Investor Lawyers Blog

Institutional Fraud Cases: Shareholders Sue PJT Partners Over Andrew Caspersen’s $95M Fraud, Sabal Limited Sues Deutsche Bank, and Dallas Pension Fund Sues Firm

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

Securities Case Brought Over Caspersen Fraud
Shareholders of PJT Partners Inc. have brought a class action lawsuit against the publicly traded investment bank. The complaint comes in the awake of the arrest of Andrew Caspersen, who previously was one of the top officials at the bank’s Park Hill Group unit. Caspersen is accused of running a $95M fraud in secret. He is also a defendant in this lawsuit.

According to authorities, Caspersen falsely told investors that he was raising funds for supposed private equity investments when actually he was placing their money in high-risk options bets. He lost millions of dollars through options trading in his own accounts. Among his investors were the charitable foundation of a hedge fund and other institutional clients.

Caspersen was arrested and charged last month, as well as fired from PJT Partners. Investor Gregory Barrett claims that the investment bank misled shareholders by not disclosing that it had inadequate fraud prevention and compliance controls. The shareholder lawsuit points to purported evidence of alleged control failures, including an anonymous quote in the New York Times stating that Caspersen had availed of Park Hill Group’s payment system to give investors invoices and keep his scam going.

Sabal Sues Deutsche Bank Over Swap Transaction
Sabal Limited LP is suing Deutsche Bank AG (DB). Sabal claims that the German bank falsified documents after coming to the realization that the outcome of a swap transaction wasn’t going to be in its favor. Deutsche Bank is accused of improperly holding nearly $1M from the Texas asset management firm.

According to Sabal, in 2011, Deutsche Bank proposed a way of “cheapening” the firm’s capital costs through a swap tied to the DB Pulse USD Index. Deutsche Bank purportedly said that if the swap was based on this index it would generate a lot of funds. The transaction was finalized a few months later.

Oppenheimer Still Has Substantial Funds in Puerto Rico Municipal Bond Debt

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

According to InvestmentNews, even with Puerto Rico heading toward default on its $72 billion in municipal debt, there are a number of funds that continue to hold the U.S. Territory’s bonds in their portfolios, such as the:

· U.S. Oppenheimer Rochester Maryland Municipal (ORMDX)—Morningstar said that as of the conclusion of February the fund had 48.2% of assets in Puerto Rican debt.

· Oppenheimer’s (OPY) Virginia municipal bond fund (ORVAX) reportedly had 40.8% of its assets in the U.S. territory.

· Eaton Vance Oregon Municipal Income (ETORX) had 9.31% of its portfolio in Puerto Rico bonds.

· MainStay Tax-Free Bond (MKINX) had 8.8%.

InvestmentNews also reports that during a conference call on April 7, management for Oppenheimer Rochester said that about half of its funds’ holdings were in COFINA bonds or general obligation bonds, both from Puerto Rico.

NOVA Bank Executives Convicted Over Scam to Defraud Government of Over $13M

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

Ex-NOVA Bank CEO and president Brian Hartline and Barry Bekkedam, the bank’s former chairman, have been convicted of defrauding the government when trying to get over $13M in Troubled Asset Relief Program (TARP) funds.

By 2008, bad loans and investments had placed the bank at risk of failure. To try to save the bank, parent company NOVA Financial Holdings applied for about $13.5B in TARP funds. NOVA Bank then received approval for the money as long as it raises $15M from investors.

To make the bank appear more financially healthy, Hartline and Bekkedam made it seem as if outsiders were sending funds to NOVA Bank when, in truth, the bank was recycling its own cash. For example, Nova wired $5M to the account of a Florida businessman, who then wired the money to an account for investments in the parent company. In 2009, Hartline and Bekkedam persuaded two other people to make “investments” with the use of loans from the bank. They told employees to lie to the US Treasury Department about this new money.

Ponzi Fraud: Victims of Tom Petters to get $172M, Court Affirms Former Madoff Employees’ Convictions, and Grand Jury Indicts Real Estate Investor Petters Ponzi Scam Victims to Get Back $172M

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

Petters Ponzi Scam Victims to Get Back $172M
Victims of Tom Petters’ $3.65B Ponzi scam collapse are about to get $172M. Petters were sentenced to 50 years behind bars for bilking investors out of all that money.

Investors thought they were putting their money into the purchase of consumer electronic goods that were to be resold at a profit to retailers. Instead, the funds went toward supporting Petters’ companies and his extravagant lifestyle. There are also over 100 lawsuits pending against specific investors that will hopefully bring in more money for the victims.

Petters was convicted of wire fraud, conspiracy to commit wire fraud, conspiracy to commit mail fraud, mail fraud, conspiracy to commit money laundering, and money laundering.

Potential investigators were given bogus documents listing goods that Petters Company’ PCI had purportedly bought from vendors and then sold to retailers. Falsified records made it appear as if PCI had invested money, too. In Ponzi-like fashion, earlier investors were paid with the money of subsequent investors rather than from real profits.

Appeals Court Affirms Ex-Madoff Employees’ Convictions
The U.S. Court of Appeals for the Second Circuit said that the convictions of five former employees who worked for Bernard Madoff were proper. Daniel Bonventre, JoAnn Crup, Annette Bongiorno, George Perez, and Jerome O’Hara were convicted in 2014 for aiding Madoff in his $20B Ponzi scam and making money from the fraud.

LPL Subject to Lawsuits In the Wake of Stock Drop

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

A number of lawsuits have been brought against LPL Financial (LPLA) after its stock price fell. There is the securities case brought by the Charter Township of Clinton Police and Fire Retirement System, which is a Michigan pension fund. Also, in New York last March, a number of lawyers filed a shareholder lawsuit.

Both securities cases want damages that shareholders of record would have sustained between 12/8/15 and 2/11/16. A major allegation is that LPL misled investors to raise its stock price while putting through a $250M share buyback plan that benefited one private equity investor.

According to the Michigan pension fund, LPL CFO Matthew Audette and LPL CEO Mark Casady took part in a scam to let private equity investment firm TPG Capital sell LPL shares at a price that was artificially inflated. The NY shareholder lawsuit is accusing the independent brokerage firm of issuing statements that were materially false and misleading to investors and not disclosing that its clients’ assets and gross profits were becoming weaker.

Addressing the allegation, Casady downplayed the share buyback program’s timing and execution that allowed the private equity investor to sell 4.3M million stock shares back to the firm soon before the shares, as described by InvestmentNews, “went into a tailspin.” He said the stock buyback happened under a set of expectations that was reasonable.

Broker News: J.P. Morgan Firms to Pay $1M Fine, FINRA Bans Broker For Money Laundering, and Former Maine Broker Gets 3-Years in Prison for Fraud

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

Two J.P. Morgan Firms Fined over Deficiencies
J.P. Morgan Securities and J.P. Morgan Clearing Corp. have been fined $775K and $250K respectively for several deficiencies. J.P. Morgan Securities is a broker-dealer of the bank JPMorgan Chase (JPM). .J.P. Morgan Clearing is the custodian, clearing, lending, and settlement arm of the bank. The fines were imposed by FINRA.

According to the self-regulatory organization, the firms committed a number of breaches that violated FINRA and SEC rules. The alleged violations by the brokerage firm mostly affect clients of J.P. Morgan Private Bank and JPMS Heritage Private Client Services, which are two JPMS Global Wealth Management businesses.

From 9/07 to 2014, JPMS purportedly did not send letters to clients confirming modifications to their investment goals within 30 days of the changes. JPMS also allegedly did not collect and check the outside brokerage account statements of nearly 2,000 representatives from ’12 – ’13. Morgan Clearing Corp. is accused of, from ’11-’13, not sending out yearly privacy notices to hundreds of thousands of account holders at the broker-dealers where it provides clearing and custody.

Broker Banned by FINRA for Money Laundering
The Financial Industry Regulatory Authority said that it is barring James Van Doren. The broker was sentenced to 15 months behind bars for a money laundering scam.

According to FINRA, Van Doren took part in unethical behavior by helping to make it possible for a childhood friend and business associate to avoid certain legal duties. The former broker invested in a number of real estate deals with the friend’s company and helped conceal assets when the company couldn’t fulfill its duties.

He also accepted $244K from the friend to hide the assets that his creditors were looking for. He eventually returned most of the funds to the friend while keeping some for financial losses he sustained.

Hedge Fund Investors Want to Withdraw $1.4 Billion from Brevan Howard Master Fund

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

According to Bloomberg sources say that investors in Brevan Howard Asset Management’s primary hedge fund are asking to withdraw about $1.4M from the fund in the wake of successive yearly declines and losses from the first quarter.The fund is the Brevan Howard Master Fund, which invests in different asset classes.

As of the end of March the fund managed $17.6M, which is an approximately a $27B decline from two years ago. Brevan Howard has until the end of June to meet investors’ redemption requests.

Its investors aren’t the only ones seeking their money back. According to Hedge Fund Research Inc., many other investors were not happy with the way a number of hedge funds have performed recently when there was trouble in the markets. Last quarter, investors pulled more money from the funds than they have since the end of the financial crisis.

Recently, reports New York City’s pension for its civil employees voted to take out $1.5B from hedge funds. The New York City Employees Retirement System took its investment out of a number of hedge funds due to unsatisfactory performances. Meantime, Tudor Investment Corp.’s clients asked to take out over $1.B from the firm in the wake of unimpressive results over the last three years.

Judge Dismisses Scottsdale Capital Advisor’s Lawsuit Challenging FINRA’s Enforcement Authority

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

U.S. District Judge Deborah K. Chasanow has dismissed Scottsdale Capital Advisors’ securities case claiming that the Financial Industry Regulatory Authority did not have legal authority to enforce securities laws. The self-regulatory organization had filed an administrative case against the financial firm, accusing it of selling unregistered penny stock shares.

In March, Scottsdale filed its complaint, contending that the claims brought by the regulator came out of violations of the Securities Act of 1933, which it believes that the Securities and Exchange Commission, and not FINRA, has purview over when it comes to enforcing it the act. However, Scottsdale also said that both the SEC and FINRA did not have the “realm of expertise” to make a ruling in the SRO’s case against it.

Judge Chasanow dismissed Scottsdale’s lawsuit citing lack of subject matter jurisdiction. She said that the allegations brought by FINRA as they pertain to the penny stock trades should not be in heard in federal court.

Sen. Elizabeth Warren Calls Out the SEC for Not Stopping Hedge Fund Billionaire Steven Cohen From Starting New Hedge Fund

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

U.S. Senator Elizabeth Warren chastised the Securities and Exchange Commission for not barring billionaire Steven Cohen from starting a new hedge fund just months after the regulator scolded him for not properly overseeing an ex-employee convicted of securities fraud.

In 2013, Cohen’s SAC Capital consented to pay $1.8 million and pleaded guilty to fraud charges accusing the hedge fund of allowing insider trading to take place. It wasn’t until January of this year, however, that the SEC told Cohen that he was barred from managing the money of other people until 2018. Now, however, he is already involved in efforts to start Stamford Harbor Capital, a new hedge fund, of which he owns 25%.

Criticizing the SEC in a letter to its chairperson, Mary Jo White, Senator Warren said that Cohen’s application to start the new hedge fund, which the Commission approved, is just another example of the regulator’s enforcement actions failing to properly punish parties that are guilty, not protecting investors, and failing to impede future wrongdoing. It was just this January that Warren said that she believed that U.S. companies manage to commit crimes in part because of poor enforcement. She pointed to the SEC as an agency that often does not succeed in using the full scope of its enforcement powers.

In its case against Cohen, the SEC accused him of not properly supervising Mathew Martoma, who was convicted in of insider trading that allowed SAC to make gains and avoid losses of $276M. (Martoma is appealing his conviction.) While Cohen did not admit to wrongdoing when settling the SEC case, he did retain an independent consultant to ensure legal compliance.

Texas-Based Linn Energy Extends Deadline for Exchanging LINE Units for LNCO Shares

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

Linn Energy (LINE) says that its unit holders have until April 25 to exchange their units for LinnCo shares. According to SeekingAlpha.com, the Texas-based company is making the deal to avoid CODI (cancellation of debt income).

As it stands, Linn Energy has suspended its distribution and is making interest payments on its unsecured debt just in time before its 30-day grace period to make the payments ends in order to avoid a default. According to Nasdaq.com, the energy player paid interest of $60M on senior debt. At some point, Linn Energy may have to file for bankruptcy.

This month, Zach Investment Research downgraded Linn Energy shares from a buy rating to a hold one. It sent investors a research report with this new information. Stifel Nicolaus (SF) also lowered shares of the oil and gas company from a hold rating to a sell one in February. In March, Robert Baird lowered its target price on Linn Energy shares and established a neutral rating for the company in its research note. In December, Barclays (BARC) reaffirmed its hold rating of the shares. Ladenburg Thalmann downgraded Linn Energy from neutral to a sell rating and Citigroup (C) did the same in its research note.