Investor Lawyers Blog

Hedge Funds Sue Puerto Rico’s Government Development Bank Over Assets

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

Problems continue to plague Puerto Rico as its financial situation continues to deteriorate. Just recently, as things have worsened for the U.S. territory, a number of hedge funds have asked the United States District Court in San Juan, Puerto Rico to freeze the assets of the Commonwealth’s Government Development Bank (“GDB”). The hedge funds, who are large owners of Puerto Rican debt, are accusing the bank of insolvency and spending its remaining money to help support other sectors of the island’s beleaguered government.

The plaintiffs in the case include Claren Road Asset Management and Brigade Capital Management. The hedge funds reportedly hold about $3.75 billion of the bank’s debt.

In their lawsuit, the hedge funds said that the GDB has not provided the financial data that creditors have requested. They want the Court to prohibit additional cash transfers except for those that are necessary. The hedge funds do not want public entities, municipalities, and other depositors to be able to take their money out.

The plaintiffs expressed concern that should the GDB run out of funds, a lot of essential services may have to stop and creditors would sustain significant losses. The GDB has a debt payment due on May 1 of about $422 million. In response to the hedge funds’ case, GDB President Melba Acosta-Febo claimed that the accusations made in the complaint are “erroneous” and allegations that the GDB knowingly kept back financial information in order to preference deposits over bondholders are “wholly false.”

The hedge funds believe that GDB kept giving loans even while knowing these loans would likely not be repaid.

Credit Suisse Wants Appeals Court to Dismiss NY AG’s $11.2B Residential Mortgage-Backed Securities Fraud Lawsuit

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

A number of Credit Suisse Group (GS) units want a NY court to rule that the RMBS case brought by Attorney General Eric Schneiderman is time-barred in the wake of precedent from the state’s highest court. The AG, who brought the case under the Martin Act, is seeking more than $11.2B.

According to the complaint, in ’06 and ’07 Credit Suisse put together over 60 residential mortgage-backed securities with about 248,000 loans. 24% of the loans have since been liquidated and investors have lost $11.2B on initial balances of about $93.8B. The state claims that investor losses resulted because of the bank’ determination to raise the volume of mortgages it bought and the securities it generated. Credit Suisse employees purportedly paid a higher price for mortgages and didn’t address reports of problems identified by due diligence forms so as to preserve relationships with mortgage originators. The bank is accused of making false claims about due diligence when choosing which mortgages to bundle with the securities.

$12M Ponzi Scam May Be Connected to Possible NYPD Corruption, Reports Newsweek

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

According to a law enforcement source that spoke to Newsweek, there may be a connection with a $12 million Ponzi scam involving restaurateur Hamlet Peralta and an investigation that the FBI is conducting into allegations of corruption at the NYPD. Peralta, who is the purported mastermind of the alleged scheme, has been arrested.

According to a federal indictment, investors thought they were investing in Peralta’s wholesale liquor business. Instead, he used $700K of their funds on liquor and over $11 million to pay earlier investors, purchase spa treatments and cover his other expenses. Peralta purportedly lied when he told investors that he was the owner of the West 125th Street Liquors. (The business belongs to his sister.) One investor gave Peralta over $3.5M.

Peralta is charged with wire fraud. At least 12 investors were allegedly bilked. Peralta is said to have promised them regular interest rate returns that he claimed would come from profits made by his business. Instead, he misappropriated the money.

Now, Newsweek is saying that the liquor scam may be tied to the FBI’s NYPD probe. The FBI is reportedly looking into whether senior members of the police department received gifts in exchange for favors from two businessmen who invested with Peralta.

California Venture Capitalist to Disgorge $4.875M to Settle Institutional Investor Fraud Charges

Published on: April 6, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The SEC and G. Steven Burrill have reached an agreement to settle charges accusing the biotech venture capitalist of taking money from a fund overseen by his firm to pay for his expensive lifestyle and help support his other businesses. Burrill is accused of hiding from investors that he siphoned money from Burrill Life Sciences Capital Fund III while claiming that the cash was going toward management fees. In truth, claims the regulator, Burrill used the money to pay for private jets, lavish vacations, gifts, and other items. The investors of the fund include public companies, state pension funds, and others.

Burrill and his Burrill Capital Management have consented to disgorge $4.785M that he is accused of stealing plus pay a $1M penalty. He also will be barred from the securities industry. Commenting on the case, SEC Enforcement Division Director Andrew J. Ceresney said that despite having registration exemption, Burrill and other venture capital advisers have a fiduciary obligation to clients. Ceresney accused Burrill of prioritizing his own interests over that of his clients.

Also settling SEC charges are Burrill Capital Management controller Helena C. Sen and chief legal officer Victor A. Hebert. Hebert is accused of agreeing to call in more money from fund investors even while knowing that the cash would be spent on unrelated expenses. Sen is accused of, along with Burrill, at least twice delaying payment distributions that fund investors were owed so that Burrill’s personal spending and the salaries of Sen and Hebert would continue to be paid. It was in 2013 that the fund’s Investment Committee noticed that all of the capital that had been committed was already spent.

Securities Fraud: Ex-SWS Financial Services Broker Faces Improper Trading Charges, Ex-Fox Commentator Settles Penny Stock Scam Case, and Former Investment Adviser Gets 7-Years in Prison

Published on: April 6, 2016 | by Shepherd Smith Edwards & Kantas, LLP

FINRA Accuses Ex-Broker of Unsuitable Trading Involving Mutual Funds
David Randall Lockey, a former broker, is facing Financial Industry Regulatory Authority charges for allegedly engaging in improper trading of customer accounts while associated with SWS Financial Services Inc. He is no longer with that firm, now called the Hilltop Securities Independent Network. According to the regulator, Lockey took part in “unsuitable short-term trading and switching” involving unit investment trusts and mutual funds in four accounts between ’12 and ’14.

Lockey purportedly made about $75,730 for himself and the firm while engaging in improper trading. Meantime, three of the four customers whose accounts he used sustained losses of $15,699. The fourth customer made a gain of almost $5,000.

FINRA said Lockey has not been registered with any broker-dealer since 2014.

Ex-TV Commentator Settles Penny Stock Fraud Charges with the SEC
The U.S. Securities and Exchange Commission is charging former FOX commentator Tobin Smith with fraud. According to the regulator, Smith, who is also a market analyst, and his NBT Group fraudulently promoted a penny stock to investors.

The SEC said that both Smith and his firm received payments to prepare and distribute e-mails, articles, blogs, and other communication promoting IceWEB Inc. stock. They purportedly failed to fully disclose they were receiving the compensation.

The investors were not made aware of that part of what Smith and NBT were paid was linked to a sustained rise in the data storage company’s share price. The Commission said that marketing materials the investors received included misleading and false statements put there to artificially up the share price and trading volume of IceWEB stock. For example, payment for promotional efforts was $300K and IceWEB stock. NBT could also make over $250K if marketing campaigns proved successful.

Two Ex-State Street Executives Face Criminal Charges Involving Institutional Investor Fraud

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

Federal prosecutors are charging Ross McClellan and Edward Pennings with securities fraud and wire fraud. McLellan was formerly with State Street Corp.’s (STT) brokerage firm unit in the US and Pennings worked for the bank in London. According to the government, the two men secretly charged six clients excess commissions for billions of dollars of securities trades. The clients included government pension funds in Britain and Ireland and a sovereign-wealth fund in the Middle East.

The two former State Street executives allegedly charged clients the trading commissions in addition to the fees that the latter had already agreed to pay and even though they specifically were not supposed to charge them commissions. The men purportedly ran their scam from 2/10 through 9/11, allegedly making millions of dollars in the process.

Although State Street wasn’t officially named in the criminal indictment, The Wall Street Journal reports that the firm’s senior vice president, Carolyn Cichon, verified that two of the bank’s former employees were involved in the matter. It was in 2014 that the U.K. Financial Conduct Authority fined State Street’s unit in that country $32.4M for charging clients $20.2M in excess commissions.

Four Face SEC Charges in Florida Elder Abuse Scam Involving Free Dinners

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

The U.S. Securities and Exchange Commission is charging four men with fraud. The regulator claims that Joseph Andrew Paul, James S. Quay, John D. Ellis, Jr., and Donald H. Ellison sought to bilk investors, including seniors, by promising them lucrative returns for their money.

The SEC contends that Ellis and Paul lied about their investment advisory firm’s performance record, generated fraudulent marketing collateral that included performance figures from the website of another firm, and recruited Quay and Ellison to be part of the scheme. The latter two then purportedly used the fraudulent materials to deceive investors who answered a mass mailing that offered a free dinner at a restaurant in Florida. Quay, who previously was found liable for securities fraud and convicted of tax fraud, allegedly used the name “Stephen Jameson” as an alias to hide his real identity. The SEC said that Jameson was not a registered investment professional when the allegedly fraudulent behavior took place, nor was Ellison for most of that time.

“Free Lunch” Seminars
The Commission has warned more than once that when it comes to investment seminars there is no such thing as a “free lunch.” While you, as the attendee, may not have to pay for the food, these seminars are educational programs and investment workshops geared toward getting you to buy an investment product that a host or an affiliate is touting.

While there are plenty of legitimate investment seminars, there are those that have purposely been set up to bilk prospective attendees. At such gatherings there may be fake products sold, misrepresentations about risks and returns made, conflicts of interest related to the products for sale and the information provided, and advertising collateral that is misleading or inaccurate. Unfortunately, older investors continue to be a favorite target of financial scammers.

At Shepherd Smith Edwards and Kantas, LTD LLP, our elder financial fraud lawyers are here to work with investors to get their money back.

California Sues Morgan Stanley for Purportedly Selling Bad Investments

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

The State of California is suing Morgan Stanley (MS) for allegedly selling bad residential mortgaged backed securities. According to lawmakers, the firm sold residential mortgage-backed securities as risky loans to subprime lenders while downplaying or hiding the risks and at times encouraging credit raters to bestow the securities with high ratings that were not warranted. Because of these RMBS sales, contends the state, the California Public Employees’ Retirement System (CALPERS) and California State Teachers Retirement System (CalSTRS) sustained devastating losses.

California claims that the firm violated the state’s False Claims Act and securities laws. A significant part of the case challenges Morgan Stanley’s behavior when marketing the Cheyne SIV, which was a structured investment vehicle that failed nine years ago. State Attorney General Kamala Harris is seeking $700M from the firm, as well as over $600M in damages.

Meantime, Morgan Stanley has argued that the case is meritless. It contends that the RMBSs were sold and marketed to institutional investors who were sophisticated enough to understand the investments. They claim that the RBMBs performed in a manner that was in line with the sector to which it belonged.

It was just recently that Moody’s Corp. reached an agreement with CalPERS to pay the California pension fund $130M to resolve allegations that the credit rating agency may have acted negligently by giving high ratings to toxic investments. CalPERS contended that its purchase of the investments cost it hundreds of millions of dollars.

Brothers Accused of $2.7M Ponzi Scam Involving Elderly Investors

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

The Securities and Exchange Commission has filed charges against brothers Daniel Rivera and Matthew Rivera with fraud. The two men are accused of running a $2.7 million Ponzi scam that targeted unsophisticated older investors.

According to the SEC, from ’08 to ’14, Daniel told investors that they could make money from Robbins Lane, which was a real estate venture in Pennsylvania. On occasion, he even purportedly recommended to some of them that they sell their retirement assets to invest in the venture.

In truth, said the Commission, Robbins Lane, which the Rivera brothers founded, lacked an investment portfolio and the ability to provide the senior investors any income. Yet Daniel set up a Robbins Lane website and produced a brochure touting the opportunity as one that gave older investors “guaranteed” income every month.

However, rather than invest the fund Daniel used the money to cover his own expense and his daughter’s college tuition. He diverted some of the money toward a janitorial business that he ran with Matthew. Hundreds of thousands of dollars in investor money went to pay other investors.

Insider Trading: Ex-Goldman Employee to Pay $900K Fine, Former Harman VP Enters Guilty Plea, and Ex-AMO CEO Asks Judge To Stay Lawsuit

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

Former Goldman Employee Fined Over $900K For SEC Insider Trading Case
Former Goldman Sachs (GS) compliance worker Yeu Han will pay over $903,000 to settle allegations by the U.S. Securities and Exchange Commission accusing him of insider trading. Han was hired by the firm to develop surveillance software to help Goldman identify illegal conduct, including insider trading and market manipulation.

According to the regulator, Han was employed in the firm’s compliance division. He had access to the emails of other Goldman employees who worked on confidential acquisition and merger deals. The SEC contends that even though Han was aware that this information was privileged and nonpublic, and that he would have to get supervisory clearance and disclose his brokerage accounts to engage in any trading, in December 2014 he started trading in the securities of a number of companies before each one publicly announced acquisition and merger news. These companies included Zulily Inc., Yodlee Inc., KLA-Tencor Corp., and Rentrak Corp.

The Commission is accusing Han of making over $468K through his personal account and more than $434K through the account of a relative. Last October, Han left the United States and went to China, where he is a citizen. In November, the SEC filed the insider trading charges against him.

Ex-Harman International VP Pleads Guilty to Insider Trading
Dennis Hamilton, a former vice president of tax at Harman International Industries Inc. has pleaded guilty to insider trading. For the one count of securities fraud, the 45-year-old faces up to 20 years behind bars—although recommended federal guidelines could help him to procure a one-to-two-year prison term instead.