Investor Lawyers Blog

President-Elect Trump’s SEC Chief Pick Has Strong Ties to Big Banks

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

News that President-Elect Donald Trump has nominated Wall Street defense attorney Jay Clayton as the next of Securities and Exchange Commission Chair is causing worries that a person who has legally represented big banks may soon be in charge of the agency of the federal government that is tasked with regulating the securities industry.

For example, Clayton was the attorney for Goldman Sachs (GS) when billionaire Warren Buffet gave the firm a $5B capital infusion during the financial crisis of 2008. He also represented Barclays (BARC) when it acquired Lehman Brothers’ assets and he was the attorney for Bear Stearns when JPMorgan (JPM) bought the firm in a fire sale.

Clayton’s wife Gretchen is a Goldman Sachs wealth management advisor and broker. This means that Goldman, one of the firms that he is in charge of regulating, is also providing income to his family through her salary and any bonuses. Although Clayton will have to recuse himself when there are any enforcement rulings involving Goldman, he won’t have to in rulemaking decisions of “general application” that could impact the bank as long as other banks are also affected.

Hedge Fund Fraud: SEC Partially Overturns Ruling Against Investment Adviser But Raises Amount He Owes & Jury Selection Begins in Former Visium Fund Manager’s Bond Fraud Case

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

Ex-Visium Fund Manager on Trial for Bond Fraud
Jury selection is scheduled to begin this week in the criminal trial against Stefan Lumiere, an ex-Visium Asset Management LP portfolio manager. Lumiere, who managed the Visium Credit Opportunities Fund, is accused of falsely inflating the value of securities in a fund and committing bond fraud.

Visium Asset Management LP is a New York based-hedge fund. The $8B investment hedge fund shut down in 2016 after a criminal investigation that led to charges against a number of people, including Sanjay Valvani, who killed himself several months ago following allegations of insider trading.

According to prosecutors, from ’11 to ’13, Lumiere was among a number of people who conspired to bilk investors through the mismarking of securities’ values that were in a fund that invested in healthcare company-issued debt. The prosecution believes that the alleged misconduct caused the net asset value of the fund to be overstated by tens of millions of dollars monthly. Meantime, investors were fooled into thinking the bonds were very liquid even though they were illiquid.

Lumiere pleaded not guilty to securities fraud, conspiracy, and wire fraud charges last year.

SEC Charges NY-Based Brokers with Fraud, Excessive Trading

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

The US Securities and Exchange Commission is charging two brokers with securities fraud. The regulator claims that Donald J. Fowler and Gregory T. Dean fraudulently employed an in-and-out trading strategy that was not suitable for customers so that they could make more in commissions. Because of their actions, 27 customers alleged lost substantial amounts of money. Fowler and Dean are accused of violating the Securities Act of 1933 and the Securities Exchange Act of 1934, and Rule 10-B5.The Commission said that they examine trading patterns involving over two dozen of the brokers’ customer accounts.

The SEC contends that the two men did not engage in any due diligence to figure out whether their investment strategy could help customers obtain even the smallest profit. With their strategy, they engaged in the frequent purchase and sale of securities, which would both take place within a two-week or shorter timeframe. They charged customers a commission for every transaction. Meantime, Fowler and Dean were the only ones who had a chance of making a profit.

SEC Warns Investors to Look Out for Excessive Trading, Churning

Along with its announcement of this securities case, the SEC put out an Investor Alert cautioning the public about churning and excessive trading. In its alert, the regulator warned about red flags that may be signs of these types of fraud, including trading that a customer did not authorize, which is known as unauthorized trading, trading that happens more often than seems reasonable for a customer’s investment objectives and/or the level of risk that the portfolio can handle, and suspicious and/or unusually high fees.

Ex-MF Global CEO Jon Corzine Settles Securities Fraud Case Brought by the CFTC for $5M

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

Jon S. Corzine, the former head of MF Global Inc. has arrived at a securities settlement with the US Commodity Futures Trading Commission in which he will pay a $5M penalty for his involvement in the firm’s illegal use of nearly $1B in customer money and for not properly supervising the way these funds were handled. A federal judge has approved the deal.

The regulator sued Corzine in 2013 and he must now pay the civil penalty out of his own funds rather than have an insurer cover the costs. Also part of the deal, Corzine has agreed to a permanent bar from heading up a futures broker or registering with the CFTC. This means that he will no longer be allowed to trade other people’s funds in the future industry unless the trades are below specific threshold limits.

Corzine’s settlement with the SEC comes after he’d resolved most of the private litigation against him related to MF Global. Investors and the industry were flummoxed when the almost $1B in customer couldn’t be accounted for. Fortunately a trustee has since recovered the missing funds for the investors, which are both individuals and hedge funds, to whom the money belonged. The money, which were segregated customer funds, was inappropriately used to fund the futures commission merchant’s proprietary operations and that of its affiliates, pay FCM customers for withdrawals involving customer funds, and pay brokerage firm securities customers.

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.