Investor Lawyers Blog

SEC Bars Broker From Industry, Orders Her to Pay $4M for Inflating Firm’s Investment Performance to Bring In Rich Investor Clients

Published on: July 11, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission has barred broker Dawn J. Bennett from the securities industry. The regulator also ordered and her firm to pay over $4M in fines and disgorgement. The ruling was issued by an SEC administrative law judge.

According to the Commission, Bennett exaggerated her firm’s investment performance and assets under management so she could garner business from rich clients. Bennett is accused of promoting inflated assets to try to get high rankings on Barron’s top advisers list and using these rankings to retain new clients. She was named to that list three times as a manager who oversaw over $1B in client assets.

Bennett and her firm, Bennett Group Financial Services, purportedly claimed to be managing between $1.1B and $2B from at least ’09 through ’11 when, in reality, the firm never had more than $407M under management during that time period. The SEC, along with arbitration claims filed with FINRA, contend that at least two of her firm’s clients lost over $1M when they invested their funds with her.

Four Former Barclays Traders Get Prison Terms for Libor Rigging

Published on: July 9, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Four ex-Barclays (BCS) bankers who were convicted for conspiring to manipulate global benchmark interest rates have been sentenced to time behind bars for their crimes. The defendants and their prison terms are: Jay Merchant, for six-and-a-half years; Jonathan Mathew for four years; Peter Johnson for four years, and Alex Pabon for two years and nine months.

While Merchant, Mathew, and Pabon were convicted of their crimes, Johnson, a former senior dollar Libor submitter and the ex-head of dollar cash trading, pleaded guilty in the case against him in 2014. They all were charged with conspiracy to defraud involving Libor rigging to benefit their banks and one another as they defrauded others.

The judge who presided over the former Barclays traders’ case accused them of abusing their position, committing the offenses more than once over a significant period of time, and compromising the banking industry. All of the men will serve half their prison terms before being released on license.

The manipulation of Libor, the London interbank offered rate, and other benchmark interest rates led to a global probe that has resulted in hefty fines for the firms whose brokers colluded together to rig rates. In 2012, Barclays admitted that it let its derivatives traders rig Libor rates. The bank paid $450M to authorities in the US and Europe to settle charges. Collectively, the banks accused in the Libor manipulation scandal have paid billions of dollars in penalties. There have been at least 13 convictions.

Elder Financial Fraud News: Indiana, Vermont, and Alabama Add New Laws to Protect Older Investors, US House Votes Approval of Senior Safe Act, & Garden State Securities to Pay Damages to Older Clients

Published on: July 9, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. House of Representatives has voted to approve a bill that will hopefully encourage financial advisers to help stop senior financial fraud. The Senior Safe Act protects financial advisers and their firms from liability for violating privacy laws when they report suspicions or evidence of elder financial abuse.

The bi-partisan legislation, unanimously approved by house members, seeks to help financial institutions and their employees identify when a person may be the victim of exploitation. It also gives them the ability to report their suspicions without fear of liability. However, specialized training to help advisors identify and report such incidents would be required in order for immunity from liability to go into effect.

Also this month, laws were put in place in Indiana, Alabama, and Vermont mandating that financial advisers notify state authorities when they suspect that an elderly person or another vulnerable adult may be the victim of financial abuse. The new legislation lets advisers put a freeze on fund disbursements from a client’s accounts. It also gives them immunity from liability for reporting their suspicions.

Meantime, the Securities and Exchange Commission and the Financial Industry Regulatory Authority remain committed to their battle against elder abuse. FINRA has proposed a rule that, while it doesn’t mandate reporting of senior abuse, allows advisers to name a third party that could be notified if they suspect that a client is the victim of elder financial abuse. Also, in January, the North American Securities Administrators Association unveiled its NASAA Model Act to Protect Vulnerable Adults from Financial Exploitation.

Insider Trading News: Hedge Fund Managers Charged in $32M Scam, Ex-Software Executive and Friends Are Accused of Making Over $500K, and Broker and Friend Allegedly Illegally Traded in Pharmaceutical Stocks

Published on: July 8, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Hedge Fund Managers and an Ex-Government Official Face SEC Charges
The U.S. Securities and Exchange Commission has filed insider trading charges in a $32M insider trading scam. According to the regulator, hedge fund manager Sanjay Valvani unlawfully made almost $32M in profits for hedge funds that invested in healthcare securities because he was privy to insider tips given to him by Gordon Johnston, who used to work at the Food and Drug Administration.

Johnston was no longer at the FDA when he purportedly gave Valvani the insider information, he but still had ties with former colleagues who worked there. He had gone on to work for a trade association that represents generic drug distributors and manufacturers but hid that he also worked as a hedge fund consultant and had access to confidential information about expected FDA approvals for certain companies to be able to make enoxaparin, which is generic drug that helps stop blood clots from forming.

Valvani would then trade before announcements about these approvals became public. The SEC further contends that he would share his tips with hedge fund manager Christopher Plaford, who purportedly made about $300K by insider trading in hedge funds. Plaford also is named in a separate insider trading case.

Pharmaceutical Employee and Broker Accused of Insider Trading
The SEC says that two Rhode Island men made about $448K in illegal profits for themselves and others while insider trading in the stocks of certain pharmaceutical companies. Michael J. Maciocio, who used to work as a planner for Pfizer, used his access to confidential business and clinical information about other pharmaceutical firms that his former employer was thinking of acquiring, or of becoming involved in business relationships with, to trade in the other companies’ stocks.

Goldman Sachs Settles CDO Fraud Lawsuit Brought by Basis Yield Alpha Fund

Published on: July 7, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Goldman Sachs Group Inc. (GS) and Basis Capital’s Basis Yield Alpha Fund have reached an agreement to settle the $1B collateralized debt obligation fraud lawsuit brought by the Australian hedge fund against the bank several years ago. The Basis Yield Alpha Fund accused Goldman Sachs of making false statements related to its marketing of the Timberwolf, a mortgage-linked investment, and the Point Pleasant collateralized debt obligation (CDO). (The Timberwolf investment was named in the 2011 U.S. Senate report that found that Goldman misled clients about mortgage-backed securities.)

The Australian hedge fund, in its complaint, claimed that Goldman falsely claimed that the market for CDO investments had become stable even though it knew that was not the case. These particular securities dropped in value within weeks of purchase by the fund.

The Basis Yield Alpha Fund is convinced that Goldman sold the securities to rid itself of the toxic subprime mortgages while making money by shorting the securities. The fund sought repayment of over $67M it claims was lost by investing in the collateralized debt obligations, as well as $1B in punitive damages. Goldman, which argued that the fund’s losses were caused by the demise of the housing market and not because of any alleged misrepresentations, claimed that the Australian hedge fund filed its CDO fraud lawsuit to try to get the bank to pay these losses.

Rhode Island Investment Adviser to Plead Guilty in $21M Ponzi Scam

Published on: July 7, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. Attorney’s Office has issued a statement announcing that Patrick E. Churchville, the president and owner of ClearPath Wealth Management, will plead guilty to one count of tax fraud and numerous counts of wire fraud related to the running a $21M Ponzi scam. According to prosecutors, Churchville also used $2.5M of investor money to buy a house and neglected to pay over $820K of his federal income taxes.

Court documents report that a federal probe determined that from ‘08 through October ’11 the Rhode Island investment adviser and his firm invested about $18M in JER Receivables on behalf of investors. The government said that in 6/10, Churchville found out that the investments were no longer rendering returns and that ClearPath had been the subject of misleading and fraudulent representations by JER principals. However, instead of notifying clients that he lost millions of dollars of their money, he tried to hide the losses while continuing to collect investment fees.

As a result, Churchville misappropriated about $21M of investor money, misusing their funds while bringing in money from new investors. For example, he used investor money to repay JER investors while pretending that the funds were investment returns. He also lied when he told investors that past investments with JER Receivables had resulted in high return rates.

The government’s probe, conducted by the FBI, the U.S. Attorney’s office, and the IRS Criminal Investigation, also found that Churchville set up a scam in which he used investor money as collateral and, without their permission, used the funds to help him get $2.5M to buy a home. He did not report that money as income on his personal tax returns, hence the more than $820K nonpayment of his taxes.

Securities Fraud News: Andrew Caspersen Pleads Guilty to $40M Fraud, Massachusetts Investment Advisor to Pay $8M to Investors, & CFTC Orders Florida Man and His Companies to Pay Almost $175M in Sanctions in FX Ponzi Scam

Published on: July 6, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Ex-Wall Street Executive Admits to Bilking Friends and Relatives
Andrew Caspersen has pleaded guilty to federal criminal charges accusing him of defrauding relatives, friends, and Moore Charitable Foundation of $40M. Caspersen is an ex-Wall Street executive and a member of the wealthy Caspersen family. The charitable foundation he bilked belongs to billionaire hedge fund manager Louis Bacon and his investment firm Moore Capital Management.

Caspersen, 39, pleaded guilty to one charge of wire fraud and one charge of security fraud. Each criminal charge comes with a maximum term of 20 years behind bars.

Caspersen’s defense team initially argued that he was addicted to gambling and suffered from mental illness, which were what supposedly compelled him to run his multi-million dollar Ponzi-like scam. His mother, close friends, the family of an ex-girlfriend, and others were among those whom he bilked.

SEC Fines Texas-Based Investment Advisory Firm for Overcharging REIT Clients

Published on: July 5, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. Securities and Exchange Commission is ordering WFG Advisors to pay a $100K penalty for charging clients too much on their investments business development companies and real estate investment trusts. The Dallas-based firm is the registered investment advisory arm of Williams Finance Group.

According to the regulator, the purported overcharges took place from 1/11 through 8/13. The SEC claims that WFG Advisors had policies and procedures that were inadequate, which kept it from identifying and stopping incidents of overcharging. Because of these inadequacies, including what the regulator considered a lack of technological capabilities, 35 accounts were collectively overcharged $34,640.63 in advisory fees.

The Commission said client’s in the firm’s wrap account program were told that they would be charged a commission to buy alternative investment product interests, including interests in BDCs and REITs. However, there wasn’t supposed to be an advisory fee. Instead, said the Commission, WFG Advisors charged both a commission and an advisory fee. (Forms submitted to the regulator included false statements saying that wrap program participants would not have to pay commissions for transactions that took place in their accounts.)

Puerto Rico Defaults on $911M Bond Payment

Published on: July 1, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. territory of Puerto Rico did not pay $911 million of bond payments due July 1, as expected. At least $779 million of that is general obligation bonds, which are constitutionally-backed debt and supposed to be guaranteed.

However, Puerto Rico Governor Alejandro Garcia Padilla has issued a debt moratorium that allows the territory to default on the general obligation bonds also. This is not the first time Puerto Rico has defaulted on payments due on its debt. The Commonwealth started defaulting on smaller payments last year for several agencies. In May, the government defaulted on the majority of the $422 million of debt that it owed.

The island had $2 billion in bond payments that was due on July 1. In total, the Commonwealth and its agencies owe over $70 billion of debt.

News of the default comes just as President Barack Obama signed the Promesa legislation into law to help Puerto Rico deal with its debt load. Because the territory is not a U.S. state, it has not been able to file for municipal bankruptcy protection under Chapter 9. Promesa, which is the Puerto Rico Oversight, Management and Economic Stability Act, will establish a several-member federal board to oversee Puerto Rico’s finances. The board will be able to postpone lawsuits from creditors seeking payments owed and restructure the U.S. Commonwealth’s debt, including make bondholders go to court, if necessary, to lower the territory’s debt obligations. (The U.S. Senate had passed the bill on Wednesday, making it possible for Mr. Obama to sign the legislation.)

Raymond James Sued Over $350M Development Fraud, Settles with Vermont for $5.95M

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

A receiver appointed by the U.S. Securities and Exchange Commission has filed a lawsuit against Raymond James Financial Inc. (RJF) over its alleged involvement in a $350M development fraud. The case stems from a complaint that the regulator filed earlier this year against William Stenger and Ariel Quiros. Along with their companies, the two of them are accused of making omissions and false statements when raising funds from foreign investors to supposedly build a biomedical research facility and ski resort facilities.

Raymond James and its employees are not defendants in that lawsuit. However, the firm is mentioned in the complaint to have received wire transfers starting in 2008 from a Vermont bank. The money went to brokerage accounts at Raymond James and they were in Quiros’s name. The funds were from investors and intended for the Peak resort in Vermont.

Quiros went on to borrow against the money in his Raymond James accounts that included high interest margin loans. He purportedly used investor money to pay almost $2.5M in margin interest loans to Raymond James.