Investor Lawyers Blog

Oppenheimer to Pay $2.9M for Unsuitable Non-Traditional Exchange-Traded Fund Sales

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

FINRA is fining Oppenheimer & Co. Inc. (OPY) $2.2M for the sale of non-traditional exchange-traded funds, including inverse, leveraged, and inverse-leveraged ETFs, to retail customers without proper supervision and for suggesting them to clients even though they were not appropriate investments for them. The self-regulatory organization is also making the firm pay over $716,000 to the customers who were impacted.

FINRA said that even though Oppenheimer put into place policies barring representatives from both selling non-traditional ETFs to retail customers and executing non-traditional ETF purchases that were unsolicited for said customers unless they met certain requirements—including liquid assets greater than $50OK—the firm did not do a reasonable job of making sure that these policies were properly enforced. (The firm had put them into effect after FINRA issued a notice advising brokerage firms of the risks involved in non-traditional ETFs.) Because of this, Oppenheimer continued to market non-traditional ETFs to retail customers and effect transactions that were unsolicited for those who failed to meet the requirements.

Tennessee Investment Advisory Firm Accused of Trying to Collect Extra Fees from Hedge Funds

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

The Securities and Exchange Commission is charging Hope Advisors Inc. and owner Karen Bruton with scheming to get two hedge funds that they managed to pay them extra fees. The private hedge funds are HDB Investments LLC and Hope Investment LLC.

The purported misconduct was discovered by the regulator’s Atlanta office, which was examining the Nashville, Tennesse-based firm and Bruton. The regulator claims that Hope Advisors and Bruton sought to get around the funds’ fee structure, which lets the firm receive fees from the funds only if their profits for the month exceeds previous losses. The firm and Bruton are accused of orchestrating a number of trades that would let the funds make a bigger gain closer to the end of the month and guarantee a big loss early on at the start of the next month.

The SEC said that if it weren’t for the fraudulent trades, Hope Advisors would have earned almost no incentive fees for close to two years. Instead, claims the Commission, the firm managed to avoid realization of over $50M in losses while making millions of dollars in fees that they should have never been paid.

Morgan Stanley and E*Trade Securities Face Penalties for Inadequate Customer Information Protection

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

The Securities and Exchange Commission says that Morgan Stanley Smith Barney LLC (MS) will pay a $1M penalty to resolve charges involving its purported failure to protect customer data. Some of this information was hacked and violators attempted to sell the data online.

According to the regulator, the firm did not put into place written policies and procedures that were designed in a manner reasonable enough to protect customer information. Because of this, said the SEC, from ’11 to ’14, former Morgan Stanley employee Galen J. Marsh was able to access without permission information regarding approximately 730,000 accounts and move them to his own server. This made it possible for third parties to access and hack the information from there.

The Commission said that Morgan Stanley had two internal portals that made it possible for employees such as Marsh to access confidential customer account information and it was for these internal applications that the firm lacked the needed authorization modules that would have restricted which employees could see this information. This deficiency existed for over a decade.

It was just last week that the Financial Industry Regulatory Authority said that it was censuring and fining E*Trade Securities LLC for supervisory violations related to customer order information protection and for not performing sufficient review of the quality of customer order executions. As a firm that offers online services for securities investing and trading to retail customers, E*Trade is supposed to evaluate the competing markets that it routes customer orders to, including exchange and non-exchange market centers. Firms such as E*Trade are also supposed to conduct periodic and stringent reviews of the quality of customer order executions to see if there are any differences among the markets, which is why the firm set up a Best Execution Committee to do this job.

SEC Reaches $12.7M RMBS Fraud Settlement in Case Involving Ginnie Mae

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

The U.S. Securities and Exchange Commission said that First Mortgage Corporation (FMC) and six of its executives will pay $12.7M to resolve charges accusing them of running a RMBS fraud scam to bilk investors. The Government National Mortgage Association, also known as Ginnie Mae, guaranteed the residential mortgage-backed securities. The mortgage lending company is the one that issued the Ginnie Mae RMBS and the securities were backed by loans that FMC had originated.

According to the regulator, from 3/11 to 3/15, FMC’s top executives withdrew performing loans from Ginnie Mae residential mortgage-backed securities by making false claims that they were delinquent so that it could sell them into newly issued RMBS and make a profit. The mortgage company’s improper and deceptive use of a Ginnie Mae rule giving issuers the choice to rebuy loans that had been delinquent for at least three months caused the prospectuses of the original RMBS to become misleading and false.

The SEC also claims that FMC purposely held back on depositing the checks of borrowers who were late on their loans by making false claims to Ginnie Mae and investors that these loans had stayed delinquent when they were, in fact, current. In its complaint, the regulator said that FMC’s top management approved these actions.

T. Rowe Price to Pay Fund Shareholders, Clients About $194M Over Dell Buyout Voting Mistake

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

Mutual fund company T-Rowe Price Group Inc. (TROW) will pay $194M to clients because of a proxy-voting mistake it made in 2013 during the management buyout of Dell Inc. The payments will be made to a number of institutional client accounts, two trusts, four U.S. mutual funds, and one fund located overseas.

Among the funds to benefit the most are the:

· T. Rowe Price Equity Income Fund (PRFDX)

· T. Rowe Price Science & Technology Fund (PRSCX), which is expected to be affected the most because it has a greater number of Dell shares as a percentage of all its assets.

· T. Rowe Price Institutional Large-Cap Value Fund (TILCX)

Shareholders will not get cash as part of this payout. Instead, they will see the results in the performance bump of the impacted portfolios.

Citibank Settles Libor, Euroyen Tibor, and YenLibor Rigging Allegations With $425M Fine

Published on: June 4, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Citibank (C) is the first U.S. bank to settle allegations of benchmark interest rate manipulation. To resolve the Commodities Futures Trading Commission claims that it manipulated the London Interbank Offered Rates (LIBOR), Citibank will pay $250M. It will pay $175M to resolve Euroyen Tibor and Yen Libor rigging claims. Also settling charges within this case are Citibank Japan Ltd (CJL) and Citigroup Global Markets Japan Inc. (CGMJ).

The CFTC claims that between ’07 and ‘12 Citigroup had specific traders input false information so their trading positions would benefit. It also claims that the bank’s affiliates issued false reports related to dollar Libor rates and ISDAFIX benchmark rates during the financial crisis so that its reputation would be protected.

Citigroup Global Markets Japan is charged with trying to rig Euroyen TIBOR and Yen LIBOR. Citibank Japan Ltd. is accused of engaging in false reporting related to the Euroyen TIBOR so that derivatives trading positions priced according to Euroyen TIBOR and Yen LIBOR would purportedly benefit.

Libor, along with the Tokyo Interbank Offered Rate (Tibor), is what banks use to establish the cost of borrowing from one another. Libor is also used to set the rates on mortgages, credit cards, derivatives, and other financial products.

SEC & Fraud Cases: Ponzi Scam Targeting Middle Class Investors is Stopped, NY-Based Forex Trader is Accused of Bilking Ex-Classmates, Family, and Friends, and NC Investment Adviser is Sued Over $11.5M Real Estate-Related Scheme

Published on: June 4, 2016 | by Shepherd Smith Edwards & Kantas, LLP

SEC Stops Ponzi Scam Involving Pre-IPO Stocks and Middle Class Investors
The U.S. Securities and Exchange Commission is charging Jaswant Gill and Javier Rios with fraud. The regulator claims that the two men and their investment firm, JSG Capital Investments, targeted middle-class investors through a Ponzi scam in which they touted purportedly huge returns through pro-IPO stock in renowned companies such as Airbnb, Alibaba, and Uber.

Gill and Rios are accused of pocketing at least $2.8M in investor money for their own lavish spending instead of investing the money in the pre-IPO shares. Funds of new investors were used to pay “returns” to earlier investors.

Gill allegedly touted fake credentials. He, Rios, and their firm are not registered with the Commission or with a state regulator.

The SEC said that in total the two investment advisers raised $10M through their company and related entities. They are said to have promised these retail investors access to investment opportunities that were typically only available to “one-percenters.” They also guaranteed yearly returns as high as 60%.

The U.S. Attorney’s Office for the Northern District of California has filed a parallel criminal case against Rios and Gill.

Trader Accused of Bilking Friends and Family of Millions of Dollars
The SEC is suing Haena Park for allegedly defrauding friends, her ex-Harvard classmates, family members, and other individuals of millions of dollars. Park is accused of using investor funds and making misrepresentations about her investment history, as well about the profits the investments were supposed to have made.

Since 2012, Park has raised at least $14M from over 30 investors, sustaining $16M in trading losses in the process.

Madoff Investors Eligible For $4B Payout & Stanford Fraud Victims Settle With Law Firm for $35M

Published on: June 3, 2016 | by Shepherd Smith Edwards & Kantas, LLP

At least 25,280 claimants who were the victims of Bernard Madoff’s Ponzi scheme can expect to receive payouts for almost $4B in losses they sustained from the fraud. For these investors, they’ve been waiting to get at least some of their money back for nearly eight years.

It was in December 2008 that Madoff’s $64.8B Ponzi scam was discovered. It turns out that the 78-year-old money manager was an equal opportunity fraudster, bilking retail investors, wealthy investors, institutional investors, celebrities, and others alike.

The nearly $4B in payouts is being overseen by Richard Breeden of the Madoff Victim Fund and is separate from the payouts issued by Irving Picard, who is the trustee in charge of compensating former customers of Bernard L. Madoff Investment Securities LLC.

With the Madoff Victim Fund, claims include those brought by “indirect” investors whose accounts were at the hedge funds and other entities known as “feeder funds.” These funds would send investors’ money to Madoff. Thousands of victims that lost $17.5B have been seeking to avail of this fund.

Securities Cases: Stephens Inc. to Pay $900K Fine, FINRA Bans Ex-Wells Fargo Broker, And Former State Street Executive is Accused of Charging Hidden Fees

Published on: June 3, 2016 | by Shepherd Smith Edwards & Kantas, LLP

SEC Files Fraud Charges Against Former State Street Executive
The U.S. Securities and Exchange Commission is filing fraud charges against ex-State Street Corp. (STT) executive Ross McClellan. According to the regulator, McLellan was one of a number of people who purposely charged hidden markups on certain transactions to customers, making the bank $20M in extra revenue.

Addressing the charges, McLellan’s lawyer claims that his client did not commit any securities law violations and that all banks charge client markups on bond transactions to make money. The attorney also noted that it was State Street and not the bank that profited from the charges.

The U.S. Department of Justice has charged McLellan with securities fraud, conspiracy, and wire fraud.

Ex-Wells Fargo Broker to Be Barred
Christopher John Pierce, a former Wells Fargo & Co. (WFC) broker, will be barred from working with any FINRA-registered firm and associating with any member of the self-regulatory organization. Pierce agreed to the bar after he was accused of stealing money from the accounts of banking customers.

Female Executive Accuses Bank of America of Misleading Trading Clients, Including Citigroup and Blackstone

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

Megan Messina is suing Bank of America (BAC). She is a managing director at the bank’s structured credit products division. In her lawsuit, Messina claims that the bank tried to get rid of her when she questioned the way some clients were treated and complained about the sexism she allegedly experienced. She also contends that clients such as Citigroup (C) and Blackstone Group LP (BX) were misled by her employer.

According to Bloomberg, in her complaint, Messina provides examples of alleged misconduct at the bank, including coworkers front-running trades made by clients, such as Citigroup, while keeping information from other clients, such as Blackstone. Messina claims that Bank of America apologized to client Anchorage Capital Group after the bank purposely provided the firm with false information. Bank of America also purportedly apologized to Pimco for “doctoring” trading records.