Investor Lawyers Blog

Securities Cases: BlackRock Fund Advisers To Pay $1.5M Over ETF Violation, Wilson-Davis Resolves Market Structure Rule Violation Allegations, & CFTC Adds 71 Foreign Entities to RED List

Published on: April 30, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Asset Manager Accused of Operating ETF Without Necessary Exemption

The US Securities and Exchange Commission said that BlackRock Fund Advisors (BLK) will pay $1.5M to resolve charges accusing the asset manager of advising an exchange-traded fund to violate the Investment Company Act. BlackRock ran the Russia Fund ETF with out the necessary exemptive order from 12/2010 to 1/2015. The exemptive order is necessary because there are some ETF traits that would cause the fund and dealers to violate the Act were it not for having an order.

According to the Commission, BlackRock was notified in 2011 that the exemptive relief that had been issued to other investment companies that it advised could not be applied to funds that were organized separately. Despite knowing this, BlackRock is said to have kept running the ETF without the necessary exemption. It wasn’t until 2015 when, after more talks with the SEC, that the asset manager merged the Russia Fund ETF with another investment company that it advised. It could then apply another acquired exemptive relief to the Russia Fund ETF.

Securities Cases: Texas Woman Accused of Bilking 35 Investors, Ex-NJ Investment Adviser is Found Guilty of Fraud, and Insurance Agent Pleads Guilty in $8.2M Promissory Note Scam

Published on: April 30, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Grand Jury Indicts Texas Woman in $1M Ponzi Scam
A federal grand jury has indicted Nemelee Liwanag Jiao on two wire fraud counts for allegedly running a Texas Ponzi scam that cost investors over $1M. At least 35 investors were bilked.

According to the indictment, Jiao, a Texas resident, had investors back promissory notes that were supposedly issued by two non-profit schools in the Philippines when, in reality, she was using their money on herself. Jiao told investors she represented both Lord of Peace Learning Center and Shepherd’s Light Learning Center and she got them to invest their money in the promissory notes after promising 10-100% in returns. She also promised that they would get back their principle plus interest within 30-days to a year of investing.

The indictment against Jiao stated that she will have to forfeit all proceeds if convicted. She faces up to 20 years in prison for wire fraud, as well as a $250K fine.

Securities Crimes: Trader Jesse Litvak is Sentenced to Prison for MBS Fraud—Again, North Carolina Who Bilked NFL Players Will Serve Prison Time, and Ex-Stockbroker Gets Jail Time and Must Pay $3.5M to Investors

Published on: April 28, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Ex-Jefferies Trader Will Go to Prison for Mortgage-Backed Securities Fraud After All
Jesse Litvak, the ex-Jefferies (JEF) managing director, has once again been sentenced to two years in prison. Litvak was found guilty of mortgage-backed securities fraud in 2014 and sentenced to two years behind bars. The conviction at the time was for multiple securities fraud charges and for making false statements, as well as for defrauding TARP.

Claiming that expert witnesses hadn’t been able to testify for him, Litvak was able to get that sentence tossed. However, the US government continued to go after him and he was found guilty on one fraud count. Now, he has again been sentenced to two years in prions.

Litvak also must pay $2M because he lied about bond prices to a customer. (The earlier conviction had come with a $1.75M fine.) According to U.S. District Judge Janet C. Hall, Litvak’s victims only invested because he lied to them.

Securities Fraud: FINRA Bars Ex-UBS Broker, Imprisoned Former LPL Financial Broker Faces SEC Charges, and SEC Refiles Unregistered Securities Fraud Case

Published on: April 27, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Former UBS Broker is Barred form the Securities Industry

Ronald Broadstone, an ex-UBS (UBS) broker, has agreed to be barred from the securities industry. The Financial Industry Regulatory Authority is the one that brought the ban, accusing him of misusing and misappropriating customer monies, settling a customer case without telling his firm, and taking part in unauthorized trading.

According to the self-regulatory organization, Broadstone’s attorney testified that the former broker would not respond to more questions. His refusal to speak violated FINRA rule 8210.

SEC Insider Trading Cases Lead to Civil Charges, Frozen Brokerage Accounts, and Restitution

Published on: April 27, 2017 | by Shepherd Smith Edwards & Kantas, LLP

In a Securities and Exchange Commission case linked to parallel criminal charges, the regulator has filed insider trading charges against Avaneesh Krishnamoorthy, the risk management VP of a New York-based investment bank. Krishnamoorthy is accused of trading on confidential information prior to the acquisition of a publicly-traded tech company by a private equity firm. He allegedly made about $48K in illicit profits. Also charged as a relief defendant is his wife Shreya Achar.

According to the SEC, Avaneesh Krishnamoorthy began trading in Neustar Securities after learning that Golden Gate Capital was going to buy the company. He used two brokerage accounts that his employer didn’t know about. Golden Gate Capital had approached the investment bank about financing the acquisition.

Meantime, the U.S. Attorney’s Office for the Southern District of New York has filed its own case against Krishnamoorthy. He faces one criminal securities fraud charge.

FINRA Files Complaint Against Ex-Broker Over Variable Annuity Sales to Elderly Customers

Published on: April 26, 2017 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority has put out a disciplinary complaint against Walter Marino. The former broker worked for Legend Equities Corp. in Palm Beach Gardens, Florida at the time he allegedly facilitated variable annuities sales that were unsuitable for two of his older clients. According to the regulator, Marino recommended exchanges of non-qualified VAs to the customers without having reasonable grounds to guide them toward these investments.

FINRA said that Marino earned about $60K in commissions. Meantime, the customers lost over $82K because of surrender charges they were forced to pay and they did not benefit financially. Not only that but because Marino didn’t apply the tax-free exchange provision of the Internal Revenue Code, the customers ended up with substantial tax liabilities.

Now, the regulator wants Marino to disgorge his ill-gotten gains and pay the customers full restitution for the variable annuity fraud.

SEC Files Broker Fraud Charges Alleging Unsuitable Investments Involving Exchange Traded-Funds and Exchange Traded-Notes

Published on: April 25, 2017 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission has filed charges against broker Demitrios Hallas accusing him of making unsuitable investments in five clients accounts and misappropriating over $170K from these customers. The regulator is seeking a permanent injunction and the return of ill-gotten gains, along with interest and penalties.

According to the SEC, Hallas repeatedly traded investments that were not appropriate for these customers. In just over a year, the broker allegedly traded 179 daily leveraged ETFs and ETNs. both of which are generally “risky, complex, and volatile.” The net loss involving all positions was about $150K.

His customers were not experienced or sophisticated investors and they could not handle the degree of volatility and risk to which he exposed them. Meantime, Hallas made about $128K in fees and commission.

Whistleblower Awarded Almost $4M by SEC

Published on: April 25, 2017 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission has awarded almost $4M to an individual who gave the regulator specific details regarding “serious misconduct” and provided help, including “specialized” expertise and knowledge, during the agency’s probe into the allegations. In its release announcing the award, the SEC did not provided more details about the case because to do so might give away the identity of the whistleblower, which it always seeks to protect.

Since the SEC Whistleblower Program was established in 2011, the agency has awarded 43 individuals about $153M for voluntarily giving the agency useful and original information that ended up rendering a successful enforcement action Already, such actions stemming from whistleblower-provided information has resulted in over $953M in financial remedies imposed against those found to be have engaged in misconduct or other wrongdoing. Whistleblowers can be awarded anywhere from 10-30% of the money collected if that sum is $1M or greater.

As we mentioned, typically the identities of SEC whistleblowers are kept confidential. One of the reasons for this is so that the whistleblower is protected from professional or financial retaliation, especially if the individual blew the whistle on an employer.

Securities News: Deutsche Bank Fined $157M For Violating Volcker Rule, CFTC Charges Couple With Hedge Fund Fraud, & SEC Accuses Oil and Gas Promoter of Inflating AUM

Published on: April 21, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Federal Reserve Imposes First Fine to a Bank Over A Volcker Rule Violation
For violating the Volcker Rule’s ban on making risky market bets, Deutsche Bank (DB) must pay a $157M fine for not making sure its traders didn’t make such bets and for allowing its currency desks to engage in online chats with competitors, during which time they allegedly disclosed positions. It was just last year that the German lender admitted that it did not have sufficient systems in place to keep track of activities that could violate the ban.

Under the Volcker Rule, banks that have federal insured deposits are not allowed to bet their own funds. They also are supposed to makes sure that when their traders help clients sell and buy securities, they aren’t engaging in bet making.

For the system lapses, the Federal Reserve fined Deutsche Bank $19.7M. The remaining $136.9M fine is for the chats and because the bank purportedly did not detect when currency traders were revealing positions or trying to coordinate strategies with competitors.

Securities Fraud: Former Merrill Lynch Broker Admits to Bank Fraud of More than $8M, Theranos Investors Claim Company Threatened Bankruptcy if Sued, & Arkansas Retirement System’s Pension Fund Agrees to More than $28M Settlement

Published on: April 20, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Ex-Merrill Lynch Broker Pleads Guilty to Bank Fraud

Jeffrey Kluge, a longtime Merrill Lynch broker, has pleaded guilty to defrauding two banks of more than $8.7M. His bank fraud ran from 2001 through November 2016.

Kluge’s plea agreement said that he committed bank fraud by fabricating account statements under Merrill Lynch’s name and pledging fake collateral to the banks so he could set up multi-million dollar credit lines. For instance, in 2001 he was able to get a $150K credit line with Alliance Bank in Minnesota by telling the financial institution that he had enough municipal bond funds as collateral. In fake account statements he sent the bank as evidence of these bond holdings, Kluge concealed from Alliance Bank that he had already promised the assets in the accounts for loans from the firm.

In 2007, Kluge was able to get a $1M credit line from Platinum Bank, which is also in Minnesota. His bank fraud scheme defrauded Platinum Bank in a similar fashion.