Investor Lawyers Blog

FINRA Bars Global Arena Capital Brokers for Cockroaching, Churning, and Other Securities Violations

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

The Financial Industry Regulatory Authority has barred seven brokers accused of committing violations and repeatedly transferring from one brokerage firm to another from the securities industry. The brokers worked at the brokerage firm Global Arena Capital Corp. Also barred is the broker-dealer’s president, Barbara L. Desiderio. She is accused of letting the brokers engage in stockbroker fraud and deceiving the regulator.

The other brokers are David Awad, Alex Wildermuth, Peter Snetzko, James Torres, and Michael Tannen. Global Arena branch managers Kevin Hagan and Richard Bohak have been barred from serving in a principal role. Brokers Andrew Marzec and Niaz Elmazi were barred for not cooperating with the regulator’s probe.

According to FINRA, while at the firm, the brokers used sales pitches that were misleading, churned accounts, and committed other abusive acts. Seven of the brokers who were barred had been placed on heightened supervision by the self-regulatory organization when they exited HFP Capital Markets to go work at Global Arena. HFP Capital Markets has since been expelled from the industry by FINRA.
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Credit Suisse To Pay Over $80M to Settle Dark Pool Allegations, Says Source

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

Bloomberg.com reports that according to someone familiar with the matter, Credit Suisse Group AG (CS) will pay over $80 million to resolve federal and state authorities’ claims that it failed to fully disclose information to clients about how it ran its dark pool. Over $50 million of the payment is expected to take the forms of fines and disgorgement in a settlement with the SEC, while about $30 million would resolve the allegations made by the New York Attorney General.

Credit Suisse’s dark pool, Crossfinder, is the biggest alternative trading system in the country. The source said that the Swiss bank is accused of misrepresenting certain aspects about the way it runs the platform.

In dark pools, demand and supply remain private. Only specifics about executed trades are disclosed. Dark pools comprise one-fifth of trading in the U.S. stock market. Large investors, high frequency traders, and hedge funds are among those that trade on these alternative trading systems. There is concern that some traders are able to exploit and profit, sometimes with the help of dark pool operators. Meantime, ordinary investors may be suffering because of their inability to avail of such benefits.

US Study Says Older People Are More Susceptible to Financial Fraud Because of How The Brain Works

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

According to a study published previously in the Proceedings of the National Academy of Scienceshttps://www.nia.nih.gov, the reason why elderly people are more susceptible than younger folk to financial fraud is because the ability to identify trustworthiness decreases with age. The researchers looked at two different groups-one group was comprised of younger adults (ages 20 to 42) and older adults (ages 55-84.)

The groups judged faces in photographs. These faces had been pre-rated for approachability and trustworthiness.

While both groups identified those that had been pre-rated as neutral or trustworthy as approachable and trustworthy, the older group was more likely than the younger group to identify the faces that had been pre-rated as ‘untrustworthy’ as trustworthy. Shelly Taylor, a UCLA psychologist who was involved with the study, said that the reason for this was that older adults did not detect certain “easily distinguished” facial cues indicative of untrustworthiness.

The researchers asked another forty-four participants to undergo functional magnetic resonance while rating the faces. While the older adults did not display much of an activation in the anterior insula, which is the part of the brain known for regulating “gut feelings” that affect decision-making, the younger adults’ anterior insula exhibited a stronger response. Taylor said that while the younger adults were getting that ‘uh-oh’ feeling, the older adults were not.
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Bank of America, Deutsche Bank, Citigroup, & Other Big Banks Settle $1.87B Settlement Over Swaps Price-Fixing Case

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

$1.87B securities settlement has been reached with 12 major banks. The case resolves investor claims that the financial firms conspired to rig prices to hold back competition in the credit default market. For now, the resolution is an agreement in principal and the parties have two weeks to work out the details before turning the deal over to U.S. District Judge Denise Cote in Manhattan for preliminary approval.

The defendants in this credit default case are:

· Bank of America Corp. (BAC)

· UBS AG (UBS)

· Goldman Sachs Group Inc., (GS)

· Barclays (BARC)

· Royal Bank of Scotland Group Plc (RBS)

· BNP Paribas SA (BNP)

· Morgan Stanley (MS)

· Citigroup (C)

· JPMorgan Chase (JPM)

· Credit Suisse Group AG (CS)

· Deutsche Bank AG (DB)

· HSBC Holdings Plc (HSBC)

Markit Ltd and the International Swaps and Derivatives Association are also defendants.

Another RIA/Financial Radio Show Host Charged with Securities Fraud

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

The Securities and Exchange Commission is charging Bennett Group Financial Services founder and host of the radio show “Financial Myth Busting” with allegedly inflating her investment adviser firm’s assets under management, as well as its investment returns, to try to gain more clients.

Dawn J. Bennett is accused of claiming that the Washington-based firm had over $2 billion in assets even though it never oversaw more than $407 million. She made the inflated claim multiple times on her radio show. She also purportedly said that the Bennett Group’s investment returns were among the top 1% globally. The SEC said that these bragged about returns came from a model portfolio and did not represent any real customer returns.

At one point Bennett was number five on Barron’s “Top 100 Women Financial Advisors” list and number two on the DC “2011 Top Advisors” because of her alleged misstatements. She touted these rankings to potential customers.

In the regulator’s complaint, the Commission said that from at least 2009 to early 2011 Bennett and her investment adviser firm made material misstatements and omissions to try to bring in more clients. They also allegedly made other misstatements to attempt to conceal their fraud.
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SEC Moves to Stop Financial Fraud That Bilked Over 100 Investors Of Over $14 Million

Published on: September 9, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission has filed fraud charges and obtained an asset freeze against three individuals accused of stealing investor money. According to the regulator, David Kayatta, Paul Ricky Mata, and Mario Pincheira raised over $14M from over 100 investors for two unregistered funds. The money was supposed to be placed in real estate.

The SEC’s complaint noted that on a website run by Mata, the alleged fraudsters advertised an “Indestructible Wealth Bootcamp” and promised said wealth when, in truth, both funds never made a profit. Online videos on the website and YouTube marketed this investment seminar and another one titled “Finances God’s Way.” Retirees were encouraged to sell their securities holdings and get involved in the unregistered funds.

The complaint states that Mata is an ex-licensed securities professional with a lengthy disciplinary record that he hid from investors. He and Kaytata allegedly promised guaranteed returns for one fund even though a state regulator had sanctioned them for making such promises. The two men are accused of diluting the investments in the other fund by bringing in new investors while making false assurances to current investors that the two funds were doing well. Pincheira, Kayata, and Matta purportedly charged dinners, entertainment, travel, and other expenses on Pincheira’s credit card and paid off the balances with investor money. Monthly balances on the card were often above $40,000.

Unfortunately, new technologies are making it easier for fraudsters to reach more investors. Well-edited videos and legitimate looking ads can make scammers appear as if they are experienced and qualified to offer financial advice when they are not. At Shepherd Smith Edwards and Kantas, LTD LLP, our securities fraud lawyers are here to help investors who have sustained losses because of financial scams.
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CFTC Investigates JP Morgan For Product Steering

Published on: September 9, 2015 | by Shepherd Smith Edwards & Kantas, LLP

According to The Wall Street Journal, sources say that the CFTC is probing into whether J.P. Morgan Chase (JPM) engaged in product steering by inappropriately directing private banking clients to its own hedge funds. Its investigation is also scrutinizing Highbridge Capital Management LLC, which is owned by the bank. The CFTC wants to know why a significant chunk of Highbridge’s assets is from J.P. Morgan’s private banking assets and whether this was beneficial to the alternative investment management firm during the economic crisis.

Although banks can sell in-house investments, advisers are only allowed to recommend these investments if they are in the best interests of clients or, at a minimum,suitable for their portfolios and needs.

J.P. Morgan purchased Highbridge in 2009. The firm’s returns were solid for years until the financial crisis, which is when investors sought to take out billions of dollars from its biggest hedge fund. To keep investors from leaving, Highbridge offered incentives, such as lower fees.

J.P. Morgan’s private banking clients still hold significant investments in Highbridge funds. However, a J.P. Morgan spokesman who spoke to The Wall Street Journal said that 95% of hedge fund investments from the financial institution’s private banking clients are in funds that have no connection to Highbridge.

Three Ex-Nomura Traders Face RMBS Fraud Charges

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

The U.S. Attorney’s Office for the District of Connecticut and the Securities and Exchange Commission are charging three ex-Nomura Securities International (NMR) traders with mortgage-backed securities fraud. The SEC contends that while at Nomura, Michael Gramins, Ross Shapiro, and Tyler Peters misrepresented the bonds and offers that the firm was provided for the residential mortgage-backed securities, along with the prices at which it bought and sold the securitizations and the spreads earned for intermediating the trades.

The three men are accused of not only lying to customers about the pricing data of the mortgage bonds but also of bilking of them of millions of dollars. The SEC claims that they coached, trained, and instructed junior Nomura traders to also commit this fraud. Their wrongdoing purportedly helped Nomura make millions of dollars in illicit revenue—$5 million from their alleged misconduct and $42 million from the omissions and lies made by those whom they trained.

Meantime, prosecutors have announced criminal charges against the three men. According to the indictment, they oversaw Nomura’s RMBS Desk in New York. Shapiro was a managing director, Gramins was the desk’s executive director, and Peters was a Senior VP whose role was concentrated on bond trading of alt-A loans and prime loans.

The men are accused of conspiracy to defraud Nomura customers by inflating the RMBS bond price that the firm had to pay in order to get customers to pay an even higher price. They also purportedly deflated the price that Nomura could sell an RMBS bond to get customers to sell at lower prices, as well as set up fake third third-party sellers and offers even when Nomura already owned the bonds, which they then pretended they were getting potential buyers.

Ex-NHL Star’s Financial Manager Convicted of Multimillion-Dollar Fraud, Ponzi Scam

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

Joseph Zada, the man accused of bilking former Red Wings hockey player Sergei Fedorov of $43 million, was convicted of fifteen counts of mail fraud. Prosecutors say that Zada was involved in a $50 million Ponzi scam that went on for a decade.

Zada’s other victims included an ex-Olympic equestrian champion, a pawnbroker, a jeweler, a veterinarian, several hockey players, and dozens of others. He is accused of telling investors that he was placing their money in oil and currency trading via a secret board based in London. Instead, he spent their money on funding his expensive lifestyle.

Zada pretended to be a rich businessman with oil ventures in Saudi Arabia. He touted quick and substantial profits. When investors asked for their money back he claimed he was waiting for a billion dollar inheritance from Saudi Arabia’s royal family. He faces up to 20 years behind bars for each count of mail fraud.
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FINRA Fines Charles Schwab $2M for Supervisory Failures, Capital Deficiencies

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

The Financial Industry Regulatory Authority is fining Charles Schwab & Co. (SCHW) $2 million. The self-regulatory organization said that between 5/15/14 and 7/1/14, Schwab was capital deficient by up to $775M because of cash inflows that went beyond what it could invest with existing facilities on three occasions. Because of this, said FINRA, the firm moved $1 billion to its parent company for overnight investment. Under a revolving loan agreement, Schwab’s Treasury group approved the funds as an unsecured loan.

The SRO claims that Schwab lacked the procedures that would have mandated that its Treasury group consult with the company’s regulatory reporting group. It also contends that the firm’s supervisory systems were not designed in a manner reasonable enough to stop the Treasury group from going into unsecured transfers with affiliates that could lead to a net capital deficiency.

Schwab is not denying or admitting to the FINRA alelagtions. A firm representative did issue a statement expressing regret over the failure to note the overnight cash transfers.