Investor Lawyers Blog

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.

FINRA Files Securities Fraud Charges Against NY Broker For Churning Accounts of Blind, 77-Year-Old Widow

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

The Financial Industry Regulatory Authority has filed a securities fraud case against Hank Mark Werner. The self-regulatory organization is accusing the New York broker of churning the account of a 77-year old widow who is blind, and engaging in unsuitable and excessive trading involving her account. FINRA claims that Werner charged the elderly customer over 243K in commissions while he churned her accounts for over three years and caused her to sustain about $184K in losses.

According to FINRA, Werner, who had been the broker of the elderly widow’s husband since 1995, until he passed away four years ago, started aggressively trading her accounts after he died. The SRO claims that Werner did this to earn excessive commissions.

From 10/12 to 10/15, Werner placed more than 700 trades in over 200 securities while charging the elderly customer commission or a markup on every sale and purchase. Because she was seriously debilitated, blind, and needed in-home care, the woman was totally dependent on Werner to let her know how her account was doing.

CFTC Orders Atlantas Group and Its owner to Pay $7.2M in Restitution and Civil Penalties to Settle Solicitation Fraud and False Statement Charges

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

Atlantas Group Inc. and hits owner and president Edmund Hysni have reached a $7.2M settlement with the U.S. Commodity Futures Trading Commission. The money is restitution and civil penalty to settle charges of solicitation fraud and the purported making by Hysni of material false statements to the National Futures Association.

According to the CFTC order, between ’06 and ’12 Atlantas and Hysni falsely represented to customers that they would be giving back about 300% of customers’ initial investments, their investment strategy was conservative and safe, and their performance history was a successful one. The charges against the firm and Hysni are related to options on futures contracts trading that took place on the Commodity Exchange and the Chicago Board of Trade.

The regulator said that contrary to the misrepresentations, Hysni and Atlantas invested clients’ funds in an out-of-the-money option spread that caused customers to suffer financial losses. Also, Atlantas is accused of collecting about 90% of clients’ losses in commissions while misrepresenting the impact of the commissions. The commissions, said the SEC, affected customer losses and profits, the trading strategy used, and how much Atlantas charged customers.

Securities News: Citigroup to Pay $7M Over Incomplete Blue Sheet Data, Cetera Fined $75K for Client Record Issue, and Raymond James Settles EB-5 Program Violations for $1.45M

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

Raymond James to Pay Vermont Almost $1.5M in Immigrant Visa Case
The Securities Division of the Vermont Department of Financial Regulation said that Raymond James & Associates (RJF) must pay $1.45M in penalties because one of its registered representaitves allowed investor money to be misused in a$350M development fraud involving the EB-5 program. The program lets rich foreign investors obtain permanent residency if they invest a certain amount in projects that help establish jobs for U.S. citizens.

Earlier, a Securities and Exchange Commission-appointed receiver sued Raymond James, which received wire transfers involving the scam beginning in 2008. The money was from investors who thought they were investing in a Vermont ski resort. One of the fraudsters, Ariel Quiro, is accused of borrowing against the Raymond James accounts and using nearly $2.5M of investors’ money to cover margin interest loans to the firm. Last month, Raymond James arrived at a $5.95M settlement with the Vermont Department of Financial Regulation over violations involving the ski resort. $4.5M of the money was for paying back investors.

Regarding this $1.45M fine, Vermont regulators said that it was a Raymond James representative who set up the brokerage and margin accounts involved in the alleged scam. The financial representative also failed to procure the proper documentation showing that Quiros was entitled to act for certain limited partnerships and let him authorize the transfer of $13M in limited partnership money to buy the ski resort even though written instructions directed otherwise.

Citigroup Admits Wrongdoing Over Blue Sheet Data
According to the SEC, for 15 years, Citigroup Global (C) markets provided the regulator with incomplete blue sheet data regarding trades that it executed. The coding error involved software that the firm used from 5/99 to 4/14 for processing the Commissions’ requests for the information, including data about trade times, prices, volume traded, and information identifying customers. As a result, Citigroup left out nearly 27,000 securities transactions in responses to over 2,300 blue sheet requests.

Puerto Rico Likely To Default on Bond Payments Due on August 1

Published on: July 29, 2016 | by Shepherd Smith Edwards & Kantas, LLP

On August 1, the U.S. Commonwealth of Puerto Rico and its agencies will owe roughly $346 million in bond payments. This latest deadline comes one month after the U.S. Territory defaulted on nearly $1 billion of bond payments that were due on July 1. According to Bloomberg, here is what is due:

· The Puerto Rico Sales Tax Financing Corp. (often called “COFINAs”) owes about $256 million of principal plus interest in COFINAs. S & P Global Ratings has said that the bond trustee has the money to pay the debt that is due next week. COFINAs are paid back from the Commonwealths’ sales tax. This local agency has $15.2 billion of outstanding debt.

· Every month, the territory owes $13.9M of interest, which Puerto Rico has not defaulted on yet.

State Street to Pay $382M for Misleading Clients, Including Mutual Funds, Over Hidden Markups In Foreign Currency Exchange Trades

Published on: July 27, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission has arrived at a global settlement with State Street Bank and Trust Company. According to the regulator, State Street misled custody clients, including mutual funds, about hidden markups that were added to foreign currency exchange trades. The firm will pay $382.4M, including $167M in penalties and disgorgement to the Commission, a $155M penalty to the U.S. Justice Department, and at least $60M to ERISA plan clients.

Among the other services it provides, State Street facilitates indirect foreign currency exchange trading for clients so that they can sell and purchase foreign currencies in transactions involving foreign securities. An SEC probe found that State Street made a substantial chunk of money in revenue when it misled some clients about Indirect FX, claimed that it offered the most competitive rates on trades, charged “market rates,” and provided “best execution.” The Commission contends that the company did not try to get the best prices for clients.

The SEC believes that State Street concealed markups so that custody clients would not notice. It also found that registered investment company custody clients were given monthly transaction reports and trade confirmations that were materially misleading because of misrepresentations about foreign currency exchange transaction pricing.

SEC Stops $5M Fraud, Ex-Investment Adviser Faces Criminal Charges, Another Pleads Guilty, and a Broker is Barred for Bilking Elderly Customer Through Variable Annuities

Published on: July 27, 2016 | by Shepherd Smith Edwards & Kantas, LLP

SEC Wins Asset Freeze Against Two Ex-Brokers in Alleged $5M Fraud
The Securities and Exchange Commission has obtained an asset freeze from a court to stop the alleged ongoing fraud by ex-brokers Douglas Albert Dyer and James Hugh Brennan III. They are accused of raising over $5M from investors and improperly using their money. Both men have disciplinary histories.

According to the Commission, since 2008 Dyer and Brennan had sold purported shares in several companies to over 240 investors but did not register the stock. They allegedly moved this money into their personal accounts or to their wives’ accounts. They also purportedly did not disclose that Brennan was banned from the brokerage industry or that Dyer had been fined and suspended for unrelated unauthorized transactions involving customer accounts.

Also named in the SEC case is Broad Street Ventures, which is Brennan and Dyer’s company. Their wives are relief defendants. The regulator wants ill-gotten gains, interest, penalties, and permanent injunctions.

Ex-Investment Adviser Faces Criminal Charges for Allegedly Stealing Over $5.1M from Clients
Bradley Smegal is charged with securities fraud. The ex-Washington State investment advisor is accused of stealing over $5.1M from at least 14 clients.

Prosecutors say that between 8/07 and 1/13 Smegal persuaded clients to invest with entities that he said “guaranteed” specific return rates and were “conservative.” According to court documents, he failed to disclose he had a stake in the investments, and he moved $825,00K of the funds into his own account.