Investor Lawyers Blog

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.

Connecticut Investment Bank Ordered to Pay Elderly Investors $1.25M & New Study Shows Older Investors With Mild Impairment May Be Vulnerable to Fraud

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

Source Capital Group Inc. must pay three elderly investors their full investment of $810K plus $147K in interest, as well as $250K in legal fees, in a securities arbitration case accusing one of the investment bank’s brokers of selling them unsuitable investments. William Lashlee and Joyce and Keith McCrea filed their elder financial fraud claim with the Financial Industry Regulatory Authority.

According to the retirees, the broker sold them stock in a health care tech start-up in 2012. Lashlee invested $220K while the McCreas invested $590K. Unfortunately, the start-up, iPractice Group, shuttered its business in 2013.

The claimants claim that Source Capital was negligent in supervising the broker who sold them the securities. Although the broker was assigned to the firm’s Bowling Green, Kentucky branch, the manager there was purportedly never notified that this particular financial representative was under his supervision.

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.

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.