Investor Lawyers Blog

Wells Fargo Must Pay Woman Over $8M For Alleged Fraud Involving Childhood Trust

Published on: July 22, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Wells Fargo Bank (WFC) must pay a Dallas woman over $8 million. Texas State Judge Emily Tobolowsky said that the bank defrauded Angela Militello in its role as trustee for a trust that family members set up for her when she became an orphan at the age of seven.

Militello contends that in 1999, a trust officer sent to her by the bank told her to set up a new account and gave her papers for establishing a revocable trust. After Militello filed for divorce in 2006, she asked the trust officer about withdrawing $200,000 from the trust to purchase a home for her and her child.

The trust officer gave her a check for that amount and a form asking for approval of the completed sale of a percentage of the assets in the trust. The remainder of assets was to be sold within a few months. Militello claims that Wells Fargo and a third party conspired to sell the assets in her trust at way below market value and fraudulently charge her tfor the property taxes after a buyer purchased the assets.

Royal Alliance Must Pay $1.4M To Retirees for Non-traded REIT, Variable Annuities Sales

Published on: July 21, 2015 | by Shepherd Smith Edwards & Kantas, LLP

A Financial Industry Regulatory Authority Inc. panel says that AIG Advisor Group (AIG) subsidiary Royal Alliance Associates Inc. must pay $1.4 million to three retirees who claim that the brokerage firm was negligent when supervising the sales of variable annuities and nontraded real estate investment trusts.

The investors, who were former AT & T Inc. employees, claim that ex-broker Kathleen Tarr recommended that they take a lump-sum buyout from the communications company instead of a lifetime annuity. The money was then put into non-traded REIT company Inland Real Estate, as well as different variable annuities.

Tarr’s BrokerCheck record shows that she has been named in about forty customer disputes and complaints. She was let go from Royal Alliance in 2010.

The claimants, who are low-wealth, low-income seniors, believe that they should not have been encouraged to take a lump sum and place their funds into non-traded REITs and variable annuities involving an IRA. Even though they did not sustain out-of-pocket losses from the investment recommendations, the retirees purportedly lost out on earnings they would have made if only they had invested their money more reasonably or opted for the lifetime annuity. With the latter, an investor would have given over a lump sum figure in return for a guaranteed payout for the duration of his/her life.
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Massachusetts Regulator Probes Alternative Mutual Funds Sold by JPMorgan Chase, Wells Fargo, BlackRock, and Other Financial Advisers

Published on: July 17, 2015 | by Shepherd Smith Edwards & Kantas, LLP

William Galvin, the Massachusetts Secretary of the Commonwealth, is investigating the sale of 25 alternative mutual funds, including those created by Wells Fargo (WFC), JPMorgan (JPM), Eaton Vance (EV), and BlackRock (BLK). The state’s securities division sent subpoenas to registered investment advisers that deal with the funds. It noted, however, that receiving a subpoena is “not an indication of wrongdoing at this time.”

A full list of the funds under investigation can be found here. Galvin’s office wants to see documents related to the recommendations the firms made make to retail investors. The Massachusetts regulator’s spokesperson, Brian McNiff, said that the funds were selected because of their size, investment strategies, and sales volumes.

Alternative funds, also called liquid alts, are often marketed as tools that involve hedge-fund-style investment strategies to mitigate risks found in bonds, stocks, and other traditional investments. Alternative funds are not like typical mutual funds. Liquid alts usually hold more investments that are non-traditional. They typically employ trading strategies that are more complex.

Alt funds may invest in global real estate, leveraged loans, commodities, unlisted securities, and start-up companies. Strategies used may include short selling, hedging and leveraging via derivatives, opportunistic tactics that change with market conditions, or even single strategy tactics. There are risks involved.
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JPMorgan Settles Class Action Mortgage-Backed Securities Case for $388M

Published on: July 17, 2015 | by Shepherd Smith Edwards & Kantas, LLP

JPMorgan Chase & Co. (JPM) has consented to pay $388 million to resolve a securities lawsuit filed by investors claiming that the bank misled them about the safety of $10 billion of mortgage-backed securities (MBSs). Included among the plaintiffs in the case are the Laborers Pension Trust Fund for Northern California, the Fort Worth Employees’ Retirement Fund, and the Construction Laborers Pension Trust for Southern California.

The funds, and other investors in nine offerings that were made prior to the financial crisis, contend that JPMorgan misled them about the appraisals, underwriting, and credit quality of home loans that were underlying the securities. Following the collapse of Lehman Brothers Holdings Inc. in 2008, the certificates’ value dropped to 62 cents on the dollar.

JPMorgan is settling the case but has denied any wrongdoing. It will be up to a judge to decide on whether to approve the deal.

According to a copy of the securities action filed in 2010, the lawsuit is for entities and persons that acquired the bank’s Mortgage Pass-Through Certificates. The certificates involved were allegedly sold pursuant to or traceable to a misleading Registration Statement from 2007, as well as misleading and false Prospectus Supplements that also were issued that year. According to the Complaint, examples of purportedly false and misleading statements found in offering documents included claims that the loans had received investment grade credit rating, and loans backing the Certificates had specific loan to value ratios.

OppenheimerFunds Says Puerto Rico Can Repay Its $72B Debt

Published on: July 16, 2015 | by Shepherd Smith Edwards & Kantas, LLP

OppenheimerFunds Inc. (OPY) is disputing Puerto Rico Governor Alejandro García Padilla’s contention that the island cannot pay back its $72 billion debt. The New York-based mutual fund company said that based on data about income growth, sales-tax collection, and unemployment, the U.S. territory’s economy can withstand repaying creditors.

According to Bloomberg data, as of July 9, OppenheimerFunds, which is the largest holder of Puerto Rico municipal bonds, had about $4.4 billion of uninsured obligations from the island. Aside from insured debt, re-refunded securities, and tobacco bonds, these obligations make up 13.8% of Oppenheimer’s municipal fund holdings.

As Puerto Rico bonds continue to lose value-data shows that this year alone Puerto Rico bonds suffered a 9.5% loss-OppenheimerFunds’ municipal funds also have suffered. Bloomberg reports that for 2015,the company’s state funds in Arizona, Virginia, Maryland, New Jersey, and North Carolina, which all hold Puerto Rico securities, sustained the largest losses among single-state, open-end muni funds.

When García Padilla asked for wide-ranging restructuring of the territory’s debt last month, OppenheimerFunds said it would defend the terms of the bonds it holds. The firm does not believe the territory’s fiscal health will get better even if some of Puerto Rico’s agencies file for bankruptcy protection.
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Oz Management to Settle SEC Charges Over Inaccurate Data by Paying $4.25M

Published on: July 16, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Investment adviser Oz Management, LP has agreed to pay a $4.25M penalty to settle SEC charges that it provided inaccurate trading data to four prime brokers. This led to inaccuracies in the books and records of the brokers, including the inaccurate listing of about 552 million shares. Also, the inaccurate trading information resulted in inaccuracies in the information given to the regulator during investigations.

The SEC’s order said that for almost six years, up through the end of 2013, the firm misidentified certain trades in information given to the brokers. Trade settlement was not impacted. However, in addition to the erroneous listings previously mentioned, the wrong information was also woven into the data that the brokers electronically provided to regulators.

Because of this, about 14.4 million shares were inaccurately reported when addressing SEC requests. It was this inaccurate information that the Financial Industry Regulatory Authority used to make a number of referrals to the agency.

The SEC discovered the purported violations during a 2013 probe when it realized that Oz Management’s files didn’t identify trades the same way as was noted on blue sheets. In certain trades the investment adviser did not characterize the sales as short or long in the same way that they were marked when they were sent to the market. Instead, the trades were filtered according to other factors.

LPL Financial Fined $250K by Massachusetts Over Misrepresentations Made to Senior Investors

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

Massachusetts Secretary of the Commonwealth William Galvin has fined LPL Financial (LPLA) $250K to resolve charges that its representatives misrepresented their qualifications when working with older investors. The state’s regulator claims that the brokerage firm approved having brokers use senior-specific titles on their business cards. The titles were not in compliance with the state’s regulations regarding senior designations.

After Galvin’s office discovered one such incident, LPL conducted an internal probe and discovered that at least 10 brokers may have been using titles that were not in compliance with the state’s Senior Designations Regulations. The regulator said that the firm had even approved the title on one broker’s business card more than once.

Galvin contends that since June 2007, LPL failed to establish or enforce a procedure allowing it to look at senior-specific titles to make sure they complied. He noted the importance of not using titles that imply one has an expertise in advising senior investors when there is none. The Senior Designations Regulations prohibit the use of titles that imply a training or certification that the titleholder doesn’t actually possess.
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$30M Fraud that Bilked NHL Players Leads to Guilty Convictions

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

A federal jury has found two men accused of running a financial scam that bilked investors, including several National Hockey League players, of $30 million guilty of money laundering, conspiracy, and wire fraud. The trial against Phillip Kenner, an Arizona financial adviser, and Tommy Constantine, a former professional race car driver, lasted ten weeks.

According to prosecutors, from 2002 to 2013, Kenner convinced at least 13 NHL players to invest $100,000 in a Hawaii real estate development. He met the players through a college friend who was drafted by the league.

He and Constantine stole the players’ money, causing $13M in losses. They used the funds to pay for their lavish lifestyles.

The two men, in a second scam, convinced many of the same hockey players to invest $1.4M in Eufora, a prepaid debit card business owned by Constantine. This money went into bank accounts controlled by the two men.

Massachusetts Regulator Charges Securities America Over Bait and Switch Ads By Broker Accused of Targeting Senior Investors

Published on: July 11, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Massachusetts Secretary of the Commonwealth William Galvin is charging Securities America with inadequate supervision of a broker who is accused of using a “grossly deceptive” radio ad campaign to target older investors. The state regulator said that the financial firm shouldn’t have approved the spots that Barry Armstrong ran on his AM radio show. His show, which airs on WRKO-AM, is syndicated on different stations.

The broker purportedly ran ads asking listeners to call for information related to Alzheimer’s Disease when what Armstrong really was doing was collecting their contact information so he could offer to sell them financial advice. Galvin’s office said that the broker engaged in ‘bait and switch’ by falsely advertising one service when he was really selling another type of service.

The regulator contends that Securities America failed to identify or prevent Armstrong’s unethical conduct by neglecting to ask even one question about the content of the ads or attendant mailing materials. Now, the state wants a censure, a cease-and-desist order, and a fine imposed against the firm.
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Ex-Deutsche Bank Employees May Face Libor Rigging Charges

Published on: July 11, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Bloomberg reports that according to sources, the U.S. Department of Justice is getting ready to file securities charges against former employees of Deutsche Bank AG (DB) for manipulating the London interbank offered rate. The government is looking at five ex-traders who may have rigged the U.S. dollar equivalent of the interest-rate benchmark. If the criminal charges do go through these would be the first ones against the German bank’s traders over Libor.

Earlier this year, Deutsche Bank agreed to pay $2.5B to regulators for rigging Libor and other benchmarks: $600M to the New York Department of Financial Services, $775M to the DOJ, $800M to the Commodities Futures Trading Commission, and $340M to the U.K’s Financial Conduct Authority. The latter had doubled its fine because of what it considered the bank’s “slow” and “ineffective response to questions and purportedly “false, inaccurate, or misleading” statement that it made.

The global settlement included a ban against Deutsche Bank’s traders who had engaged in interest rate rigging. The bank’s DB Group Services in the U.K. also pleaded guilty to one count of wire fraud for its involvement in the scam to defraud counterparties to interest rate swaps by manipulating U.S. Dollar LIBOR contributions.