Investor Lawyers Blog

SEC Charges Against Six Firms For Stock Offering-Related Short Sale Violations Results In Over $2.5M in Sanctions

Published on: October 14, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission has filed charges against J.P. Morgan Investment Management Inc., War Chest Capital Partners LLC, Harvest Capital Strategies LLC, Omega Advisors, Inc., Auriga Global Investors, Sociedad de Valores, S.A., and, Sabby Management LLC. All six firms settled the enforcement actions, which allege short selling violations ahead of stock offerings. They will collectively pay over $2.5 million in sanctions.

Under rule 105, firms are not allowed to participate in public stock offerings after they’ve sold short the same stock. The prohibition is for five days. To do otherwise could lead to illicit profits for the trader while lowering the offering proceeds for a company via the artificial depression of the market price right before that company puts a price on the stock. The SEC contends that all six firms took part in short selling certain stocks right before buying shares from a broker, underwriter, or dealer that participated in a follow-on public offering.

Per the settlements:

• Auriga Global Investors will pay disgorgement of nearly $437K, a penalty of over $179K, and a prejudgment interest of over $2K.

• War Chest Capital Partners will pay disgorgement of over $169K, prejudgment interest of over $22K, and a penalty of $150K.

• Harvest Capital Strategies will pay over 418K of disgorgement, prejudgment interest of $619, and a $65K penalty.

• Sabby Management will pay disgorgement of over $184K, prejudgment interest of over $2300, and a penalty of over $91,600.

• JPMorgan Investment Management will pay disgorgement of over $662K, prejudgment interest of over $56,700, and a penalty of over $364K.

• Omega Advisors will pay disgorgement of $68K, prejudgment interest of $686K, and a penalty of $65K.

Santander Securities to Pay $6.4M Over Puerto Rico Muni Bond and Closed-End Fund Sales

Published on: October 13, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority (FINRA) says that it is ordering Santander Securities LLC (Santander) to pay $6.4M for supervisory failures involving the sale of Puerto Rico Municipal Bonds and Puerto Rico closed-end funds. Of the payment to FINRA, $2 million is a fine and censure and over $4.3 million is customer restitution.

The restitution will go toward certain customers who were solicited to buy the municipal bonds. Santander will pay $121,000 and make rescission offers to repurchase the securities from certain customers that were affected by the firm’s purported failure to supervise employees while they were trading.

FINRA said that between December 2012 and October 2013, Santander failed to make sure that its proprietary product risk-classification tool accurately reflected the risks of investing in Puerto Rico bonds. The regulator contends that the systems and procedures that were in place at Santander did not mandate an evaluation or review of this tool, which is what its representatives used when recommending financial products to customers.

For example, said FINRA, when “significant market events” occurred, such as when credit rating agency Moody’s downgraded a number of Puerto Rico bonds-including Puerto Rico General Obligation bonds-to a level just above junk, Santander did not re-examine the tool’s risk classifications for the bonds. Instead, one day after the credit rating agency issued its ratings downgrade, the firm stopped buying the municipal bonds that its customers in Puerto Rico wanted to sell and ramped up its efforts to lower the firm’s own Puerto Rico municipal bond inventory.
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Pimco, Allianz, Sued in 401K Class Action Case Alleging $2.5M in Excessive Fees

Published on: October 12, 2015 | by Shepherd Smith Edwards & Kantas, LLP

In district court in Los Angeles, CA, plaintiffs are suing Pacific Investment Management Co., Allianz Global Investors, and parent company Allianz Asset Management for breach of fiduciary duty. The plaintiffs in the class action lawsuit contend that the fiduciaries of the Allianz Asset Management of America 401(k) Savings and Retirement Plan, which is the plan in which they are participants, violated their duty of prudence and loyalty under ERISA by placing a lot of high-priced proprietary funds in the plan’s core menu for investments.

The lead plaintiffs in the 401(K) lawsuit are Nathan Marfice and Aleksandr Urakhchin. They contend that the all-in plan costs are at 77 basis points, which was 75 basis points above the average retirement plan that holds anywhere from $500 million and $1 billion in assets. They said that this cost plan participants more than $2.5 million in excessive fees.

A spokesperson for Allianz says the class action case has no merit. Other parties listed as defendants include:

· The committee of the Allianz Asset Management of America 401(k) plan

· Allianz Asset Management of America LP

· Allianz Global Investors Fund Management

· Allianz Asset Management of America

SEC Approves Rule Requiring Firms, Brokers Link to BrokerCheck

Published on: October 10, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Over two years after it was initially proposed, a FINRA rule requiring that broker-dealers include a link to the self-regulatory organization’s BrokerCheck database has been approved by the Securities and Exchange Commission. The rule slated to go into effect, at the latest, at 180 days after the FINRA regulatory notice is published in the Federal Register. The deadline for publishing the notice is December 7, 2015.

Per the rule, a brokerage firm will have to include an obvious reference and hyperlink to the front page of FINRA’s BrokerCheck.com. Links to BrokerCheck would also have to be included on the profile pages of each broker.

FINRA has been trying to make retail investors more aware that BrokerCheck exists. The online database includes the work history of every registered broker, where they are registered, and other information, such as if they’ve been subject to disciplinary measures or named on previous securities cases.

A previous version of the proposed rule had called for LinkedIn and Twitter profiles of brokers to also include links back to BrokerCheck. However, rather than link directly to that home page, the hyperlink would have taken an investor to the BrokerCheck profile of a particular representative. Many in the industry, however, were strongly opposed to that mandate.
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FINRA Fines Voya Financial, J.P. Turner, Cetera, and Other Firms For Not Discounting Big REIT Sales

Published on: October 10, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority has fined six independent brokerage firms for not giving clients the proper discounts on big sales of business development companies and real estate investment trusts. According to InvestmentNews, the self-regulatory organization has been scrutinizing whether financial firms are giving the appropriate discounts, also known as breakpoint discounts to clients.

When the sale of certain nontraded real estate investment trusts is anywhere from over $500K up to $1 million, a discount is usually available. This means that the REIT’s price, which is typically at $10/share with the broker getting a 70 cent commission, can go down to $9.90/share and a commission of 60 cents.

FINRA said that J.P. Turner, Voya Financial Inc. (VOYA), Transamerica Financial Advisors Inc., Investacorp., National Planning Corp., and Cetera Investment Services did not identify and put into effect volume discounts for certain eligible purchase of BDCs and non-traded REITs. Because of this, said the SRO, customers paid sales charges that were too high. Now, all six firms will have to pay restitution to the clients that were affected.

SEC Charges Briargate Trading LLP with Spoofing

Published on: October 8, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission is charging Briargate Trading LLP and its co-founder Eric Oscher with placing fake orders to make it seem as if there were a lot of interest in their stocks so they could manipulate prices. The practice is an illegal trading strategy called spoofing. To settle the regulator’s charges, both the New York-based proprietary trading firm and Oscher have consented to pay over $1 million.

According to the regulator, the spoofing scam lasted from 10/11 to 9/12 and involved securities found on the New York Stock Exchange. Oscher, an ex-NYSE specialist, used his account at the firm to make numerous, big, non-bona fide orders before the exchange opened for trading in the morning. The orders affected market perception of the stocks’ demand and their prices.
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Securities Headlines: Halcyon Cabot Partners is Expelled from Industry by FINRA, Blackstone Settles Disclosure Failure Charges for Nearly $39M, SEC Approves Proposal to Improve Transparency for OTC Equity Securities

Published on: October 8, 2015 | by Shepherd Smith Edwards & Kantas, LLP

FINRA Expels Halcyon Cabot, Bars Chief Executives
Halcyon Cabot Partners, Ltd. has been expelled by FINRA. The regulator also has barred its CEO Michael Morris and CCO Ronald Heineman from the securities industry. The reasons for the expulsion and bars include fraud, abusive sales practices, the concealment of private placement fee kickbacks, and other purported acts.

According to the self-regulatory organization, Halcyon, the two men, and previously barred former registered rep. Craig Josephberg hid the discount the issuer gave to a venture capital firm when it bought a private placement in a company. The scam was executed using a fake placement fee deal after the venture capital firm agreed to buy all the offerings. However, FINRA said, because there already was a buyer, Halcyon didn’t conduct any work and gave back nearly all of its $1.75M fee to the investor via bogus consulting agreements. As a result, the company was able to hide that its shares were sold at a reduced rate.

FINRA contends that Halcyon did not properly supervise Josephberg, who was making unauthorized trades and churning retail accounts. The regulator is accusing Morris of falsifying Halcyon’s records to hide the securities sales that Josephberg made in states where he wasn’t registered, including Texas.

Blackstone Group to Pay Almost $39M Over Disclosure Failures
The Securities and Exchange Commission said that three private equity fund advisers that belong to The Blackstone Group have consented to pay close to $39 million to resolve charges that they did not fully inform investors about the benefits they received from discounts on legal fees and accelerated monitoring fees. While Blackstone is settling and has consented to the entry of the regulator’s order stating that it breached its fiduciary duty, failed to put into place policies and procedures that were reasonably designed, and failed to correctly disclose information to investors of the funds, it is not denying or admitting to allegations.

The three fund advisers are:

• Blackstone Management Partners
• Blackstone Management Partners IV
• Blackstone Management Partners II

SEC Case Headlines: New Jersey Fund Manager Faces Charges Over $1.1M Ponzi Scam, $32M Fraud Scam Involving Amber Mining is Halted, and Executives Face Charges for Allegedly Bilking Investor in Stock Fraud

Published on: October 7, 2015 | by Shepherd Smith Edwards & Kantas, LLP

NJ Fund Managers Faces SEC Fraud Charges
The Securities and Exchange Commission is charging William J. Wells and his Promitor Capital Management LLC with bilking investors in a $1.1 million Ponzi scam. According to the regulator, Wells falsely misrepresented himself as a registered investment adviser to some investors. However, rather than invest their money in specific stock as he told them he would, Wells and his firm placed most of the funds primarily in risky options that garnered poor results. He then allegedly hid the outcomes using bogus investor account statements that recorded performance figures that were severely inflated.

Wells also allegedly tried to conceal the investment loses by making Ponzi-like payments in which he paid earlier investors using the funds of new investors. By the end of this summer, fund brokerage accounts at Promitor held under $35 while the remainder were sucked dry from the Ponzi-like payment, trading losses, or transferred into Wells’ own bank account.

Meantime, the U.S. Attorney’s Office for the Southern District of New York has filed a parallel criminal action against Wells.

Regulator Files Charges, Obtains Asset Freeze in $32M Amber Mining Scam
The SEC has gotten asset freeze and file fraud charges against Steve Chen and 13 entities based in the state of California. According to the regulator, Chen falsely promised investors they would make money in an investment venture involving amber holdings.
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Six Ex-Brokers Go to Trial Over Libor Rigging Allegations in London

Published on: October 6, 2015 | by Shepherd Smith Edwards & Kantas, LLP

In London, six ex-brokers accused of helping to rig interest rate benchmarks are now on trial in criminal court. The defendants include ex-ICAP (IAP) employees Darrell Read, Danny Wilkinson, and Colin Goodman, former RP Martin employees James Gilmour and Terry Farr, and ex-Tullet Prebon broker Noel Cryan, who are all charged with conspiring to rig the rates. All of them have pleaded not guilty.

According to prosecutors, the brokers tried to persuade traders at banks to turn in false Libor rates. They are accused of assisting convicted and former Citigroup (C) and UBS (UBS) trader Tom Hayes to rig Libor. Hayes was recently sentenced to fourteen years behind bars. He is appealing his case. The defendants also allegedly helped others to manipulate Libor submissions related to the Japanese yen.

Specifically, Read, Wilkinson, and Goodman are charged with conspiring with ICAP employee Brent Davies, Hayes, and other traders at UBS. The ex- RP Martin employees are charged of conspiring with traders at UBS, Luke Madden at HSBC (HSBC), and Paul Robson at Rabobank to manipulate the rate. Farr is also accused of conspiring with Hayes while at Citigroup. And former Tullet Prebon’s Noel Cryan also allegedly conspired with UBS traders.

Florida Investment Adviser is Charged With Securities Fraud

Published on: October 5, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission is charging investment adviser Arthur F. Jacob and his Innovative Business Solutions LLC with fraud. The regulator claims that the two of them deceived clients from 2009 into 2014 and violated the federal securities laws’ antifraud provisions along with an SEC antifraud rule.

In its order instituting administrative proceedings regarding the purported investment adviser fraud, the SEC Enforcement Division contended that IBS and Jacob misrepresented the profitability and risks of investments he had bought for clients. Rather than disclosing the risks involved in certain exchange-traded funds, Jacob purportedly told clients that his investment approach was safe, presented no or little risk, and would garner predictable earnings. He also is accused of making misstatements to clients regarding their investments’ profitability.

Jacob and his Florida-based firm are not registered as an investment adviser with the regulator or any state. He is accused of telling clients that registration was not mandatory and of hiding his disciplinary history. For example, Jacob was disbarred from being an attorney because he misappropriated client moneys and engaged in other misconduct, including make false statements while under oath and to the Bar Counsel, submitting false tax returns for a client, charging unreasonable fees, and violating a court order.
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