Investor Lawyers Blog

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.

Proposed Rule Would Let Consumers Sue Banks

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

A new rule proposed by the Consumer Financial Protection Bureau would let consumers sue banks over a variety of financial products, including bank accounts, private student loans, money-transfer services, installment loans, payday loans, prepaid cards, and credit cards, and certain types of loans. The proposed rule would also prohibit arbitration clauses in consumer financial contracts, again giving more power to consumers.

The CFPB wants to prevent financial companies from employing mandatory arbitration clauses so as to inhibit class action securities cases involving significant quantities of plaintiffs. However, they would still be allowed to obligate consumers to resolve individual disagreements in arbitration. Companies that decide to include arbitration clauses in their contracts would have to notify the CFBP about the specifics of cases, including any awards and claims.

The CFPB said that according to a study it conducted in 2015, arbitration clauses were found in “hundreds of millions of consumer contracts” used by credit card users, private student loan lenders, banks taking insured deposits, as well as in prepaid card agreements and payday loan contracts in certain states.

Ex-Dean Foods Board Member, Pro Golfer Phil Mickelson, and Professional Sports Gambler Are Named in Insider Trading Case

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

The Securities and Exchange Commission has filed civil charges against professional sports gambler William Walters. He is accused of making $40M from an illegal stock tip given to him by former Dean Foods Company board member Thomas C. Davis. The regulator said that Davis, who owed Walters money, gave him insider information about the company prior to market-moving events.

Professional golfer Phil Mickelson, who is a relief defendant in the case, allegedly traded in Dean Foods securities based on Walter’s recommendation. Mickelson then purportedly took the nearly $1M he made from the trading to help repay the gambling debt he owed to Walters. As a relief defendant, Mickelson is not being charged with insider trading or accused of wrongdoing. He will, however, have to pay back the money he made from trading in Dean Foods securities.

As to why Mickelson won’t be prosecuted, The New York Times reports in the article “How to Get Away with Insider Trading,” this is because of U.S. insider trading laws, which bars trading on nonpublic information only if the information has been used or obtained wrongly. This allows parties involved later on in the “chain of information” to benefit from such rules.

Walters and Davis, however, are charged in this case. The SEC’s complaint said that the illegal trading took place over five years.

Texas Appeals Courts Upholds $2.1M Mortgage-Backed Securities Ruling Against Morgan Keegan

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

The Texas Court of Appeals for the Fifth District has upheld a $2.1M judgment for a client of Houston Securities Fraud Attorney Sam Edwards of Shepherd Smith Edwards & Kantas. The ruling ordered Morgan Keegan to pay $2.1M for not telling investors about the actual risks involved in a mortgage-backed securities stake.

It was in October 2014 that a Dallas state court judge determined that the wealth management and capital markets firm had violated the Texas Securities Act by not accurately representing the risks involved in securities in which Purdue Avenue Investors LP and its principals Dana and Robert Howard had invested. These were MBS purchased by bond funds that Morgan Keegan underwrote and Morgan Asset Management managed. The purportedly undisclosed risk was that the funds were heavily involved in lower than investment grade structured finance.

The Howards invested more than $2M in the RMK Strategic Income Fund and the RMK Advantage Income Fund. The funds would go on to lose more than $2B.

SEC Issues More Whistleblower Awards

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

The Securities and Exchange Commission has awarded new whistleblower awards to individuals who have come forward with original and helpful information that have allowed the government to pursue significant securities cases against offenders. By law, a whistleblower is entitled to 10-30% of money garnered when a monetary sanction obtained exceeds $1.

Last week, the SEC announced that it would award between $5M-$6M to an ex-company insider who provided information about his employer’s securities violations. The SEC said that the offenses would have been nearly impossible to identify had it not been for the tip. More specifics about the case were not provided in part to protect the whistleblower’s identity.

The award is the third highest that the Commission has issued to a whistleblower since the whistleblower program when into effect in 2011. The two larger whistleblower awards include one of over $30M in 2014 and another of more than $14M in 2013.

Raymond James to Pay $17M Fine for Anti-Money Laundering Compliance Failures

Published on: May 26, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority is fining Raymond James Financial Inc. https://www.securities-fraud-attorneys.com(RJFS) and Raymond James & Associates (RJA) $17M. The self-regulatory organization is accusing the company of widespread failures related to anti-money laundering compliance.

According to FINRA, from 2006 to 2014 the processes that the firm had in place to stop money laundering failed to line up with its business growth. The SRO said that the company instead depended on “patchwork” systems and procedures to identify suspect activity. Because of this, Raymond James was unable to notice certain “red flags” that arose.

FINRA also said that both firms did not perform the mandated due diligence and risks reviews for foreign institutions. RJFS is accused of not putting into place and maintaining a Customer Identification Program that was adequate.

It was just in 2012 that Raymond James Financial Services was subject to sanctions for its inadequate procedures related to anti-money laundering. The firm said that it would evaluate its AML procedures and programs.

Also sanctioned and fined is former Raymond James Anti-Money Laundering Compliance Officer Linda Busby. She is suspended for three months and must pay a $250K fine. FINRA said that along with the two firms, she did not succeed in setting up AML programs geared toward the two companies, respectively.

By settling, Raymond James Financial Services, Raymond James & Associates, and Busby are not denying or admitting to the FINRA charges.

It is important that financial firms have systems in place to identify suspect transactions that may be signs of money laundering.

FINRA Approves Wider Public Arbitrator List, Proposes Rule Change, and is Accused by Lawmakers of Not Doing Enough to Protect Investors From Bad Advisers

Published on: May 26, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory authority has broadened its list of public arbitrators to preside over cases. The self-regulatory organization will provide dispute participants with the names of 15 public arbitrators, instead of 10, from which to choose. FINRA’s Board also modified its eligibility requirements for who can chair an arbitration panel.

FINRA allows plaintiffs and defendants of arbitration cases to choose three arbitrators.

In other FINRA arbitration news, the SRO is asking the U.S. Securities and Exchange Commission to approve a proposed rule change that would allow monetary awards mandating that parties pay one another damages to be offset. This rule change is for situations in which an arbitration panel awards damages to both the respondent and claimant and one party can’t or doesn’t pay what it owes.

If approved, the rule would allow the party that owes more money to only have to pay the net difference. If arbitrators don’t mean for an award to be offset when both parties owe one another money, they must state so in the award notice.

FINRA Bars Broker From Industry For Allegedly Bilking Older Woman He Met at Church

Published on: May 24, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Former Thrivent Investment Management Inc. broker Miguel Angel Hernandez is now barred from the brokerage industry. According to the Financial Industry Regulatory Authority Inc., he defrauded an older woman whom he met at church. He allegedly took $25K in ’10 but paid her back in ’15 after the misconduct was exposed.

Hernandez is accused of telling the customer that he needed the money to pay for expenses related to his tax business even though he doesn’t own that type of business. Instead, he allegedly used her funds for his own spending.

Hernandez purportedly promised the woman a 2% stake in this supposed business in five years in addition to quarterly payments of nearly $1100 for 3-to-10 years. Even though he is settling, Hernandez is not denying or admitting to the charges.

In other elder fraud news, U.S. Senator Susan Collins (R-Maine) is asking state securities regulators to help her move forward a bill that would make it easier for professional industry members to report when they suspect an older person is being financially exploited. Collins chairs the Senate Aging Committee. She made her request at a recent North American Securities Administrators Association conference.

If passed, the legislation would implement protections so that financial abuse could be reported across the states. While the bill already has several bipartisan cosponsors, it needs additional support to make it through the Senate Banking Committee and the Senate.

Older investors suffer $2.9B in losses yearly as victims of financial scams, and state regulators are ramping up their efforts to combat this type of elder abuse. Sometimes the fraudster is a member of the securities industry. There are also family members, caregivers, and friends that have been known to bilk senior investors.

If you or someone you love is a senior investor and you suspect that he/she is the victim of fraud, contact our elder financial fraud law firm today.

Former Thrivent broker barred from securities business for defrauding woman he met at church: Finra, InvestmentNews, May 17, 2016

FINRA

Senate Aging Committee

Investors Can Sue Bank of America’s Merrill Lynch For Illegal Short Selling in State Court, Rules U.S. Supreme Court

Published on: May 23, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. Supreme Court has issued a unanimous ruling allowing investors to sue Bank of America Corp’s Merrill Lynch (BAC) and other brokerage firms in New Jersey state court even though the lawsuit cites federal laws. The plaintiffs, who are Spectrum Group International Inc. investors, claim that they sustained investment losses because the brokers engaged in illegal short-selling. They are invoking NJ’s RICO statute in their case. RICO is the Racketeer Influenced and Corrupt Organizations Act. It is a federal law that allows for victims of organized crime to seek civil damages. It also provides provisions for other extended penalties. Bank of America Merrill Lynch claims that this naked short selling case is meritless.

The plaintiffs are accusing Merrill Lynch and other broker-dealers of playing a part in causing Spectrum’s market capitalization to drop by $800M in 11 months. The investors said that the firms did this by helping naked short sellers who bet against the company, causing its share price to plunge.

Naked Short Sales
A short sale involves the use of borrowed shares to bet that a security’s price with drop. The short sale is naked if the trader doesn’t borrow the shares required to make the transaction happen. Under Regulation SHO, naked short sales cannot be used to manipulate a security. Still, lawsuits over illegal naked short selling haven’t done too well in federal court.

Emotions Make Older Investors More Vulnerable to Fraud, Says FINRA/Stanford/AARP Study

Published on: May 23, 2016 | by Shepherd Smith Edwards & Kantas, LLP

According to research, some financial fraudsters may try to manipulate investors by getting them to feel strong emotions so that they will hand over their money, and older investors are the ones who most vulnerable to this type of manipulation. Research was conducted and funded by the FINRA Investor Education Foundation, the AARP Fraud Watch Network, and Stanford University psychologists. They said that inducing certain emotions in older individuals may make them more likely to purchase items that were falsely advertised.

The team studied adults in the 65- 85 age group and adults in the 30-40 age group. They sought to find out whether inciting anger or excitement in either demographic made them more susceptible to fraud.

According to their findings, feeling excitement or anger enhanced an older investor’s desire to buy in investment item as opposed to when there was no emotional arousal. Furthermore, the emotional state felt by an older adult did not have to be positive or negative for him/her to become more vulnerable to fraud. As AARP Fraud Watch Network Dr. Shadel stated, whether a fraudster is trying to get an older investor excited about making a lot of money or angry about past or future financial losses, either approach, when used to get them to make a purchase, proved just as impactful. The elderly investor’s rational thinking becomes suspended in the process.

The research found that in younger adults, experiencing strong feelings of excitement or anger did not appear to be a factor in whether or not they would make a purchase. This suggests that heightened feelings do not increase the younger group’s susceptibility to fraud.