Investor Lawyers Blog

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.

“Weekly” Investments Are Popular With Big Traders But Come With Drawbacks

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

With the trading volume for weekly short-term options having grown, our securities fraud law firm wanted to remind investors that there are risks involved in these investments. Weeklys are listed on a Thursday and expire the next Friday. Their popularity is due in part to their lower cost compared to options that expire after a longer period of time. Aggressive traders, such as hedge funds, are among the weeklys’ primary investors.

Weeklys are popular on NASDAQ, CBOE Holdings, OMX, and Intercontinental Exchange. They were introduced in 2005. Weeklys are available on the majority of liquid stocks and a number of individual equities and exchange-traded funds.

Barron’s reported last year that there were over 400 weekly options listed on exchanges. Many of them involve the most popular indexes and stocks. That said, there are negatives to investing in weeklys, including:

· A smaller stock pool

· Higher commissions

· Price executions that are not that favorable

· Lower liquidity options

Hedge Funds Sue Puerto Rico and Its Governor

Published on: July 25, 2016 | by Shepherd Smith Edwards & Kantas, LLP

A group of hedge funds that are holding Puerto Rico debt are suing the U.S. territory and Governor Alejandro García Padilla. Monarch Alternative Capital, Aurelius Capital Management, Stone Lion Capital Partners, Covalent Capital Partner, Aurelius Capital Management, Fundamental Credit Opportunities, and a number of other funds claim that Puerto Rico and Governor García violated PROMESA, which stands for the Puerto Rico Oversight, Management and Economic Stability Act. President Barack Obama signed the new debt restructuring law on June 30, which is when García issued a debt moratorium on the nearly $800 million in general obligation debt that was due on July 1 (along with other Puerto Rico debt for a collective total of about $2 billion). The hedge funds say that Governor García had no legal right to call a debt moratorium in the wake of PROMESA.

The bondholders want the court to stop the island from “unlawfully dissipating” assets before a federal oversight board is appointed. PROMESA places the U.S. territory under the supervision of the board, which is tasked with pressing for fiscal reform and supervising spending. However, the board won’t be in place for at least two months.

In their complaint, filed in United States District Court for the District of Puerto Rico, the creditors claimed that Governor García took advantage of this time gap in implementation and is spending hundreds of million dollars in ways that garner “political favor.” The hedge funds argued that certain expenditures would have been challenged by the board if it were already in place.

The plaintiffs, as holders of general obligation bonds, say they are entitled to some of the money being spent because Puerto Rico still owes them the debt payments. They want the district court to freeze the payments that have been issued and mark them as invalid until the board can take a look at them.

SEC Charges Already-Barred Hedge Fund Manager With Fraud

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

45 years after the Securities and Exchange Commission barred Thomas D. Conrad Jr. from the industry, the SEC has filed hedge fund fraud charges against the 85-year-old Georgia man and his 55-year –old son. According to the regulator, Thomas and Stuart P. Conrad bilked investors in a $10.7M hedge fund in which the older Conrad was the primary supervisory. Also facing SEC charges are the Conrads’ unregistered advisory firms: Financial Management Corporation S.R.L. and Financial Management Corporation.

In its complaint, the SEC said that Thomas generally suspended investor payouts for over four years even though he kept issuing payouts to his son, himself, other relatives, and certain investors. The payouts included $2.3M in redemptions and monies to his wife and himself between ’10 and ’14, as well as approximately $444K to his son.

The Commission said that Thomas violated federal securities law when he didn’t tell investors that he had been barred from the industry over a disciplinary matter in 1971. Offering documents, however, spoke about Thomas’s extensive securities industry experience.

Employees of American Century and New York Life Sue over Excessive Fees with 401(K) Lawsuits

Published on: July 22, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Another two asset management firms are the subject of separate (401)K lawsuits filed by their employees . The plaintiffs claim that American Century and New York Life, respectively, charged excessive fees in their retirement savings plans.
 In Andrus et al v. New York Life Insurance Company et al , a class action lawsuit, plan participants in the the Employee Progress-Sharing Plan and the Agents Progress-Sharing Plan contend that New York Life and affiliated fiduciaries engaged in self-dealing when they kept a MainStay-branded S&P 500 index mutual fund i both retirement plans. New York Life and the subsidiaries own the MainStay brand fund.

The plaintiffs believe that they improperly benefited from “excessive fees and expenses.” They argued that because the defendants have a financial interest in the mutual fund, they neglected to look for lower-cost funds between ’10 and now. Instead, they kept the MainStay fund, which cost 35 basis points, in the two 401(k) plans. They say that this cost participants more than $3M. The plaintiffs are alleging breach of loyalty and prudence under ERISA.

Following Securities Fraud Allegations, Visium Asset Management and Alliance Bernstein Reach Preliminary Sales Deal

Published on: July 21, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Visium Asset Management has arrived at a preliminary sales deal with AllianceBernstein Holding LLP (AB). As part of the agreement, the asset manager will sell the Visium Global Fund, which was its remaining hedge fund. It was just recently that three of Visium’s traders were accused of securities fraud, including the mismarking of securities, and insider trading.

This week, former Visium Asset Management portfolio manager Stefan Lumiere pleaded not guilty to charges accusing him of taking part in a scam to bilk investors. The 45-year-old allegedly inflated a bond fund’s value while overstating its liquidity. The criminal charges against him are securities fraud, conspiracy, and wire fraud.

Last month, former Visium hedge fund manager Sanjay Valvani committed suicide after he was arrested for insider trading that would have occurred from ’05 to ’11. Prosecutors said that he used confidential information about drug approvals to make illegal trades. Valvani allegedly made $25M from the insider trading. Prior to his death he pleaded not guilty to conspiracy, wire fraud, and securities fraud.

Dallas Cowboy Wide Receiver Sues His Former Texas Investment Adviser for Securities Fraud

Published on: July 21, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Dez Bryant, the wide receiver for the Dallas Cowboy, is suing Texas State Senator Royce West for financial fraud. West used to be Bryant’s adviser. The NFL football player is claiming breach of fiduciary and professional obligation.

West was Bryant’s adviser and lawyer. According to the Dallas Cowboy player’s Texas securities fraud case, West recommended his friend David Wells as a financial manager to Bryant even though for had more than $1K in pending judgments against him in 2010 alone.

Because of West’s recommendation, Bryant gave Wells power of attorney and signatory authority over his banks accounts. The football star said that Wells stole more than $200K from him.

HSBC Executives Are Charged with FX Rigging

Published on: July 20, 2016 | by Shepherd Smith Edwards & Kantas, LLP

US prosecutors have arrested HBSC (HSBC) executive Mark Johnson for his alleged involvement in a front-running scam. Johnson is the global head of foreign exchange cash trading at HSBC Bank, which is a HSBC Holdings subsidiary. Also facing criminal charges is Stuart Scott, who is the former head of HSBC foreign exchange cash trading for Europe, Africa, and the Middle East. He was let go in 2014. Johnson and Scott are the first individuals to face criminal charges in the forex rigging probe.

According to the criminal complaint, which charges the two men with conspiracy to commit wire fraud, in 2011 Scott and Johnson inappropriately used information that the bank’s client gave them about a planned sale of one of the client’s subsidiaries. The client had retained HSBC to execute the foreign exchange transaction, which necessitated changing about $3.5B in sale proceeds into British Pound Sterling.

HSBC was supposed to keep the details of this pending transaction confidential. However, Scott and Johnson allegedly misused this information, buying Pound Sterling for the bank’s proprietary accounts, which they held until the transaction went through. This caused the transaction to take place in a way intended to compel the Pound Sterling’s price to jump up.

Ameriprise Financial Advises Clients to Sell OppenheimerFunds Muni Bond Funds with Puerto Rico Debt

Published on: July 20, 2016 | by Shepherd Smith Edwards & Kantas, LLP

According to Bloomberg.com, in the wake of Puerto Rico’s default on July 1 of $911 million of bond payments it owes creditors—including $779 million of general obligation bonds—Ameriprise Financial Inc. (AMP) is recommending that clients sell their OppenheimerFunds (OPY) municipal bond funds that are holding any of the island’s debt. In a report this week, Ameriprise senior research analyst Jeffrey Lindell said that with the acceleration of Puerto Rico bond defaults—as the island tries to lower its $70 billion debt via bondholder losses—mutual funds holding these bonds could end up having to “cut dividend rates.” He also wrote that as Puerto Rico bonds respond to “speculation and news,” the mutual funds’ net asset value could turn “volatile.”

In its recent article, Bloomberg provided data from Morningstar Inc., which reports that as of the end of March, Oppenheimer held $3.5 billion of Puerto Rico securities in 19 funds, which is more than anyone else. Now, Ameriprise wants clients to look at investment options that are not as risky as the funds holding Puerto Rico municipal bonds. The firm is suggesting that clients sell investments involving 16 Oppenheimer muni funds. Included in the recommendation to sell are a number of state specific municipal bond funds, including the:

· Oppenheimer Rochester Virginia Municipal (ORVAX)
· Oppenheimer Rochester Pennsylvania Municipal (OVPAX)
· Oppenheimer Rochester Maryland Municipal (ORMDX)
· Oppenheimer Rochester North Carolina Municipal (OPNCX) and
· Oppenheimer Rochester Arizona Municipal (ORAZX)

Several days after the July 1 default, credit rating agency Standard & Poor’s (SP) reduced the U.S. territory’s credit rating to “default” status. The default was not the first time Puerto Rico was unable to cover debt payments that were due—although it was the first default involving Puerto Rico’s general obligation debt, which was supposed to have a constitutional guarantee.

It was in May that NY City Council Speaker Melissa Mark-Viverito asked the SEC to investigate whether OppenheimerFunds played a part in causing Puerto Rico’s financial crisis to worsen. Mark-Viverito believes that banks, hedge funds, and other investors who bought into Puerto Rico utility debt and general obligation bonds contributed to the territory’s debt woes.

SEC Advisory Committee Recommends Broadening Accredited Investor Pool

Published on: July 19, 2016 | by Shepherd Smith Edwards & Kantas, LLP

In a voice vote on Tuesday, the U.S. Securities and Exchange Commission’s Advisory Committee on Small and Emerging Companies is making a recommendation to broaden the criteria for which investors are eligible to purchase unregistered securities. Currently, an accredited investor that can invest in these securities must have made at least $200K/year for the last two years or have a net worth of at least $1M (the value of one’s main residence not included). Under the recommended broader requirements, investors who have a chartered financial analyst or similar credential, or who have passed the series 82, 65, or 7 securities license exams, would also qualify. The advisory committee wants to create a bigger pool of accredited investor applicants to help small companies raise more funds.

Although the SEC committee’s recommendation isn’t binding, SEC Chairwoman Mary Jo White said that it is important to modify the existing accredited investor definition. The Dodd-Frank Act requires the Commission i to periodically look at the criteria defining an accredited investor.