Investor Lawyers Blog

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.
Continue Reading ›

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.
Continue Reading ›

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.
Continue Reading ›

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.

SEC Orders Investment Advisory Firm to pay $21M For Allegedly Retaining Clients’ CDO Fees

Published on: September 3, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Taberna Capital Management has consented to pay $21 million to resolve Securities and Exchange Commission charges alleging that it fraudulently kept fees that belonged to collateralized debt obligation clients. According to the regulator, the investment advisor retained “exchange fees” related to restructuring transactions, which was not allowed under the CDOs governing documents. The retention of the fees was purportedly not disclosed to investors.

The SEC maintains that these fees belonged to the CDOs and became a conflict interest that was not revealed. According to the agency’s order instituting administrative proceedings, for three years, from ’09 to ’12, the Pennsylvania-based investment advisory firm sought and kept millions of dollars in exchange fees paid by issuers of the securities that the CDOs held when Taberna recommended exchange transactions to clients. The SEC said that those fees actually belonged to the CDOs and that the firm made its misconduct difficult to identify by improperly labeling the fees as third party costs in documents even though these costs were only a small portion of the total exchange fees.

Also, said the SEC, Taberna did not mention these fees in quarterly reports to investors nor did it identify them in Forms ADV even though they should have been noted. The regulator said the retention of the fees set up a conflict of interest between the firm and investors and CDO clients, even at times giving Taberna incentive to steer issuers toward a particular exchange regardless of what restructuring might benefit it the most.

FINRA Orders UBS to Pay Investors Over $2.9M For Puerto Rico Bond and Fund Losses

Published on: September 1, 2015 | by Shepherd Smith Edwards & Kantas, LLP

UBS (UBS) must pay over $2.9M to investors Andres Ricardo Gomez and Ana Teresa Lopez-Gonzales for losses related to their investments in Puerto Rico securities. Mr. Ricardo, Ms. Lopez-Gonzales and their relatives filed an arbitration case with the Financial Industry Regulatory Authority (“FINRA”) claiming breach of fiduciary duty, fraud, breach of contract, negligence, unsuitability, misrepresentation and omission, overconcentration, and failure to supervise under FINRA rules and Puerto Rican law.

Mr. Ricardo’s and Ms. Lopez-Gonzales’ relatives resolved the securities fraud case for an undisclosed sum before the FINRA arbitration panel issued its ruling. The allegations are related to investments in Puerto Rico municipal bonds, UBS proprietary closed-end funds, and the use of Claimants’ investments as collateral to borrow money through credit lines. UBS Financial Services and UBS Financial Services Inc. of Puerto Rico denied all claims.

The Claimants had initially sought $10 million in compensatory damages and other appropriate relief, the cancellation of all loan balances, disgorgement of fees and commissions earned by UBS, pre- and post-award interest, legal fees, expenses, and other fees. Claimants also sought punitive damages.

In response, UBS sought to have the Puerto Rico bond fund case dismissed. In addition, UBS requested that the FINRA panel order Mr. Ricardo and one of the other claimants pay $500,000 in damages.
Continue Reading ›

UBS Settles Pursuit Partners’ CDO Lawsuit Over Asset-Backed Securities

Published on: September 1, 2015 | by Shepherd Smith Edwards & Kantas, LLP

UBS AG (UBS) and Connecticut-based hedge fund Pursuit Partners have settled a securities fraud lawsuit accusing the brokerage firm of selling asset-backed securities without disclosing that they were going to be downgraded. The resolution was reached a day before trial was scheduled to start.

Pursuit Partners claims that UBS sold it $40.5M of collateralized debt obligations in 2007. The hedge fund contends that these were the same securities that UBS employees had called “crap” and “vomit” in emails. The securities fraud case was filed in 2008, with Pursuit seeking $100M.

According to the complaint, UBS purportedly failed to disclose to the Connecticut hedge funds that the firm had engaged in private conversations with employees of Moody’s (MCO) in 2007 about how the credit rating agency did not believe the securities should be rated as investment grade. When Moody’s downgraded them three months later the securities became practically worthless. The plaintiff contended that not only did it know the CDOs were about to become toxic securities but also they plotted to get rid of them by selling them to Pursuit.

11th Circuit Revives City of Miami’s Mortgage Fraud Lawsuits Against Wells Fargo, Citigroup, and Bank of America

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

The 11th U.S. Circuit Court of Appeals said that a lower court made a mistake when it threw out the city of Miami’s claims accusing Bank of America Corp. (BAC), Wells Fargo & Co. (WFC ), and Citigroup Inc. (C) of engaging in predatory mortgage lending to Hispanic and black borrowers. The Florida city brought its claims under the Fair Housing Act.

Miami claims that the three banks directed non-Caucasian borrowers toward more expensive loans that were frequently not affordable to them even if their credit was good. The city said that because of this “reverse redlining,” there were a lot of foreclosures, a rise in spending to fight blight, and lower property tax collections.

A U.S. district court judge threw out Miami’s mortgage fraud lawsuits last year. Judge William Dimitrouleas claimed that the city did not have the standing to sue and the harm alleged was too remote from the conduct of the banks.

The 11th circuit, however, said that standard was too strict. It believes that the banks could have foreseen that there would be attendant harm from such alleged discriminatory practices.
Continue Reading ›