Investor Lawyers Blog

Stockbroker Fraud: Ex-JPMorgan Broker Who Gambled Gets Five Years, FINRA Bars Broker Over Elder Financial Fraud, Risky Alternative Investment Sales and Ex-Broker is Indicted by Jury for Allegedly Bilking Clients of $2.8M

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

Former JPMorgan Broker Who Stole Over $20M from Richest Clients, Gambled, Goes to Prison
Michael Oppenheim, a former broker with JPMorgan Chase & CO. (JPM), has been sentenced to five years behind bars. Oppenheim pleaded guilty last year to stealing over $20 million from 10 of his richest clients. At one point Oppenheim managed nearly $90 million for 500 clients. He claims he was addicted to sports gambling.

He began betting on NFL games in 1993 and later got involved in online sports betting. After losing hundreds of thousands of dollars, he began stealing from clients to cover his losses. Oppenheim also started options trading in tech stocks to repay these clients and in one day lost $2.7M. He concealed the theft by providing customers with bogus account statements.

Prosecutors contend that Oppenheim persuaded clients to take out up to millions of dollars from their accounts by promising to put their money in low risk municipal bonds that would be kept at the bank. Instead, he used the funds to get cashier’s checks that he deposited into accounts that were his but located outside the bank. Oppenheim purportedly targeted clients he knew wouldn’t be watching their accounts closely. His scam went on for over seven years.

FINRA Bars Broker for Senior Financial Fraud
The Financial Industry Regulatory Authority has barred David Joseph Escarcega from the financial industry. Escarcega is accused of making a dozen unsuitable recommendations involving debentures tied to the life insurance policy secondary market and targeting elderly clients. He must also pay a $52,270 fine, which is how much he kept in commissions.

According to FINRA, Escarcega sold the debt instruments, which were issued by CWG Holdings Inc., from 3/12 to 6/13. The regulator said that the debentures were very risky and only suitable for investors that could afford to lose all of their investments. The 12 customers involved in this matter were not that type of investor. A lot of the investments were placed in IRAs.
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SEC Cases: Ex-AIG Broker-Dealers to Pay $9.5M For Purportedly Directing Investors Toward Pricier Mutual Funds, California Water District Resolves Bond Offering Charges for $125M, & Businessman is Accused of Stealing Investor Money

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

Former AIG Affiliate Brokerage Firms to Pay $7.5M Fine, $2M Restitution Over High-Priced Mutual Funds
Royal Alliance Associates, FSC Securities Corp., and SagePoint Financial have agreed to pay over $9.5M to resolve Securities and Exchange Commission charges accusing them of guiding clients toward expensive mutual fund share classes so that the firms could garner additional fees. The brokerage firms were formerly under the AIG Advisor Group umbrella.

According to the regulator, the firms put clients in share classes that charged 12b-1 fees for distribution and marketing even though they were eligible to purchase shares that didn’t come with these added fees.

Because of the placement in the costlier fund classes, the firms collected an additional $2M in fees and did not disclose their conflict of interest in choosing the share classes that would make them more money.

The AIG affiliates are accused of not monitoring advisory accounts quarterly to make sure that churning didn’t take place. The SEC order is claiming breach of fiduciary duty and numerous compliance failures.

California Businessman Allegedly Stole Investor Money, Covered Up Fraud
Daniel R. Nase is accused of stealing investor assets and then trying to conceal the theft once the SEC discovered his scam. The regulator claims that the California businessman raised funds from investors via an unregistered offing of common stock in his Bic Real Estate Development Corp. He then used the funds to cover his own bills.

The Commission said that Nase, who was not registered with any state regulator or the SEC to sell investments, told investors that his company would invest in promissory notes and real estate. Instead, he improperly placed those under his name, his wife’s name, of the name of their family trust. He allegedly tried to hide his fraud by investing the assets that he stole back into BIC to make it look like he was raising his equity stake in the company.

California Water District Accused of Misleading Investors in $77M Bond Offering
The SEC is charging Westlands Water District with misleading investors about its financial state while issuing a $77M bond offering. The agricultural water district is the largest one in the state of California.

According to the SEC, Westland, in prior bond offerings, consented to keep a 1.25 debt service coverage ratio but discovered in 2010 that a lower water supply and drought conditions would keep it from making enough money to keep up that ratio, which measures an issuer’s ability to make future bond payments. To meet the ratio without upping customer rates, Westlands reclassified the funds.
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Genworth Financial Settles Class Action Securities Lawsuit for $219M

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

Long-term-care insurance company Genworth has reached a $219M settlement with plaintiffs of a class action securities case claiming misrepresentations related to its business. The complaint alleges securities law violations by the insurer, its chief executive Tim McInerney, and ex-CFO Marty Klein, including misrepresentations of its core business’s profitability and the reporting of financial results that understated the needed reserves.

The inaccurate disclosures played a part in the significant drop in Genworth share’s price, causing shareholders to sustain damages. Meantime, Genworth continues to argue that the plaintiffs’ claims have no merit. The company said that it decided to settle to avoid the further cost and burden of continued litigation.

The lead plaintiffs in the case are the Canadian province of Alberta, which purchased over 1.2M Genworth common stock shares during the class period at issue, and the Fresno County Employees’ Retirement Association in California, which purchased nearly 200,000 shares. Genworth started reporting results of a review of its reserves for long-term-care insurance in October 2013.

The reserves are the funds put aside to pay for future benefits that are payable on policies. Shareholders were purportedly told that the reserves were “adequate” and that it included a “margin for future deterioration.”

Florida Man Accused of Insider Trading to Return Illegal Profits

Published on: March 11, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. Securities and Exchange Commission announced this week that Jay Y. Fung, a Florida man accused of insider trading, has agreed to repay over $700K in illegal profits plus over $60K in interest that he made after he bought stock and call options in Pharmasset Inc. prior to its acquisition by Gilead Sciences. Fung made the trades after a friend tipped him about the pending deal.

In addition to buying shares of Pharmasset, he passed the insider tip onto his business partner who bought options, too. That individual has not been charged nor has he been accused of knowing that the information that Fung gave him was non-public and privileged.

Fung has since pled guilty in a parallel criminal case accusing him of conspiracy to commit conspiracy fraud. He could be facing up to five years in prison. His cooperation with authorities, however, will likely lessen his time under his plea deal.

SEC Files Fraud Charges Against Aequitas Management Over Ponzi Scam

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

The Securities and Exchange Commission says that Aequitas Management LLC and four affiliates allegedly bilked over 1,500 investors. One of the affiliates, Aequitas Capital Management, has been in the headlines recently in the wake of news that the investment firm was letting go of almost all of its employees because of financial problems.

According to the regulator, the Oregon-based investment group and three of its executives tried to hide their financial woes while raising over $350M from investors. Meantime, investors were allegedly fooled into believing that they were putting their money in transportation, education, and health-care related investments when really their funds were going toward trying to save the firm. Earlier investors were purportedly paid with the money of newer investors, which is a trademark of a Ponzi scam.

The SEC’s complaint contends that CEO Robert Jesenik and EVP Brian Oliver knew about Aequitas financial problems but kept soliciting investors so they could continue bringing in money to cover the firm’s expenses, including redemptions and interest payments to earlier investors, and try to keep the business afloat. Ex-COO and CFO N. Scott Gillis is accused of hiding the fact that the firm was insolvent. He purportedly knew that Oliver and Jesenik were still soliciting investors.

Meantime, Aequitas’s top executives continued to make “lucrative” salaries as they brought more investors into a “losing venture.” They traveled in private jets and paid for golf outings and dinners for potential investors. They also persuaded prior investors to bring in more funds.

Banc de Binary to Settle Fraud Charges With SEC, CFTC for $11M

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

Banc de Binary Ltd. has settled a fraud lawsuit by the Commodity Futures Trading Commission and the SEC accusing the Cypriot financial trading company of illegally signing American investors to join its binary options trading program. According to the regulators, from 2011 and 2013, Banc de Binary pursued and took orders from U.S. customers on contracts connected to currency, commodity, and stock prices. By doing this, the company purportedly got around a ban in the US that prohibited off-exchange binary option contracts and received net deposits of $11M from over 6,000 U.S. customers

As part of the settlement, the financial trading company has agreed to pay $7.1M in disgorgement and restitution and $2M in penalties to the CFTC. It will pay the SEC $1.95M in civil penalties. $9.05M of the settlement will go toward paying back the U.S. customers who suffered harm in this matter. Oren Laurent, who is the founder of Banc de Binary, will pay $150K in the settlement.

Banc de Binary is considered the biggest binary options operator. Binary options offer all or nothing payouts according to price moves. They remain unregulated in a lot of the world.

North Carolina Retiree Couple Files FINRA Arbitration Case Against Morgan Stanley Over Energy Investment

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

Two North Carolina investors have filed an arbitration claim with FINRA against Morgan Stanley (MS) over unsuitable investments involving the financial firm’s Cushing MLP High Income Exchange Traded Note. The married couple, who are retirees in their sixties, are accusing the brokerage firm of:

· Common law fraud

· Negligence

· Breach of fiduciary duty

· Negligent supervision

· Failure to adequately disclose the risks

In a phone interview with InvestmentNews, the claimants said that they have lost over $100K. According to the couple, a Morgan Stanley broker invested about $150,000 of their money in the Morgan Stanley Cushing MLP High Income ETN, which is an exchange traded note connected to master limited partnerships with shipping and energy assets. Their legal team said that the couple did not understand the extent of the risks involved in that they could potentially lose their principal. This was a loss they could not afford. Instead, the claimants were purportedly told that their investment would make them money.

The Cushing MLP High Income Exchange Traded Note seeks to give investors cash upon maturity or early repurchase, as well as variable coupon payments every quarter (depending on how the underlying index, performs). The claimants’ broker fraud lawyers believe that Morgan Stanley recommended the exchange traded note to investors who were seeking to make money but may not have understood or been fully apprised of all the risks.

SEC Charges Wells Fargo Securities, Rhode Island Agency with Bilking Investors Over Municipal Bond Offering

Published on: March 7, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange omission has filed charge against Wells Fargo Securities (WFC) and the Rhode Island Economic Development Corp. accusing them of fraud in a municipal bond offering. According to the regulator, RIEDC, now called Rhode Island Commerce Corporation, used $75M in bonds to finance 38 Studios, which is a startup video game company. Wells Fargo served as the bond underwriter.

The SEC is charging RIEDC and Wells Fargo with Securities Act of 1933 violations. Wells Fargo is also charged with violating the Securities Exchange Act of 1934 and the Municipal Securitas Rulemaking Board’s Rules G-17 and G-32.

The 38 Studios project was part of a state government program to increase economic development and employment opportunities through the lending of bond proceeds to private companies. The regulator said the RIEDC lent $50M in bond proceeds to the video game company, while the remaining proceeds went toward bond offering-related costs and the setting up of a reserve fund and a capitalized interest fund. The loan and investors were to be paid back through revenues made by video games that 38 Studios intended to make.

Royal Bank of Scotland Ordered to Pay Fired Executive for $2.05M

Published on: March 7, 2016 | by Shepherd Smith Edwards & Kantas, LLP

A Financial Industry Regulatory Authority panel says that Royal Bank of Scotland’s (RBS) securities division in the U.S. must pay Jeffrey Howard, an ex-executive that it fired, $2.05M in compensatory damages because of the way he was let go. The bank must also retract his termination and expunge his regulatory record of any comments that are defamatory.

The FINRA arbitration panel’s case summary said that according to Howard, the bank fired him because it didn’t want people to find out that there was “significant internal turmoil” at the financial institution. Howard, who joined the firm’s RBS Securities in 2012 as head of its prime services for the Americas, eventually went on to become global-co-head of the group and then later its sole head. Previous to all of that he worked at Bank of America (BAC) Merrill Lynch. After he was let go by Royal Bank of Scotland in 2014, Howard filed a breach of contract and defamation case with FINRA contending that the disclosure about his firing was false.

According to the FINRA panel, Howard should not have been let go for cause. It found that the bank made fundamental mistakes and inconsistencies in: the way it interpreted internal policies and put them into effect, the facts it employed to decide to fire him, and the rationale behind that decision. The panel said that Howard did not violate any internal policies.

Ex-MetLife, Prudential Broker Accused of Deceptive Conduct Involving Variable Annuity Sales

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

The Financial Industry Regulatory Authority is accusing Winston Wade Turner, a former registered representative with Pruco Securities Inc. and MetLife Securities Inc., of misconduct related to the exchanges and sales of variable annuities. Turner allegedly persuaded clients to exchange certain investments, including variable annuities, which compelled them to surrender existing contracts to pay for the purchase of new variable annuities. In certain situations, this led to surrender charges for the client and additional commissions for Turner.

The regulator contends that Turner concealed the transactions’ unsuitable nature from brokerage firms and his clients. He allegedly did this by falsifying documents and misrepresenting how certain income features on the annuity contracts functioned. FINRA claims that Turner hid the nature of the VA transactions from his firm by managing to get around the additional documentation and supervisory examination mandated for the exchanges. He also sometimes would recommend clients put proceeds from the contract surrenders into their bank accounts first-as opposed to a direct annuity to annuity transfer-and then use those funds to purchase new variable annuities.

Turner is also accused of falsifying VA applications, documents related to VA exchanges, and customer information forms. He purportedly forged customer signatures and used his own e-mail address, misrepresenting it as customers’ addresses so that he received the account notifications instead of them.
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