organization’s rules and was immediate grounds for the industry bar. Although Neale worked at Merrill since 1968, it wasn’t until 2003 that she became a registered representative and later a supervisor.

In an unrelated case, FINRA barred another ex-broker for violating firm policies after he, too, refused to testify about the allegations in front of the SRO. John Simpson worked at RBC Capital Markets from 3/2009 to 2/2016. He was let go by the firm for violating its policies about discretion related to client accounts.

Meantime, FINRA has barred two ex-JP Morgan (JPM) brokers. One of the brokers, Brian Alexander Torres, had only been in the securities industry for two months when he was fired by the broker-dealer. Torres admitted that he misappropriated funds from the firm’s affiliate bank. Finra asked Torres for information and documents, but he would not provide them nor would he testify.

SEC Cases: IT Specialist Settles Insider Trading Charges For Over $375K, San Francisco Firm Pays $80K for Unregistered Swaps Sales Involving Pre-IPO Companies, and EB-5 Fraud Cases Lead to Settlement for Florida Businessman and Civil Charges For California Lawyer

Published on: December 31, 2016 | by Shepherd Smith Edwards & Kantas, LLP

IT Specialist Accused of Hacking Expedia Executives and Insider Trading

The U.S. Securities and Exchange Commission has filed civil insider trading charges against Jonathan Ly, who worked as a technology specialist for online travel company Expedia. According to the regulator, Ly hacked senior company executives and traded on company secrets ahead of nine announcements between 2013 and 2016.

As a result of his alleged insider trading, Lyn made almost $350K in profits. To settle the SEC case against him, Ly will pay over $348K of disgorgement and more than $27K in interest. This is a deal that still has to be subject to court approval.

Meantime, the U.S. Attorney’s Office for the Western District of Washington has filed parallel criminal charges against Ly.

$335M Mortgage-Backed Securities Settlement for PSERS, Other Institutional Investors is Approved in Class Action Lawsuit Against Bank of America

Published on: December 30, 2016 | by Shepherd Smith Edwards & Kantas, LLP

US District Court Judge William Pauley III has approved a $335M settlement in a securities fraud case against Bank of America (BAC). This one of the largest class action settlements involving securities buyer claims related to the 2008 financial crisis. Among the investors that will be able to avail of the settlement are the Pennsylvania Public School Employees’ Retirement System (PSERS), the Anchorage Fire and Police Retirement Fund, the Arkansas Teacher Retirement Fund, a number of asset managers, and two trade unions.

PSERS served as lead plaintiff for those that purchased the bank’s common stock or common equivalent securities on a US public exchanges and later sustained losses between 2/27/09 through 10/19/10. According to a PSERS Spokesperson, the Pennsylvania retirement plan lost approximately $8M of its holdings with Bank of America.

The mortgage-backed securities case accused Bank of America of misleading investors about the position it took in MBSs and of hiding debt. They also claim that the bank compelled them to purchase Bank of America stock that was sold to pay back $45B of federal bailout funds from TARP. The plaintiffs alleged that the bank was aware that it could not raise enough capital to avoid TARP restrictions on executive salaries if it were to disclose that it might have to buy back billions of dollars of securities that were backed by high-risk loans.

Securities Fraud: Two Indiana Men Are Charged with Running Ponzi Scam, NY Investment Adviser Gets Five-Year Prison Sentence for $1.725M Scam, and Illinois Investment Firm Owner is Ordered to Pay $270K in Restitution

Published on: December 29, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Two Men Are Accused of Scamming Indiana Investors in More than $3.5M Ponzi Scam
Prosecutors are charging two Indiana men with securities fraud involving a Ponzi scam. They claim that Richard E. Gearhart and his business partner George R. McKown sold securities to investors who moved their annuities, pensions, cash, and 401ks to invest in Asset Preservation Specialists Inc. The investors were purportedly promised a guaranteed return rate.

The authorities say that McKown and Gearhart were not registered with the state of Indiana or the Securities and Exchange Commission to sell these securities.

It was in 2013 that a number of Gearhart’s clients filed complaints against him after he filed for Chapter 13 federal bankruptcy. They contended that their losses collectively totaled over $2M. Court records, however, indicate that the two men allegedly stole over $3.5M from over two dozen investors. between ’08 and ’13.

Braskem, Teva Pharmaceutical, and General Cable Corp. Settle FCPA Charges for $957, $519M, and $75M

Published on: December 29, 2016 | by Shepherd Smith Edwards & Kantas, LLP

A Brazilian-based petrochemical maker that trades its stock in US markets has arrived at a $95M global settlement with the US Securities and Exchange Commission, the US Justice Department, and authorities in Switzerland and Brazil. Braskem SA is accused of violating the Foreign Corrupt Practices Act and generating fake books and records to hide millions of dollars in bribes that it allegedly paid government officials in Brazil for the purposes of either keeping or winning business.

Braskem is accused of making about $325M in profits because of these purported bribes that were made via intermediaries and off-book accounts run by its biggest shareholder. The SEC believes that the petrochemical manufacturer lacked the internal controls to stop it from executing these bribes, which allegedly occurred over eight years.

As part of the settlement, Braskem will pay $325M in disgorgement—$65M of that will go to the SEC and $260 will go to authorities in Brazil. Another $632M will go toward criminal penalties and fines. Braskem will have to work with an independent corporate monitor for a minimum of three years.

UBS Broker is Fired Over Outside Business Activities

Published on: December 28, 2016 | by Shepherd Smith Edwards & Kantas, LLP

UBS Financial Services (UBS) has terminated the employment of Connecticut broker Phil Fiore Jr. The broker-dealer says that even while Fiore was under heightened supervision he did not tell the firm about his outside business activities.

UBS contends that he violated firm policies, such as not disclosing that he was serving as an unpaid director for a not-for-profit entity affiliate, along with a client, as well as not obtaining internal approval to create blog posts, failing to obtain approval to run a charity golf tournament, and not disclosing that a new client had invested in his outside business.

Fiore, who was let go in November, had been a top UBS broker and was rated as a leading adviser in Connecticut. He’d worked at UBS since 2009 and was a senior VP. Previously, he’d been employed with Merrill Lynch.