Investor Lawyers Blog

401(K) Lawsuits Brought Against Franklin Templeton and Neuberger Berman

Published on: August 12, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Two more 401(K) lawsuits alleging self-dealing have been brought against asset management firms. In Cryer V. Franklin Resources, Inc. et al, the employees of Franklin Resources Inc. are suing their employer. Franklin Resources (BEN) operates under the name Franklin Templeton Investments.

According to the plaintiffs, the asset management firm engaged in self-dealing in its 401(k) plan. They believe that individuals overseeing the retirement plan were in breach of duty under ERISA when they chose costly, proprietary funds that performed poorly instead of selecting less expensive funds that performed better. The plaintiffs are also accusing their employer of charging excessive fees for administrative services.

In the 401(K) lawsuits, they noted that the plan had invested in hundreds of millions of dollars in mutual funds that Franklin Templeton and its subsidiaries managed even though there were many other choices available. These entities manage all of the mutual funds in the Franklin Templeton 401(K) retirement plan. The plaintiffs said that Franklin Templeton chose these funds so that it could receive fees and make money.

Texas Securities Fraud: State Fines The Investment Center and A Local Man Is Accused of Bilking Investors

Published on: August 12, 2016 | by Shepherd Smith Edwards & Kantas, LLP

A New Jersey financial firm must pay $50,000 in Texas for allegedly not properly supervising one its brokers who loaded up too many energy stocks in his clients’ accounts. The Investment Center Inc. has been reprimanded by the Texas State Securities Board, which also imposed the fine.

It was an investor that brought the Texas securities case against the securities dealer and one of its ex-brokers. According to the state regulator’s consent order, between ’10 and ’14, some clients at The Investment Center held 95% of total investible assets in energy sector equities. The recommended securities were typically low-priced and publicly traded. There were purportedly periods when some clients’ accounts were invested in just one company instead of holding investments in different energy companies at the same time. Also, said the state regulator, with certain clients, their equity positions were 100% concentrated in the energy sector.

The Texas State Securities Board said that clients that could not sustain a lot of risk were among those affected by this broker’s investment choices.

Although the former financial representative’s actions in investing so much of his clients’ money in concentrated equity positions raised red flags when some of these accounts dropped in value, The Investment Center purportedly failed to act on the warning signs. The firm has since paid the investor who filed the Texas securities fraud complaint $98,000.

San Francisco Investment Manager is Sued Over $2M Hedge Fund Fraud

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

The U.S. Securities and Exchange Commission has filed a financial fraud lawsuit against Nicholas M. Mitsakos and his Matrix Capital Market. Mitsakos and his investment advisory firm are accused of pretending that they managed millions of dollars in assets. They allegedly stole about $800K from the first client that invested with them. The client, a Cayman Islands fund, invested $1.99M.

Mitsakos and his firm are accused of soliciting investors in a purported hedge fund. They are said to have falsely claimed they were successful money managers overseeing millions of dollars even though they had no assets. Instead, they allegedly made up a hypothetical investment portfolio in which the investments made up to 66% of yearly returns. The two of them are accused of pretending that these trades were real.

Commenting on the hedge fund fraud, SEC New York Regional Office Director Andrew Calamari said that it is important for investors to verify any information about an investment opportunity, especially one that is touted as having a “lofty historical performance.”

SEC Charges Ex-Philadelphia Eagles Football Player With $10M Fraud

Published on: August 10, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Merrill Robertson Jr., an ex-Philadelphia Eagles football player, is charged with financial fraud. According to the Securities and Exchange Commission, Robertson bilked investors in a $10M scam.

The SEC claims that Robertson, Sherman Vaughn Jr. and their Cavalier Union Investments LLC promised investors they would invest in diversified holdings. Instead, they took nearly $6M of investors’ money to cover their own spending and pay earlier investors. Expenditures purportedly included cars, luxury items, spa visits, family vacations, and educational expenses.

The two men are accused of claiming that the unregistered debt securities they were selling were safe and would generate up to 20%. They also purportedly told people that experienced invest advisers were running Cavalier’s investment funds when there were no advisers or funds.

The investment firm, said the SEC was “functionally insolvent” soon after it was set up, yet the defendants allegedly concealed this from prospective investors and depended on the latter’s money to stay in business. The government said that Cavalier only invested in restaurants and all of them failed.

US Attorney Bharara Asks Second Circuit To Reconsider Overthrown Mortgage Fraud Verdict Against Countrywide

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

The U.S. Attorney for Manhattan’s Southern District is asking the Second Circuit Court of Appeals to look at a ruling that overturned the jury verdict that held Countrywide Home Loans liable for mortgage fraud. Countrywide, which is now owned by Bank of America (BAC), made billions of dollars on home loans that went into default following the 2008 financial crisis.

It was in 2007 that the mortgage provider introduced a new program, referred to as the “high-speed swim lane,” to process applications for mortgages. Within Countrywide, the program was dubbed the “hustle.”

The program did not include the majority of conditions required to make sure loans would be paid back after Wall Street banks, Freddie Mac, or Fannie Mae sold them to investors. Unfortunately, Freddie and Fannie were not told that these conditions had become more relaxed or that loans no longer met certain criteria. The two mortgage finance firms had tightened their own loan buying requirements and underwriting guidelines. As a result of the loosened restrictions by Countrywide, contended the Justice Department, “rampant instances of fraud” resulted.

Despite the 2013 jury verdict that found Countrywide and a Bank of America executive liable for mortgage fraud, a Second Circuit judge panel overruled the decision. It found that even though Countrywide purposely breached contracts, this was not fraud because the lender had not intended to fool customers at the time that contracts were signed.

Now, U.S. Attorney Preet Bharara wants a Second Circuit panel of judges to consider that Countrywide made false statements when selling loan bundles to customers, including Freddie Mac and Fannie Mae. He said that the court bypassed evidence at trial that showed how the defendants made fraudulent misrepresentations when selling the loans and while the contracts were being executed. Prosecutors are arguing that the language in the contract refers to each mortgage sale during the actual sale and not upon the writing of the contract.

Primus Pacific Partners Sues Goldman Sachs for $510M

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

Goldman Sachs Group Inc. (GS) is a defendant in a securities lawsuit brought by Primus Pacific Partners. Primus used to own 20% of Eon Capital, a Malaysian lender. In its complaint, brought in the New York State Supreme Court, Primus accused Goldman and ex-Managing Director Tim Leissner of hiding that there were conflicts of interest involving Malaysian Prime Minister Najib Razak and the 1Malaysia Development Berhad (1MDB), which is a sovereign wealth fund.

Goldman had been advising Eon Capital when the latter was considering a takeover offer from Hong Leong Bank Bhd, which is a Malaysian bank. According to Primus, in January ’10, Goldman and Leissner determined that Hong Leong’s first bid wasn’t fair. A few months later later, however, they decided that a revised offer that was only 2.8% greater was fair and recommended that Eon Capital take the deal.

The plaintiff believes that Goldman approved of the higher bid because it was seeking to impress the Malaysian Prime Minster whose brothers would benefit from a merger. Nazim Rajak worked for Hong Leong as a director while Nazir Rajak was chairman of CIMB Group Holdings Bhd, which advised Hong Leong about its takeover bid of EON Capital.

Securities Headlines: FINRA Wants Ex- Merrill Lynch Adviser to Pay Monetary Sanctions Over Misleading Recommendations, Four Life Insurers Must Pay $3.4M Related to Death Benefits, and JPMorgan Settles with Indiana Over Proprietary Products for $95OK

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

Ex-Merrill Lynch Adviser Accused of Misleading Clients with IRAs
Landon L. Williams, and ex-Merrill Lynch adviser who is no longer registered with the Financial Industry Regulatory Authority, is accused of misleading five of the firm’s clients by giving them inaccurate information when issuing recommendations for investments. All of the clients had individual retirement accounts. At the time, Williams served as a Merrill Lynch Edge Advisory Center adviser for a year until August 2014.

Merrill Edge customers have less than $250K in accounts. Instead of working with one broker, they work with a team of advisers.

In its complaint, FINRA note a couple of examples, including when Williams allegedly told one customer that the yearly operation cost of a fund was 1.113% when, in fact, it was 1.28%. He purportedly informed one client that she would be able to make up her front-end sales charges in three years even though his notes related to that fund said that she would make them up in seven years.

FINRA is seeking monetary sanctions.

Life Insurance Companies Settle with U.S. States Over Unclaimed Death Benefits
Securian Financial Group Inc., Hartford Financial Services Group, Standard Insurance Co., and Great American Insurance Group have reached a $3.4M settlement with the state insurance departments of North Dakota, Florida, California, Pennsylvania, and New Hampshire. The deal is related to the payment of unclaimed death benefits.

Fed Orders Goldman Sachs to Pay $36M Fine Over Confidential Documents Leak

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

Goldman Sachs Group Inc. (GS) will pay $36.3M to settle allegations accusing ex-employees of obtaining access to confidential documents from the Federal Reserve. The Fed contends that Joseph Jiampietro, while working as a Goldman Sachs managing director, obtained the unauthorized supervisory data belonging to bank regulators and utilized the information for his work at the financial firm.

The Fed said that ex-Goldman Sachs banker Rohit Bansal was the one who shared the confidential documents with Jiampietro. Bansal had gotten the documents from his friend Jason Gross, a New York Fed employee that he used to work with at the regulatory agency. The confidential data involved a bank that was a client of Goldman Sachs. Last year, Bansal pleaded guilty to a misdemeanor charge involving the Fed documents, while Gross pleaded guilty to giving Bansal the information.

The Fed believes that Jiampietro used the confidential information to make pitches to potential and current clients. A lawyer for Jiampietro, who had previously worked for UBS Group Ag (UBS) and JPMorgan Chase & Co. (JPM), maintains that the allegations against his client are “demonstrably false.”

Securities Fraud: Unregistered Representatives Bilk Investors of Over $5M & Go Shopping, Broker to Go to Prison Over $131M Market Manipulation Scam, and an Illinois Man is Convicted in $20M Scheme

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

SEC Files Fraud Charges Against Unregistered Representatives in $5M Fraud
The U.S. Securities and Exchange Commission has obtained an asset freeze against Matthew White, Daniel Merandi, and Rodney Zehner for alleged financial fraud. The three men are not registered to sell investments. They are accused of raising over $5M from investors and spending the money on expensive shopping expeditions.

According to the SEC, Merandi, White, and Zehner fraudulently issued $1B in unsecured corporate bonds using their shell company. They said the funds would go toward developing a resort. Although they never raised enough money to begin the project, they took $5.6M that they did raise from investors and went shopping at Gucci, Prada, Saks Fifth Avenue, Versace, and Louis Vuitton. The men allegedly conducted bogus transactions to raise the bond’s price even though the securities were expired and had no value.

The Commission is accusing Merandi, White, Zehner, and their companies of violating the Securities Act of 1933’s Section 17(a) antifraud provision, the Exchange Act of 1934’s Section 10(b), and Rule10b-5. It wants permanent injunctions, penalties, and disgorgement.

Broker Pleads Guilty to Fraud Involving $131M Market Manipulation Scam
Registered broker Naveed Khan has pleaded guilty to securities fraud. Khan faces up to 20 years behind bars for his involvement in a $131M pump-and-dump scam that involved the market manipulation of ForceField Energy Inc. (FNRG).

Between 1/09 and 4/15, the defendant and others sought to bilk ForceField investors. The fraudsters are accused of using nominees to sell and buy the LED company’s stock without notifying current investors and potential ones, orchestrating trading to make it seem as if the public was interested in ForceField’s stock, and hiding payments made to brokerage firms and stock promoters. These broker-dealers purportedly marketed and sold the stock under the guise of being independent.

Financial Firm News: Deutsche Bank Ordered to Face Part of Subprime Mortgage Fraud Lawsuit & Morgan Stanley & Bank of America Must Contend with MBS Case

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

A U. S. district court judge said that Deutsche Bank AG (DB) must face part of a mortgage fraud case accusing the German bank of bilking investors who purchased over $5.4M of preferred securities. The plaintiffs, led by two individuals and Belmont Holdings Corp., claim that Deutsche Bank hid its exposure to the subprime mortgage market.

Judge Doborah Batts turned down the bank’s bid to throw out claims related to about $2.55B of securities sold in 11/07 and 2/08. She did, however, dismiss claims involving $2.9B of securities sold in 5/07, 7/07, and 5/08. Investors claim that Deutsche Bank should have notified them in offering documents that it had significant exposure to subprime markets via collateralized debt obligations and residential mortgage-backed securities. They believe that early notification could have prevented them from purchasing the preferred securities before their values dropped, resulting in billions of dollars of losses.