Investor Lawyers Blog

Republican Rep. Introduces Bill to Place Limits on SEC’s Use of In-House Judges

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

Rep. Scott Garrett (R-N.J.) recently introduced legislation that would let defendants choose the option of having their case tried in federal court instead of by a Securities and Exchange Commission administrative law judge. Garrett believes that the regulator has been overusing its in-house courts, practically turning itself into “judge, jury, and executioner” in enforcement cases.

Garrett, along with others who oppose the use of SEC in-house judges, says that defendants have greater latitude when their cases go to a jury. His bill would also up the evidence standards for cases that are presided over by an SEC judge.

Several parties have filed lawsuits opposing the SEC’s administrative court process. They claim that the system is a constitutional violation. Some feel that the SEC has the upper hand when it comes to the outcome of enforcement cases because its own judges are deciding the rulings.

Securities Headlines: FINRA Seeking to Fine MetLife Over Variable Annuity Sales, SEC Accuses Scottish Trader of Sending Fake Tweets, Market Rigging, and Judge Orders Man to Stop Crowdfunding Fraud

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

FINRA Plans to Fine MetLife for Purported Variable Annuities Violations
The Financial Industry Regulatory Authority is looking to impose a significant fine against MetLife’s broker-dealer unit related to possible violations involving variable annuities. The company is cooperating with the regulator’s probe, which is looking at alleged suitability, misrepresentation, and supervision issues related to the selling and replacements of variable annuities.

According to MetLife’s quarterly regulatory filing, FINRA told the insurance giant that it plans to recommend disciplinary action. InvestmentNews reports that in an e-mailed statement, MetLife spokesperson John Calagna said that the company did not agree with the conclusions reached by the regulator and plans to defend itself.

SEC Charges Scottish Trader with Over Market Rigging Involving False Tweets
The Securities and Exchange Commission has filed securities fraud charges against James Alan Craig of Scotland for allegedly filing false tweets that caused sharp declines in the stock prices of two companies, even causing one of them to experience a trading halt. The regulator said that Craig sent out false statements via Twitter on accounts that he deceptively set up to make them look like legitimate Twitter accounts of known securities research firms.

According to the SEC’s complaint, Craig’s first bogus tweets caused the share price of one company to drop 28% until Nasdaq temporarily stopped trading. The next day, he sent out false tweets about another company that led to a 16% drop in the share prices of that company. Both days he purchased and sold shares of the companies he targeted to try to profit from the sharp price changes. He was mostly successful in his efforts.
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JPMorgan Ordered to Pay Family Trust Over $1M Related To Purported Violations Involving Short Trading, Leveraged ETFs and Ex-Firm Adviser Must Pay $22M for Fraud

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

A Financial Industry Regulatory Authority panel has awarded The Elliot Family Trust DTD, Eugene Elliot, Genraza LLC, and Shawn Elliot Over $1M in their securities arbitration case against J.P. Morgan Securities (JPM).

The claimants are contending fraud, breach of fiduciary duty, misrepresentation and omissions, failure to control and supervise, and violations of federal and state securities laws related to the alleged short trading of US Treasury securities and the unsuitable purchase and allocation of securities, including leveraged exchange-traded funds and unspecified options. They had initially sought compensatory damages no lower than $1.75M, rescission of the purportedly unsuitable investments, punitive damages, legal fees, and other costs. Meantime, the financial firm sought to have their case dismissed.

Following the pleadings, the FINRA arbitration panel decided that the respondent is liable for and must pay claimants over $1.145M in compensatory damages, interest on that amount, and over $43,000 in other fees.
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Fenway Partners to Pay Over $8M For Not Disclosing Conflicts of Interest

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

The Securities and Exchange Commission has filed charges against Fenway Partners LLC and four of its executives. According to the regulator, when fund and portfolio company assets were used to pay ex-firm employees and an entity to which the New York-based private equity firm is affiliated the parties did not disclose to a fund client and investors that there were conflicts of interest.

The SEC says that Fenway Partners, principals William Gregory Smart and Peter Lamm, CFO Walter Wiacek, and ex-principal Timothy Mayhew Jr. did not fully disclose to the client and investors that a number of transactions involving over $20M in payments had come out of portfolio companies or fund assets. SEC Enforcement Division Director Andrew Ceresney said that the investors and the fund client were not told that the firm and its principals had rerouted the portfolio company fees to affiliate Fenway Consulting Partners, LLC for services and that they failed to give the fund client the benefits of those fees via fee offsets for management.

Also, according to the SEC’s order, which institute a resolved administrative proceeding, Fenway Partners went into contracts with the certain portfolio companies that were held by Fenway Capital Partners Fund III L.P. Through these contracts, the companies paid Fenway Consulting Partners the fees at issue.

Securities Cases: More Brokers Identified by SEC in Stock Rigging Case, Former Ameriprise Broker Gets Prison Term for Fraud, and Boeing Settles 401K Case for Almost $57M

Published on: November 4, 2015 | by Shepherd Smith Edwards & Kantas, LLP

SEC Names More Brokers in Penny Stock Rigging Case Filed Last Year
The Securities and Exchange Commission is charging three more people related to a $300M penny stock rigging case that it filed last year. In federal court, the regulator sought to lift the stay in its civil case to submit an amended lawsuit and now also name brokers Ronald Heineman and Michael Morris, as well as lawyer Darren Ofsink.

The SEC says that Morris and Heineman executed the scam through their brokerage firm awhile Ofsink made money illegally by selling unregistered shares even though no exemption for registration was valid. Meantime, the U.S. Attorney’s Office in New York is fling criminal charges against Ofsink ad Morris.

Per the amended SEC complaint, in 2013 Abraxas Discala, Marc Exler, and brokers Craig Josephburg and Matthew Bell were involved in a scam to raise the price of CodeSmart Holdings stock. The men intended to make money at the expense of Josephberg’s customers and Bell’s clients. Heineman and Morris, who own Halcyon Cabot Partners-the firm where Josephberg was employed-allegedly were involved in the securities scam. The two men are accused of secretly consenting to buy shares of CodeSmart at pre-set prices so that Discala could liquidate his positions at prices that were artificially raised. Meantime, Ofsink, who played a part in the execution of the company’s reverse merger into a public shell company, made money by illegally selling securities of CodeSmart that were not registered.

Trading in CodeSmart has been suspended because the company hasn’t submitted periodic reports since late 2014 and due to purportedly suspect market activity.

Former Ameriprise Adviser Gets Prison Term for Defrauding Clients of Over $1M
Former Ameriprise (AMP) adviser Susan Elizabeth Walker wills serve more than seven years behind bars for defrauding at least 24 retirement accounts of over $1.1M. Walker was convicted of tax evasion and mail fraud. She pled guilty last year to the criminal accounts.

Walker offered financial planning services through the firm from October 2008 through March 2013. She also was registered with the Financial Industry Regulatory Authority and was a securities agent under the Minnesota Department of Commerce.
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SEC Issues Over $325K Whistleblower Award to Ex-Investment Firm Employee Who Provided Fraud Tip

Published on: November 4, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission is awarding over $325K to an ex-investment firm employee who notified the regulator about misconduct that had been going on at his former employer. The information he provided allowed the SEC’s enforcement staff to investigate and discover the extent of the fraud.

In addition to providing specific details about the misconduct, the whistleblower identified who was involved in the fraud. However, said the Commission, if the whistleblower had come forward with the information sooner rather than waiting until after departing the investment firm, the award for exposing the fraud may have been greater.

In a statement, SEC Enforcement Division Director Andrew Ceresney spoke about how it is important for corporate insiders who are aware that there have been securities law violations to report what they know right away so that the misconduct can be stopped and investors are protected from any or further harm. He noted that the Dodd-Frank Act provides whistleblowers with substantial protections and incentives for tipping the agency about suspected wrongdoing.

FINRA Cautions Against Binary Options and Their Risk of Fraud

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

The Financial Industry Regulatory Authority has issued a warning about the risks involved with binary options trading. The alert comes in the wake of numerous calls the regulator has received through its Securities Helpline for Seniors – HELPS™. According to callers, there are business entities claiming to be binary options trading firms that are failing to deposit investors’ funds into their accounts, refusing to give investors back their money, or demanding a payment fee to make such a refund. One fraudster even purportedly pretended to be a regulator organization and demanded that investor pay money for taking part in an allegedly illegal binary options trading.

FINRA wants investors to be especially careful of non-US companies that offer binary options trading platforms, especially trading applications with names implying easy wealth, as well as demo accounts that give users a chance to try binary potions tradings without risking assets.

The self-regulatory organization said that these types of accounts may act as bait to get investors to ultimately fund a “real” account. Exposure to such accounts may also expose people to identity theft as they hand over personal information and other details.
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SEC Probes Advisers With Access to Client Retirement Accounts, Approves Crowdfunding Rules Connecting Investors with Small Businesses

Published on: October 31, 2015 | by Shepherd Smith Edwards & Kantas, LLP

According to InvestmentNews, the Securities and Exchange Commission is looking at instances in which advisers have access to their clients’ financial accounts that they don’t manage. The SEC wants to make sure that these advisors are unable to take distributions from these accounts if they don’t have custody over them.

The SEC has been taking a closer look at custody since the Bernard Madoff Ponzi scam that bilked investors billions of dollars. Madoff was in control of most of his clients’ money.

In 2013, the regulator, seeking to stave off the next big investor scheme, noted that red flags were raised for 140 firms that were examined in 2012 because of they way they had access to or held the assets of clients. “Significant deficiencies” were found.
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Securities News: J.P. Morgan Face Restrictions on Raising Clients Funds In the Wake of Improper Product Disclosures to Investments, Intel Sued Over Improperly Investing 401K Funds, and Citigroup, Bank of America, Other Big Banks Get New Bailout Rules

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

SEC Seeks to Limit JP Morgan’s Ability to Raise Client Money
An Over $200K settlement between J.P. Morgan Chase & Co. (JPM) and regulators has stalled because of efforts by federal regulators to limit the firm’s ability to raise money for clients. The move is an attempt to place a wider variety of consequences on financial firms accused of breaking regulations.

J.P. Morgan had settled allegations accusing it of failing to make proper disclosures when marketing its investment products to clients over the products offered by competitors. Now, the SEC wants the firm to say yes to limits on its ability to sell bonds or stocks through private placements for several years. Such a restriction could hamper its private bank’s efforts to raise funds for hedge funds and other clients through a key channel or sell bonds or stocks privately to rich investors and other sophisticated investors.

While banks are allowed to conduct private placement offerings, firms that violate the rules that these securities are under will lose privilege unless they are given a waiver.

Lawsuit Accuses Intel of Investing 401K Monies Improperly
An ex-Intel Corp. employee is suing company officials for breach of fiduciary duty. According to Christopher M. Sulyma, the company invested defined 401K participants’ retirement funds in high risk, costly private equity funds and hedge funds.

Financial Adviser is Sentenced in $1.2B Rothstein Ponzi Scam

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

Michael Szafranski, the financial adviser of Ponzi mastermind Scott Rothstein, has been sentenced to two-and-a-half years in prison for wire fraud. Szafranski, who pled guilty, had already paid $6.5M of restitution to victims of the $1.2B financial fraud through the trustee handling the bankruptcy of Rothstein’s law firm Rothstein Rosenfeldt Adler.

The indictment against Szafranski referred to him as the “independent asset verifier” of the scam. He is accuse of persuading investors to put over $200M into the Ponzi scheme.

Meantime, Rothstein, an attorney, was sentenced to fifty years behind bars in 2010 for money laundering, wire fraud, and racketeering. He was accused of selling discounted stakes in bogus settlements of whistleblower and sexual harassment cases that ranged from hundreds of thousands to millions of dollars. Investors were told they would get the proceeds when the lawsuits were resolved. Instead, their money was used to bankroll his firm, pay for his expensive lifestyle, and purchase political influence. Rothstein would take newer investors’ money to pay older investors. He and co-conspirators allegedly generated bogus bank statements, settlements, and personal guarantees.

Also, according to InvestmentNews, Rothstein directed employees of his law firm to give some of the money to the campaigns of certain state, local, and federal politicians. These employees were told to do this in a way that allowed him to avoid limits on these types of donations while concealing where the money was coming from. After the allegations against Rothstein became known to the public, many of the campaigns returned the funds.
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