Investor Lawyers Blog

Commodity Trading Cases: Galileo Trading Fined Over $1.6M, Trader Ordered to Pay More than $141K for Aiding and Abetting Fraud, and Criminal Defendant Must Pay Over $4.7M in Restitution

Published on: April 18, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Galileo Trading to Pay Penalties and Restitution to Settle Commodity Futures Fraud Charges
The U.S. Commodity Futures Trading Commission is filing fraud charges against Nathan Schleifer and his Galileo Trading LLC. Schleifer and his firm are accused of fraudulently soliciting customers to get them to trade commodity futures and for making a number of false statements and material representations to the National Futures Association about their trading practices.

The SEC said that from at least ’99 – ’14, Schleifer and his firm fraudulently obtained at least $2.8M from a number of people for supposed trading in a pooled investment in commodity futures. The Commission claims that Galileo and Schleifer misrepresented to pool participants that they’d had previous success trading in futures. They also purportedly claimed that they were making a lot of money for these pool participants when in reality there were substantial losses.

Schleifer is accused of falsely claiming that he was a skilled money manager. He guaranteed investors minimum returns and told them their money was safe. When at least one individual tried to take money out, Schleifer said he lost the funds during a flash crash in May. Later, he admitted that he lost all of the investor’s money years ago.

CFTC Permanently Bans Trader from Registering with the CFTC
The CFTC has settled charges against Brian Hinman for aiding and abetting a commodity pool fraud involving a number of Texas-based entities owned by Kevin G. White and for the fraudulent solicitation of participants to get involved in Revelation Forex Fund, a foreign currency exchange pool. It was in 2013 that the CFTC filed a federal court action against White and his KGW Capital Management, LLC and RFF GP, LLC. They were ordered to pay $3,365,888 in restitution and a civil penalty of over $4.1M. White is now serving prison time for mail fraud.

SEC Cases: Litigation Marketing Company Accused of Defrauding Retirees, NY Town Officials Hide Money Problems from Municipal Bond Investors, and Ski Resort is Tied to Fraudulent E-B Five Offerings

Published on: April 16, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Elder Financial Fraud: LA Based-Company Accused of Bilking Retirees and Others
The Securities and Exchange Commission is charging PLCMGMT LLC, also known as Prometheus Law or PLC, and co-founders David Aldrich and James Catipay of bilking retirees and other investors. The two men are accused of raising $11.7M by telling investors that their money would go toward bringing together plaintiffs for class action cases and other lawsuits. Investors were promised substantial returns of 100% to 300% from any settlements. PLC is a litigation marketing company based in Los Angeles.

The SEC contends that only $4.3M of the money was used to find prospective plaintiffs and not much revenue was made from any settlements reached. Instead, Aldrich and Catipay took $5.6M to cover their own expenses. The two men downplayed the risks involved and did not disclose that their business model was “unrealistic.” Instead, PLC and its founders claimed that investments were secure and guaranteed when they were actually very speculative and high risk, especially as not all potential plaintiffs typically qualify to become actual plaintiffs. Compound this factor with the reality that winning any lawsuit is never a guarantee.

Our elder financial fraud lawyers at Shepherd Smith Edwards and Kantas, LTD LLP are here to help older investors recoup their losses.

Officials of Ramapo, NY Accused of Hiding Financial Woes from Muni Bond Investors
The SEC is accusing the New York town of Ramapo, its local development corporation, and four town officials of fraud. The Commission claims that the officials committed fraud to hide the financial stress caused by the $60M spent on constructing a baseball stadium, as well as the decline in sales and property tax revenues. The four individuals allegedly cooked the books of Ramapo’s main operating fund to make it seem as if it held positive balances of up to $4.2 million over a six-year period when actually the balance deficit at one point reached close to $14M.

The regulator said that since the town guaranteed the stadium bonds that Ramapo Local Development Corp. (RLDC) had issued, an operating revenue shortfall at the corporation was concealed and investors were not apprised that the town would likely have to subsidize bond payments, which would cause the general fund to lose even more money.

Judge Refuses to Totally Dismiss $1B Mortgage Fraud Case Against Credit Suisse Unit

Published on: April 15, 2016 | by Shepherd Smith Edwards & Kantas, LLP

A judge has ruled that the $1B mortgage fraud case brought against Credit Suisse (CS) unit DLJ Mortgage Capital can be resubmitted. This ruling reiterated U.S. Bank National Association’s contention that a six-year statute of limitations did not bar its claims, which it brought as a trustee.

In 2015, New York Supreme Court Judge Marcy S. Friedman had dismissed the case because the trustee had not made a repurchase demand of Ameriquest, the loan’s originator, according to the pre-suit requirement. However, she rejected DLJ’s claim that because these conditions were not met prior to the statute of limitations they were time barred. Friedman said that if U.S. National were to refile the case, then the issue of the repurchase demand’s impact on the trustee’s ability to file litigation in this matter would be determined on a “fully developed record.”

U.S. National sued DLJ Mortgage Capital in 2013, accusing the securitizer of not complying with its duty to buyback loans that breached of a number of warranties and representations that DLJ made in a contract presiding over the sale of 4,534 residential mortgage loans. The loans, originated by Ameriquest Mortgage Co., were securitized by the trust, sold by DLJ to investors, and came with multiple assurances about their quality. Such guarantees were supposed to place any risks from faulty mortgages with the originator.

The plaintiff contends that rather than construct a loan pool with quality mortgages, Ameriquest, which is no longer in operation, used faulty loans. As a result, contends U.S. National, the trust lost $227M.

Broker Violations & FINRA: PNC Investments to Pay $225K for Overcharging for Mutual Funds and Stifel Nicolaus is Fined $750K For Not Following Reserve Requirements

Published on: April 15, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority has announced that PNC Investments will pay nearly $225K in restitution for charging retirement clients too much for mutual fund investments. According to the regulator, the brokerage firm did not apply waivers for investors in certain Class A share mutual funds even though there was a waiver for front-end charges for eligible customers.

Instead, said FINRA, PNC Investments sold Class A shares customers with a front-end load or other shares that had a back-end load and higher fees and expenses, some of which were charged on an ongoing basis. Because of this, certain customers were charged excessive fees and paid them.

FINRA said that PNC Investments charged 121 customer accounts in excess of $191,740 for mutual funds—although the actual amount, with interest, was closer to $224,750. PNC will pay restitution to eligible investors.

The brokerage firm self-reported the overcharges after reviewing its own conduct last year to assess whether it was issuing the sales waiver to those that were eligible. FINRA said that the broker-dealer experienced lapses in supervision, did not keep up written policies and procedures that were adequate, and failed to help advisers assess when to waive the sales charges.

Houston Pension Fund Files Securities Fraud Case Against BofI Holding

Published on: April 14, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The Houston Municipal Employees Pension System is suing Internet banking company BofI Holding Inc. (BOFI). The pension fund claims that the bank engaged in unlawful lending practices and other misconduct to enhance profits.

For example, according to the complaint, BofI Holdings refinanced a loan to a borrower involved in a gang-run gambling ring, did not disclose that it was using off-balance-sheet entities to buy lottery receivables, gave loans to foreigners with suspect or criminal backgrounds, did not have a healthy compliance system, and failed to tell investors that it was the subject of regulatory and government subpoenas and pending federal probes. The Houston pension fund is seeking class action status.

The case was spurred by a whistleblower court case filed by an ex-junior auditor at BofI Holdings. The whistleblower claimed that the Internet banking company issued loans to certain foreign nationals without properly vetting them even though some of them had criminal pasts. BofI denied his contentions and countered with its own lawsuit.

Elm Tree Investment Advisors Founder, COO Charged in $17M Ponzi Scam

Published on: April 14, 2016 | by Shepherd Smith Edwards & Kantas, LLP

In Manhattan, prosecutors are charging Fred Elm, the founder of Elm Tree Investment Advisors LLC, and Ahmed Naqvi, its COO, of running a $17M Ponzi scam that allegedly bilked over 50 investors. According to the government, the two men falsely claimed they had access to pre-initial public offerings and that their funds would be placed in privately held companies, such as Uber Technologies and Twitter Inc.

Manhattan U.S. Attorney Preet Bharara said that only $7.1M of the $17M was actually invested and investor funds were mixed together in one account. Elm is accused of spending millions of these dollars in expensive purchases, including high-end cars and a nearly $2 million home.

Investors were told that Elm and Naqvi would receive a 2 % management fee and 20% of any profit made. Unfortunately, there never was any profit. $5.2M of new investors’ funds was used to pay earlier investors, which is typical of a Ponzi scam. The two men are accused of making misrepresentations that were fictitious to hide their scheme from investors.

Elm and Naqvi are charged with wire fraud, securities fraud, and conspiracy.

Broker Michael Donnelly Gets Prison Time for Elder Financial Fraud

Published on: April 13, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Michael Donnelly, formerly the president of Coastal Investment Advisors Inc. and its brokerage firm, has been sentenced to 99-months behind bars. Donnelly pleaded guilty to securities fraud and wire fraud that involved stealing money from older investors and unsophisticated investors.

From ’07 through the middle of ’14, Donnelly, a Florida broker, bilked clients and used the funds for his own expenses, including rent, private school tuition for his kids, golf club memberships, and car payments.

He gave investors bogus trade confirmations and account statements to keep the fraud going and claimed that their investments were doing well. In addition to his time in prison, Donnelly is permanently barred from the industry, has to pay $1.99M in restitution, and will serve three years of supervised release. Last year, the Securities and Exchange Commission filed civil charges against Donnelly.

In other senior fraud news, the Financial Industry Regulatory Authority announced that since launching its Securities Helpline for Seniors last year, customers have received back over $1.25m because of calls about possible elder fraud. Already, the hotline has answered 4,000 phone calls from people of all ages.

The FCA Bars Ex-Royal Bank of Scotland Trader Over Libor Rigging

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

U.K.’s Financial Conduct Authority is barring Paul White, an ex-Royal Bank of Scotland (RBS) trader, for misconduct involving the rigging of the London interbank offered rate. The FCA said that White behaved with recknlessness and was not in integrity when he would submit information about Libor related to the Swiss frank and the Japanese yen.

According to the British regulator, from 5/07 to 11/10, White improperly considered requests that came from derivatives traders at two banks when issuing Libor submissions. If any of the information he turned in wasn’t been accurate, this could have changed the rate for Libor in a manner benefitting White and others. In a news release, the FCA said that White had a duty to make sure his submissions were correct and not influenced by his own financial interests or the interests of others.

The regulator provided a transcript that included electronic messages between a broker at another bank and White. The messages indicated that they worked together to rig Libor.

White was the recipient of 68 communications from RBS derivatives traders for Libor submissions. In the exchanges, said the FCA, the traders sought to help their trading positions. There was also a Swiss franc trader that purportedly made such requests verbally for twenty months. White also received requests from a yen derivatives trader who did not work at the firm.

The FCA’s final notice states that White claims that although he took into account trading positions when issuing Libor submissions, his entries were always “correct” and within a range that was acceptable according Libor’s definition. White claimed that he engaged in seemingly improper communications only to “appease.” FCA, however, rejects White’s account of what happened. Yet despite imposing an industry bar against him, the regulator waived what could have been a $354,000 fine because White is undergoing financial difficulties.

Morgan Stanley Still Embroiled in $147M RMBS Lawsuit Brought by IKB Deutsche Industriebank

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

More than three years after IKB Deutsche Industriebank AG sued Morgan Stanley (MS) for over $147.1M in residential mortgage-backed securities, the brokerage firm is asking the New York appeals court to dismiss the case. Morgan Stanley claims that it was the German lender that did not conduct the necessary due diligence.

IKB claims the Morgan Stanley provided offering documents that left out or did not properly characterize different underwriting standards involving the loans that were underlying the securities. The bank claims there were misrepresentations and omissions regarding loan-to value ratios.

The lender says it received inaccurate information about the underlying loans related to how much homeowners had borrowed, the securities’ credit ratings, and the percentage of properties that were occupied by the owners. IKB cited purportedly incorrect statements made about trusts, loans, and mortgages. It accused Morgan Stanley of taking the loans from different originators and bundling them together to package the securities despite knowing there were issues that could make the RMBS problematic.

Goldman Sachs Will Pay $5.06B Over Mortgage-Backed Securities Practices

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

Goldman Sachs (GS) has settled a mortgage case brought by the U.S. Department of Justice accusing the firm of deceptive mortgage practices leading up to the 2008 financial crisis. As part of the deal, Goldman will pay $5.06B to resolve the charges. According to the DOJ, the bank also admitted that it issued representations that were “false and misleading” to prospective investors about the MBS that were up for sale. Details of the deal were announced in January after an agreement was reached in principal.

In a statement of facts, Goldman said that “significant percentages” of the mortgages it bundled with securities sold between ’05 and ’07 were not in line with the information provided to investors about the loans. The bank’s Mortgage Capital Committee approved every residential mortgage-backed security it assesses between December ’05 and ’07 even though they were aware that a lot of the home loans contained compliance and credit defects.

The settlement shows that Goldman was aware that a lot of the subprime loans it was packaging into securities could be defective, including an RMBS it created in ’06 using loans made by Countrywide Financial, which was the largest subprime loan provider. It was during this time that a Goldman manager issued an equity research report recommending that the stock be brought. Responding to the report, the bank’s due diligence head that had supervised the scrutiny of several Countrywide mortgage pools replied, “If only they knew.”

The government said that 70% of total loan pools were not examined for problems even though in one bond pool about 25% of loans that were examined were dropped because their quality was poor. For example, in 2006, Goldman notified investors via marketing materials that one underwriter in particular was dedicated to “quality over volume” when it came to the loans even though its own analysis determined that the underwriter, a Fremont General Corp unit, applied “off market” guidelines. In early 2007, the Fremont unit was shut down after the Federal Deposit Insurance Corp. said that the lender allowed people who couldn’t afford to pay back the mortgages to have them anyways.