Investor Lawyers Blog

RCAP Settles Proxy Fraud Allegations With Massachusetts for $3M, Shuts Down Wholesaling REIT Brokerage Division

Published on: December 2, 2015 | by Shepherd Smith Edwards & Kantas, LLP

RCS Capital Corp. is closing its wholesaling brokerage unit following allegations of fraud and a drop in its sales of nontraded real estate investment trusts. InvestmentNews reports that according to a source, about 150 employees at Realty Capital Securities are expected to be laid off, as are another 50 employees who work elsewhere in the company.

The company also announced that it has settled the proxy fraud allegations made against it by Massachusetts’ securities division and it will pay $3 million. The state’s Secretary of the Commonwealth William Galvin accused the broker-dealer of fraudulently collecting proxy votes to back real estate deals that were sponsored by AR Capital, which is owned by former real estate magnate Nicholas Schorsch. He still is a principal shareholder of RCAP stock. It was Realty Capital Securities that raised hundreds of millions of dollars in equity each month for retail investors who bought Schorsch REITs just a few years ago.
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Ex-J.P. Morgan Bankers to Settle SEC’s $8.2M Bribery Case Related to Jefferson County, Alabama Bonds

Published on: December 2, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Douglas MacFaddin and Charles LeCroy will pay $326,373 to settle SEC civil charges accusing them of paying friends of Jefferson County, Alabama officials $8.2M in return for $5B in county bond business. Together, the ex-J.P. Morgan Securities (JPM) executives will pay $326,373 once a district court judge approves the proposed settlements—that’s 4% of the $8.2M that was allegedly paid so that their firm could get the business.

Jefferson Count experienced financial woes when it borrowed funds so it could comply with a 1996 court order to stop sewer leaks from getting into area streams. Additional construction costs and bond swaps cost the project to exceed over $3B.

The Commission’s lawsuit had alleged violations of its law and rules. The regulator’s charges against the two men were resolved in mediation.

SEC Files Charges Against Traders for Options Trading Scams

Published on: November 30, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The SEC has filed charges against ex-broker Richard Kenney and twin brothers Shahryar Afshar and Behruz Afshar. The regulator is accusing them of going around market structure rules and engaging in options trading scams. The regulator claims that the three men improperly traded options to garner lower fees and gain execution priority. They also purportedly took part in spoofing so they could get liquidity rebates.

SEC Enforcement Division Director Andrew Ceresney said that the men’s alleged actions fooled the options exchanges and placed other participants at a disadvantage. The regulator maintains that because of their purported wrongdoing, the two brothers and Kenney were able to get benefits that were not intended for professional traders.

Specifically, according to the SEC order: Even though the Afshars’ accounts should have gotten the “professional” designation for acting as non-broker-dealers that placed over 390 orders/day during the subsequent quarter, they were able to place orders as “customer” non-broker dealers. They did this by alternating trading between accounts. After one account became designated “professional” for the next quarter, they would use the other “customer” account and then trade off the next quarter.

The SEC says that Kenny and the Afshars were able to execute this scam through misrepresentations that made it seem as if just one of the brothers owned Fineline Trading Group, LLC while the other was supposedly the sole owner of Makino Capital, LLC.
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Citigroup Could Pay $872M in Securities Lawsuit by Allied Irish Banks

Published on: November 30, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Twelve years after Allied Irish Banks Plc (AIB) filed a securities lawsuit against Citigroup (C) accusing the bank of helping a rogue trader conceal about $691 million in losses, the case is slated to go to trial next month. AIB reportedly wants $872M from the New York-based bank— $372M in damages and about $500M in pre-judgment interest.

It was in 2003 that AIB sued Citigroup subsidiary Citibank and Bank of America Corp. (BAC). AIB contends that the defendants were linked to a scam that led to significant losses for its former unit, Allfirst Financial. Bank of America has already settled the allegations against it.

In 2002, trader John Rusnak’s losses were discovered and he pleaded guilty to banking fraud. Rusnak admitted to concealing $691M in trading losses while employed at Allfirst. The losses were sustained over five years and came from primarily trading the Japanese yen and for taking even bigger risks as he sought to get back some of these losses.

While Rusnak did not make a direct profit from the losses, he made over $650K in bonuses when he made it appear as if Allfirst was making money. He was released from prison in 2009.

SEC Cases: Ex-Stockbroker Accused of Bilking Investor for Home Renovations, Marwood Group Admits to Wrongdoing Over Compliance Failures, and Ex-Goldman Sachs Employee Faces Insider Trading Charges

Published on: November 28, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Former Stockbroker Raises Over $1.2M from Customers to Remodel His Home
The Securities and Exchange Commission is charging ex-stockbroker Bernard M. Parker with Securities Act of 1933 and Securities Exchange Act of 1934 violations, as well as violations of Rule 10b-5. The regulator says that Parker raised over $1.2M from long-term brokerage customers and others by getting them to think they were buying real estate tax client certificates and would make up to 9% yearly interest.

Instead, says the SEC, Parker only used a small part of that money to buy the liens. He used their other funds to remodel his house, pay his father-in-law’s bills, and make car payments. The agency also claims that the ex-broker conducted the unregistered and fraudulent investment offering using his Parker Financial Services from ’08 to ’14. He also purportedly failed to notify the investment advisory firm and broker-dealer where he was dually registered about his side business.

The Attorney’s Office for the Western District of Pennsylvania has filed criminal charges against Parker in a parallel case over the alleged broker fraud.

Political Intelligence Firm Admits to Compliance Failures
Marwood Group Research LLC has admitted to compliance failures and will settle the SEC’s case against it by paying a $375,000 penalty. According to the Commission, the firm did not properly notify compliance officers about the times that analysts received potential material nonpublic data from government employees.

The firm’s own written policies and procedures are supposed to play a key part in Marwood Group’s efforts to stop nonpublic and confidential data from reaching its clients so as not to influence their decisions regarding securities trading. Yet its misconduct happened in 2013 when analysts were looking for information about pending regulatory approvals and policies at the Food and Drug Administration and the Centers for Medicare & Medicaid Services.
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SEC Sets Deadline for New Fiduciary Standard

Published on: November 28, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission’s Office of Management and Budget says to expect the notice of proposed rulemaking for the Personalized Investment Advice Standard of Conduct in October 2016. The SEC’s fiduciary standard rule has been anticipated ever since 2010 when the Dodd-Frank Act gave the regulator the authority to proceed with such a rule.

A new fiduciary rule would mandate that both advisers and brokers who give financial advice do so in their clients’ best interests. Now that the proposed rule isn’t expected for nearly another year, the SEC will be able to see what happens with the Department of Labor’s own proposed fiduciary rule, which is expected to be finalized early in 2016.

NFL Linebacker Dwight Freeney is Allowed to Move Forward with Securities Fraud Lawsuit Against Bank of America

Published on: November 27, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Dwight Freeney, the linebacker for the Arizona Cardinals will be able to move forward with his securities fraud case naming Bank of America Corp. (BAC). According to the National Football League player, the bank was complicit in a scam that compelled him to lose over $20M and force his restaurant to shut down. Bank of America had recruited Freeney in 2010 because they wanted to manage his assets.

Its Merrill Lynch unit had tried to have the misrepresentations and fraud claims against it dismissed. Frenzy, however, contends that the head of his financial advisory team at the bank arranged for now ex-bank employee Eva Weinberg, to act as the football player’s main liaison with Bank of America. The bank also referred Freeney to Michael Stern, who was Weinberg’s “paramour.” Stern purportedly used a fake name and already had a record for fraud, forgery, and theft. He was to advise the NFL star financially.

Freeney and his company Roof Group say that the bank and its adviser Michael Bock aided and abetted the scam that bilked his accounts of over $8.5million. He says he lost over $20 million because of the fraud. He believes that Bank of America and Bock were negligent in that they did not protect him from the financial scam, which he says began in 2010 when Weinberg still worked at Merrill Lynch. Freeney also believes that Bank of America and Bock fraudulently induced him into signing with the firm by keeping information from him that could have prevented him from getting sucked into the scam.
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SEC, CFTC Look to Enhance Oversight of Alternative Trading Systems, High Speed Trading

Published on: November 27, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission has voted to propose rules to make enhancements to the regulatory oversight and operational transparency of Alternative Trading Systems (ATSs). The proposal would mandate that a ATS trading through the National Market System (NMS) submit detailed disclosures regarding: operations and broker-dealer operator and affiliated-related activities, the kinds of orders and market data used on these trading systems, and procedures regarding priority and execution. The information would be submitted on the newly proposed-Form ATS. ATSs trade stocks on national securities exchanges, such as dark pools.

The SEC’s proposal would make the disclosures at issue are available to the public on the regulator’s website. This could make it easier for market participants to be able to better assess whether to do business with an ATS. The disclosures could also allow participants to have more information when assessing decisions made by their brokers regarding their orders.

Also, the proposals would give the commission a process for qualifying NMS stock ATS for the exemption that they operate under and allow them to review disclosures submitted on Form ATS.

Following the proposal’s publication on the federal register, the SEC has allotted 60 days for comments.

SEC Probes Into Municipal Securities Violations Expected to Lead to Enforcement Actions

Published on: November 25, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Bloomberg/BNA reports that according to sources, efforts by the Securities and Exchange Commission to come down harder on violations of municipal securities disclosures will soon include the filing of enforcement cases against the issuers of those securities. The regulator’s Municipalities Continuing Disclosure Cooperation (MCDC) initiative had pressed municipal securities issuers and underwriters to self-report previous violations by 12/1/14. Incentive for those efforts included more uniform and less severe sanctions in subsequent enforcement actions.

Issuers and underwriters are required to give the SEC information about previous municipal securities offerings they were involved in that may have included statements that were potentially inaccurate. Unfortunately, issuers and underwriters often do not completely comply with SEC rules about the accuracy of disclosures that are meant to increase investor protections. The initiative was an attempt to deal with such lapses.

Also, in 2014, the SEC announced just one MCDC enforcement case. The action accused Kings Canyon Joint Unified School District of misleading investors because of its failure to provide them with financial data and notices that they were contractually obligated to give out. However, the California school district was not fined and did not have to admit wrongdoing.

RBS May Be Subject to More Criminal Charges Over Alleged Loan Securities Price Inflations

Published on: November 24, 2015 | by Shepherd Smith Edwards & Kantas, LLP

According to the New York Post, sources say that the US Attorney’s office in Connecticut is going after Royal Bank of Scotland (RBS) and at least two traders over complex debt securities that investors bought up through 2013. Ex-RBS banker Matthew Katke, who pled guilty earlier this year to inflating collateralized loan obligation prices, reportedly provided cooperating testimony in the case.

Federal prosecutors are also reportedly pursuing criminal charges against RBS. That investigation is over the alleged sale of flawed mortgage securities related to the 2008 financial crisis.

The Wall Street Journal says that sources have told them that prosecutors are looking at a $2.2B deal that repackaged home mortgages into bonds eight years ago. It was just two years ago that RBS settled a Securities and Exchange Commission case that described the lead banker as attempting to push the deal through even though the diligence department had raised red flags.

The RBS probe mirrors the $150M civil settlement the bank reached in 2013. That case resolved SEC claims accusing it of misleading investors on a $2.2B subprime mortgage offering.