Investor Lawyers Blog

$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.

SEC Files Microcap Fraud Cases Alleging Fake IPO-Related Penny Stock Sales

Published on: December 27, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. Securities and Exchange Commission is barring a number of market participants from the penny stock industry for their involvement in a number of purportedly fake initial public offerings of microcap stocks. The regulator says that investors were bilked because of these schemes.

Among those barred is Newport Beach, CA securities attorney Michael J. Muellerleile. He is accused of authorizing misleading and bogus registration statements that were employed in fake IPOs for several microcap issuers. The statements were generated to purportedly move unrestricted penny stock shares to offshore market participants. Muellerleile’s firm, M2 Law Professional Corp, attorney Lan Phuong Nguyen, and American Energy Development Corp. CFO Joel Felix are also charged in this microcap fraud case.

Nguyen allegedly signed misleading and false legal opinion letters. Felix is accused of making misleading and false statements. Earlier this month, the regulator suspended trading in American Energy Development.

Merrill Lynch, UBS, & Morgan Stanley Are Among Firms Ordered to Pay Investors Approximately $30M Collectively Over Puerto Rico Bond Fund Losses in 2016

Published on: December 26, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Even after more than three years since the Puerto Rico bonds and closed-end bond funds originally dropped in their initial value, many investors are still waiting to recoup losses they sustained from investing in these securities. Meantime, the U.S. territory continues to deal with its financial woes as it struggles to pay back its $70 billion of debt. At Shepherd Smith Edwards and Kantas, our Puerto Rico municipal bond fraud attorneys have worked hard this year in helping our clients, who are among the thousands of investors from the Commonwealth that suffered significant losses when the island’s securities plunged in value in 2013, in trying to recoup their money.

Below is a recap of some of the significant claims recovered for Puerto Rico investors this year that made the headlines:

A Financial Industry Regulatory Authority (FINRA) Arbitration panel ordered Morgan Stanley (MS) to pay a New Jersey widow over $95,000. Morrisa Schiffman accused the broker-dealer of making unsuitable recommendations to her, as well as of inadequate supervision and disclosure failures. Her FINRA Panel ultimately agreed.

Merrill Lynch was ordered to pay $780,000 in restitution to customers who invested in Puerto Rico closed-end bond funds and municipal bonds. FINRA found that the brokerage firm did not have the proper procedures and supervisory systems in place to ensure that all of the transactions were suitable for a number of these investors. Customers affected, in particular, are those with holdings that were heavily concentrated in Puerto Rico municipal bonds, as well as with holdings were highly leveraged via loan managed accounts or margin. FINRA said that from 1/2010 through 7/2013, 25 leveraged customers who had moderate or conservative investment objectives and modest net worths saw the securities they’d invested in sustain aggregate losses of nearly $1.2M. The customers had at least 75% of their assets in Puerto Rico securities that were ultimately liquidated to meet margin calls.

Ex-NY Pension Fund Portfolio Manager and Broker are Criminally Charged in Alleged $2B Pay-to-Play Scam

Published on: December 26, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Federal Prosecutors in Manhattan have filed criminal charges against Navnoor Kang, a former investment manager at the New York State Common Retirement Fund, and broker Deborah Kelley. The two of them are accused of directing over $2B in business to two broker-dealers in return for bribes, including money, expensive jewelry, cocaine, Paul McCartney concert tickets, prostitutes, and other lavish expenses. This is the latest “pay-to-play” scam involving the state’s pension fund, which is the third largest in the US.

Kang, who previously served as managing director at Sterne Agee Group Inc., allegedly accepted over $100K in bribes for purportedly leveraging his role as director of fixed income for the pension fund to send up to $2.5B in state business to Kelley and another broker, Gregg Schonhorn of FTN Financial Securities Corp. As a result of Kang sending this business their way, Kelley and Schonhorn made millions of dollars in commissions.

Schonhorn has already pleaded guilty to his involvement in the pay-to-play scam. According to prosecutors, in 2014, Schonhorn’s firm did $1.5M in business with the NY pension fund. By 2016, that figure was at over $2.3B. Kelly’s broker-dealer, meantime, went from having no business with the New York pension fund in 2014 to $179M in business this year.

Mortgage Fraud Settlements Reached With Deutsche Bank for $7.2B, Credit Suisse for $5.3B

Published on: December 24, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The US government has arrived at multibillion-dollar settlements with Credit Suisse Group AG (CS) and Deutsche Bank AG (DB) to settle allegations involving toxic securities. It also has filed a separate lawsuit against Barclays (BARC) over its alleged sales of toxic mortgage-backed securities.

In the Deutsche Bank case, the US Justice Department had sought $14B to settle allegations that the bank sold investors toxic mortgage securities. Now, the German lender will have to pay $3.1B immediately. It has promised to pay $4.1B over five years to a US consumer relief fund. However, Deutsche Bank remains under investigation by US and UK regulator over suspect trades involving Russian stock, foreign exchange rate rigging, precious metal-related price violations, and alleged violations of US sanctions against number of countries, including Iran.

In the settlement with Credit Suisse, the bank will pay a $2.48B penalty and $2.8B in relief to communities and homeowners impacted by the drop in home prices during the financial crisis. The consumer relief will be paid over five years.

Texas Ponzi Scams: Oil Co. Owner Is Indicted by a Federal Grand Jury, CEO of Texas First Financial is Charged in Internet-Related Fraud, and Texas REIT United Development Funding Remains in Trouble

Published on: December 24, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Texas First Financial CEO is Arrested For Fraud

Authorities have arrested Bobby Eugene Guess, an ex-Texas-based registered representative and the CEO and founder of Texas First Financial, for financial fraud. Guess promoted himself as a financial expert through financial seminars and radio promotions in the Dallas-Fort Worth area.

He is accused of running a Ponzi scam online involving two companies—StaMedia Inc., which is a Dallas company, and TenList Inc. According to the Texas State Securities Board, Guess was indicted for money laundering, securities fraud, theft, and taking part in organized criminal activity involving the multi-million-dollar sales of investments in an internet ad company.

Prosecutors contend that Guess and others sold $6M in investment contracts, stock certificates, and notes in Stamedia Inc. Also, he allegedly raised millions of dollars from Stamedia investors from ’14 to ’16 but did not disclose that the company’s net income and revenue were negligible. Investor funds were allegedly used to pay earlier investors the returns they were promised.

CFTC Orders Convergent Wealth Advisors Ordered to Pay $800K Securities Fraud Fine

Published on: December 23, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The Commodity Futures Trading Commission says that Convergent Wealth Advisors must pay a civil penalty of $800K related to a commodity pool run by its former CEO David Zier. Zier committed suicide in 2014. That was also the year that a regulatory probe was begun around the private fund ZAM LLC that Zier operated.

Convergent compliance personnel staff were the ones who noticed that there were inconsistencies in some ZAM performance reports and account statements. In its securities case, the CFTC said that from 12/2010 and until Zier’s passing, there were $2.9M in fraudulent solicitations involving the private fund.

According to the CFTC, Zier put out false statements and made fraudulent representations to clients about the pool, which he ran as an outside business activity while working as an agent for the registered investment adviser. Zier purportedly represented ZAM as profitable even though it had sustained significant losses. He also allegedly made up performance data, which he gave to investors, to hide the losses.