Investor Lawyers Blog

UBS Financial Services to Pay Investor Almost $1M in Puerto Rico Closed-End Bond Fraud Case

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

A Financial Industry Regulatory Authority (FINRA) arbitration panel has ordered UBS Financial Services (UBS) to pay Ana Elisa Ciordia-Robles almost $1 million, including $751,000 in compensatory damages and additional sums for legal fees and costs. Ciordia-Robles accused UBS of negligent supervision, breach of fiduciary duty, fraud, negligence, breach of contract, and violations of the Puerto Rico Uniform Securities Act, the Securities and Exchange Commission’s Rule 10b-5, and the Securities Exchange Act’s Sections 10(b). More specifically, Ciordia-Robles claimed she sustained losses from investing in UBS Puerto Rico (UBS-PR) closed-end bond funds.

When Puerto Rico muni bonds dropped in value in 2013, many investors on the island and in the mainland sustained huge investment losses. In the last few years, UBS and UBS-PR have been the subject of thousands of customer complaints over their sale of Puerto Rico municipal bond and proprietary bond funds. Claimants are alleging that these investments were unsuitable, that high concentrations of these investments were recommended, and that UBS never apprised them of the risks involved in the closed-end bond funds that they were sold. Many of these investors have since realized that their portfolios were never equipped to handle these risks.

It was just last year that UBS consented to pay about $34 million to US regulators to settle allegations related to its supervision of the sale of the Puerto Rico bond funds and use of leverage against those closed-end funds. UBS has already settled a number civil claims brought by investors through FINRA arbitration. At Shepherd Smith Edwards and Kantas, LTD LLP our securities lawyers have been working hard to help quite a number of these investors recoup these losses.

Aozara Bank’s Mortgage-Backed Securities Case Against JPMorgan is Allowed to Proceed

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

In New York, the Appellate Division, First Department, a state appellate court, is allowing Aozara Bank’s (AOZOF) mortgage-backed securities fraud lawsuit against JPMorgan & Chase (JPM) to proceed. The Japanese bank, which had brought MBS claims against a number banks, is alleging aiding and abetting fraud and fraud related to the banks’ creation, marketing, and/or sale of high risk securities.

Aozara had invested close to $560M by 2009 in at least 35 collateralized debt obligations that a number of banks had structured. It sued not just JPMorgan but also Barclays Bank (BARC), Deutsche Bank Securities Inc. (DB), Credit Suisse (CS), UBS AG (UBS), Goldman Sachs Group (GS), Credit Agricole, and Morgan Stanley (MS) in 2013.

In the collateralized debt obligation lawsuit against JPMorgan, the First Department reversed a ruling issued earlier by the Manhattan Supreme Court. The appellate panel has now found that the Japanese bank had properly stated claims for breach of the duty of good faith and fair dealing and also fraud. Aozora contends that JPMorgan, which is Bear Stearns successor, depicted certain CDOs as legitimate investments even as it used them to get rid of risky assets that were toxic. The appellate panel said that JPMorgan has not demonstrated that its claims in offering documents gave Aozora proper notice that JPMorgan defendants had colluded to accept the toxic CDO assets from Bear Stearns’ balance sheets. The ruling said that Aozora’s lawsuit included enough facts to support its reasonable inference that fraud and scienter had occurred.

Goldman Sachs Settles Securities Fraud Lawsuit Over Abacus CDO

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

Goldman Sachs Group Inc. (GS) has arrived at a settlement with ACA Financial Guaranty Corp. The bond insurer’s securities fraud lawsuit accuses the investment bank of fraudulently persuading it to guarantee payments on the , a collateralized debt obligation, prior to the financial crisis. ACA Financial Guaranty claims that Goldman and hedge fund Paulson & Co. fooled it into insuring the CDO. Details of the CDO fraud settlement have not been disclosed.

In its $120M CDO fraud case, ACA claimed it was deceived into thinking that Paulson & Co. would hold Abacus for the long-term, when, in fact, the fund played a part in choosing the CDO’s assets before taking a short position and bet that the mortgages underlying the securities would fail. ACA alleged that Abacus was set up in a manner to allow Paulson to make “huge profits” and Goldman to earn “huge fees.”

Although a NY judge had said that the case, brought in 2011, could proceed, an appeals court reversed that decision in 2013. The New York Supreme Court reversed the appeals court’s ruling in 2015.

Energy Company Cases: Arizona Corporation Commission Orders Texas Man to Pay $1.4M, Two Other Companies to Pay $11.2M in Restitution to More than 700 Investors, & SEC Files Stock Manipulation Charges Against Multiple Individuals

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

Texas Man and His Energy Company Must Pay Arizona Restitution, Penalties for Oil Well-Related Misrepresentations

Texas resident Kenneth White and his Marchant International Resources Inc. must pay almost $1.4M plus $150K in penalties for misrepresenting its participation in two oil well projects that was backed by 12 Arizona investors. The fine was issued by the Arizona Corporation Commission (ACC), which accused White of failing to disclose the complete facts about his business, the company’s experience with well-drilling, and Merchant’s efforts with two wells. The $150K penalty is because White did not disclose that he was previously convicted for a $4.3M felony theft crime when he was marketing himself and his experience in energy extraction.

More than 700 Investors to Get $11.2M in Restitution Over Inadequate Disclosures

White and his company are not the only ones facing fines brought by the ACC in an energy case. Brian C. Hageman and his Hydrotherm Power Corp. and Deluge Inc. now have to pay $11.2M in resittion to over 700 investors. According to the state, while marketing a thermal hydraulic engine project, Hageman did not tell investors that the two companies were no longer in valid operation. He also must pay a $55K administrative penalty for bilking shareholders.

SEC Accuses Minnesota-Based Energy Company Co-Founder of Stock Price Manipulation

The Securities and Exchange Commission has filed charges against the co-founder of a Minnesota-based energy company. Ryan Gilbertson is accused of rigging Dakota Plains Holdings’ stock price while hiding his control of the company in order make a lot of money. The SEC claims that Gilbertson enriched himself by over $16M as he and others allegedly bilked shareholders through price rigging. Meantime, his co-founder, Michael Reger, will pay almost $8M to settle the charges brought against him.

SEC Probes Wells Fargo Over Allegations of Violations Involving Whistleblower Protections and Investor Disclosures

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

The U.S. Securities and Exchange Commission is investigating whether Wells Fargo (WFC) violated whistleblower protections, in the wake of allegations of aggressive and illegal sales tactics, and misled investors over these allegations. The probe comes after Senators Jeff Merkeley (D-Ore), Elizabeth Warren (D-Mass), and Robert Menendez (D-NJ) sent the Commission a letter asking the regulator to examine whether the bank misled investigators over cross-selling claims.

In the letter, the US senators asked the SEC to look into whether Wells Fargo violated Sarbanes-Oxley’s internal control provisions and whistleblower protection laws by firing employees who attempted to report alleged misconduct involving fake accounts. The three senators also asked the Commission to look at whether the bank failed to properly disclose bogus accounts while marketing high figures related to the creation of accounts.

Wells Fargo recently came under fire for setting up some two million bogus accounts. It settled the case, which was brought by California prosecutors and federal regulators—including the Office of the Comptroller of the Currency and the Consumer Financial Protection Bureau— for $185M in penalties and $5M in customer restitution. Questions have since arisen over why the bank did not notify investors about these cross-selling allegations until it settled with regulators, even though Ex-CEO John Stumpf admitted that he knew about the problems going as far back as 2013.

Nomura To Pay Over $3M to Settle RMBS Fraud Claims brought by NCUA for Credit Unions

Published on: November 2, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Nomura Home Equity Loan, Inc. and Nomura Asset Acceptance Corporation have agreed to jointly pay over $3M to settle allegations that they engaged in the sale of faulty residential mortgage-backed securities (RMBS) to the Western Corporate Federal Credit Union and the U.S. Central Federal Credit Union. The National Credit Union Administration brought the RMBS fraud case on behalf of the two corporate credit unions.

It was in 2011 that the NCUA Board, while serving as liquidating agent for both financial institutions, brought the claims against the Nomura entities. The RMBS lawsuit was brought in federal district courts in Kansas and California.

The $3M settlement dismisses NCUA’s pending cases against the two firms. By settling, neither firm is denying or admitting to the alleged wrongdoing.

Voya Financial Advisors, Cetera Advisors, and Six Other Broker-Dealers to Pay $12.5M in Fines and Restitution For Allegedly Not Properly Supervising The Sale of L-Share Variable Annuities

Published on: November 2, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority is fining eight brokerage firms $6.2M for not supervising the sale of L-share variable annuities to customers. Five of the firms must pay another $6.3M to customers because the variable annuities that they were purchased were potentially not compatible with the latter’s investment goals and accounts.

The firms, and their sanctions, include: Voya Financial Advisors Inc., for $2.75M fine, First Allied Securities, Inc., for $950K fine, VSR Financial Services, for $400K fine, Cetera Financial Specialists LLC, for $350K fine, Cetera Advisors Networks LLC, for $750K fine, Summit Brokerage Services, Inc., for $500K fine, Kestra Investments, for $475K fine, and FTB Advisors, for $250K fine. The firms that have to pay restitution are: Voya, for $1.8M, while first Allied, Cetera Advisors Networks, VSR, and Summit Brokerage Services will collectively pay $4.5M. All the firms are settling, but they are not denying or admitting to any of the alleged claims.

At issue was the sale of the L-share annuities, which are “potentially incompatible, complex and expensive long-term minimum-income and withdrawal riders.” L-share annuities are more likely to pay registered representatives and their firms higher compensation than more traditional instruments.

Massachusetts Regulator Charges Ex-Investment Adviser Over $500K Ponzi Scam

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

The Secretary of the Commonwealth of Massachusetts has charged Stephen S. Eubanks over his alleged involvement in a Ponzi scam. According to state securities regulator William F. Galvin, the former investment adviser took at least $529K from 15 investors, including neighbors, friends, and their families. Four of the investors were Massachusetts investors who gave $195K of the funds.

According to the state’s complaint, in 2011, Eubanks allegedly pretended he was a successful hedge fund manager who ran Eubiquity Capital LLC. He solicited investors to get them to invest their money in options, stocks, and other securities. However, instead of investing their funds, he allegedly used $145K for his own expenses, including trips to Martha’s Vineyard and to cover boat costs, and $140K to pay back earlier investors.

Galvin’s notice said that Eubanks lost all of the investors’ money. Many of the investors were close friends of Eubanks, including an ex- college roommate and the older father of a former fraternity brother. He befriended the other investors online.

CFTC Cases: IB Capital Fx Ordered to Pay Over $35M in Restitution For Soliciting Investors While Improperly Registered, $21.8M Default Judgment Obtained in Commodity Pool Fraud, and Spoofing Case Leads to Over $38M in Monetary Sanctions

Published on: October 31, 2016 | by Shepherd Smith Edwards & Kantas, LLP

IB Capital FX, Two Dutch Citizens to Pay Over $35M to Customers
IB Capital FX, LLC, Emad Echadi, and Michel Geurkink must pay, severally and jointly, a $420K civil penalty and $35M in restitution for soliciting at least $50M from 1,850 customers internationally and in the US even though they lacked the required registration for trading that involved off-exchange margined retail foreign (forex) currency. Also, the firm should have been registered with the US Commodity Futures Trading Commission.

It was the CFTC that obtained the consent order, which permanently prevents the defendants from violating CFTC Regulations and the Commodity Exchange Act further. They also are now subject to permanent registration and trading bans.

$21.8M Default Judgment Issued is in Ponzi Scam
In a default judgment, Puerto Rico resident Alvin Guy Wilkinson and his Wilkinson Financial Opportunity Fund, LP and Chicago Index Partners, LP—both are Connecticut-based financial firms—will jointly and severally pay $21.8M for misappropriating commodity pool funds in a purported Ponzi scam. According to the CFTC’s order, the defendants committed fraud, did not register with the SEC, engaged in misappropriation, and made misrepresentations to the National Futures Association.

American Capital REIT is Accused of Charging Hundreds of Millions of Dollars in Excessive Fees

Published on: October 28, 2016 | by Shepherd Smith Edwards & Kantas, LLP

A class action securities case brought by stockholders is accusing American Capital Agency Corp. of charging excessive management fees that were given to directors and executive officers as compensation. The real estate investment trust invests in agency mortgaged backed securities “on a leveraged basis.” Because of this, American Capital must pay 90% of profits to investors as dividends.

However, according to William Wall, the lead plaintiff in the REIT case, a number of the individual defendants “improperly funneled” millions of dollars that should have gone to AGNC stockholders. He said that the REIT’s board allegedly forced the company to pay the AGNC Manager “exorbitant” fees in light of the management agreement between the AGNC Manager and AGNC. The fees went to the defendants.

Noting that the REIT’s dividend is a key metric for its success, the class action securities complaint said that in 2012 the board cut AGNC’s dividend by over 50%. The plaintiff said that the board had the contractural right to either end the unfair management agreement or make the AGNC Manager charge fees that were fairer. Instead, AGNC allegedly kept paying the manager over $100M annually even though results were “abysmal.”