Investor Lawyers Blog

Edward Jones to Pay $20M to Resolve Municipal Bond Sales Overcharges

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

Edward D. Jones & Co., the brokerage firm subsidiary of Jones Financial Companies, has consented to pay $20 million to resolve U.S. Securities and Exchange Commission allegations accusing the firm of overcharging clients by at least $4.6 million on new municipal bond sales. The regulator contends that the brokerage firm offered bonds at a higher price than what securities laws require.

Underwriters are supposed to sell new bonds at an initial offering price that was negotiated with the bond issuer. The SEC claims that instead of offering municipal bond sales to customers at the worked out a price, the firm allegedly brought the bonds into its own inventory and then later sold them at high prices. Also, said the Commission, in certain instances the bonds were offered to customers after they had already started to trade in the secondary market at higher prices than what was initially offered.

The regulator said that at the very least Edwards Jones was negligent with the overcharges and its behavior was “inconsistent” with the standards and written agreements that govern municipal underwriting. The SEC says it will continue its probe into the matter.
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ITG, AlterNet Securities to Pay $20.3M to Settle SEC Charges that it Misused Confidential Dark Pool Data, Ran Secret Trading Desk

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

ITG Inc. and affiliate AlterNet Securities will pay $20.3M to resolve Securities and Exchange Commission charges accusing them of running a secret trading desk and misusing dark pool subscribers’ confidential trading information. As part of the settlement, ITG admitted to wrongdoing.

According to the regulator, even though it told the public it was an “agency-only” broker with interests that were not in conflict with the interests of customers, the firm ran Project Omega, an undisclosed proprietary trading desk, for over a year. The SEC’s probe found that even though ITG said that it protected dark pool subscribers’ trading information, for eight months, the trading desk accessed feeds of order and execution data and used the information to put into place its strategies for high-frequency algorithmic.

Dad of Ex-JPMorgan Banker Pleads Guilty to Insider Trading

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

The father of a former JPMorgan (JPM) banker has pleaded guilty to taking part in an insider trading ring with his son. Robert Stewart will forfeit $150,000 and faces five years behind bars.

According to the U.S. Justice Department, Stewart’s son, Sean Stewart, allegedly gave his father tips about upcoming deals, including information about a number of acquisitions and mergers. The older Stewart divulged some of the tips to Richard Cunniffe, who has also pleaded guilty in the conspiracy. Cunniffe is now a cooperating witness.

The DOJ said that in early 2011, Sean, who was a JPMorgan Vice President in the Healthcare Investment Banking Group, began tipping his dad about numerous deals. The first one was about the acquisition of Kendle International Inc.—a deal that he worked on. Robert made nearly $8,000 by buying Kendle stock. The second deal involved the acquisition of Kinetic Concepts Inc. After Sean went to go work at Perella Weinberg, he allegedly continued to provide insider tips to his dad.

UBS Ordered to Pay Over $2.5M to Retired Couple in Puerto Rico Bond Fraud Case

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

UBS Financial Services, Inc. and UBS Financial Services of Puerto Rico (collectively “UBS”) must pay over $2.5 million to Orlando Rodriguez Gonzales and Milagros Vila Maldonado for their investment losses related to the proprietary closed-end bond funds that they bought in Puerto Rico. The funds were sold to them by former UBS broker Jose Gabriel Ramirez, Jr., who is often referred to as “The Whopper.”

The San Juan, Puerto Rico couple, who are in their seventies, claim that they gave their liquid savings to UBS to invest. According to their complaint, the Whopper recommended they take out a $3 million loan and reinvest $2 million of that in the closed-end funds.

The result was that Gonzalez and Maldonado lost roughly $2.1 million in assets after the funds abruptly and swiftly dropped in value in 2013. Gonzalez and Maldonado filed a Financial Industry Regulatory Authority arbitration claim alleging breach of fiduciary duty, unsuitable investment, fraud, and negligence related to the Puerto Rico closed-end mutual funds.
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StockCross Financial Services to Pay $800K for Regulation SHO Violations

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

FINRA says that StockCross Financial Services, Inc. will pay an $800,000 fine for violating Regulation SHO, as well as supervisory violations that went on for over three years. By settling, the firm is not denying or admitting to the charges. It has, however, consented to the entry of the self-regulatory organization’s findings.

FINRA said that from 11/09 to 5/13, StockCross’s system for tracking and monitoring close-out obligations was flawed because the firm had not thought that it was supposed to net flat/long in a security and after shares had been purchased to satisfy its close-out obligation.

The SRO said that after transactions for purchase were made, the firm failed to put restrictions or limits on the rest of the trading activity in that security for the day and its flawed system compelled StockCross to experience delivery failure for several statement days in a row on about 1,826 occasions. Also, StockCross purportedly made more than 4,100 short sales when there were outstanding close-out obligations for these securities.

Pimco Gets Wells Notice Over Markings of Total Return ETF

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

Pacific Investment Management Co. said that the SEC has sent it a Wells notice indicating that its staff is recommending that the regulator file a civil case against the financial firm over the way securities were marked in its PimcoTotal Return Active Exchange-Traded Fund. That’s the ETF version of Pimco’s Total Return Fund.

The Wells notice is related to the valuation of smaller positions in mortgage-backed securities that the government did not guarantee for several months in 2012, as well as disclosure regarding performance and procedures and policies related to compliance. Bloomberg reports that according to someone that knows bout the investigation, The regulator has been looking at whether the total return ETF bought small lots of bonds at a discount price and marked them up when valuing holdings to artificially inflate returns.

Although the ETF has continued to see deposits, the Total Return mutual fund experienced redemptions, especially after the departure of founder Bill Gross last year. News of his exit came within days of the news that the SEC was probing whether Pimco had inflated ETF returns.

Senate Bill Would Double Statute of Limitations for The SEC to Pursue Securities Violations

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

U.S. Sen. Jack Reed, D-R.I. has introduced a bill that would give the Securities and Exchange Commission a longer period of time to uncover and impose penalties for financial fraud. Under his proposal the statute of limitations for pursuing civil penalties would be extended from five years to ten years.

The bill comes in the wake of the Supreme Court’s decision in Gabelli v. SEC, in which the Court held that the current five-year statute to take action against wrongdoers begins when the fraud happened and not upon discovery. According to an announcement about the new legislation, which was published on the Senator’s website, the ruling in Gabelli has made it even harder for the Commission to take action against offenders by shortening how much time the regulator has to investigate and pursue violations of securities laws.

The Gabelli case involved allegations of fraud by Marc J. Gabelli, an investment adviser who managed the Gabelli Global Growth Fund, which is a mutual fund. The SEC said that the alleged fraud took place from 1999 and 2002.

Houston-Area Business Man Charged with Running $114M Texas Ponzi Scam

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

The Securities and Exchange Commission is charging Frederick Alan Voight with Texas securities fraud in running an alleged $114 million Ponzi scam that bilked investors. The regulator claims that the Houston-area man defrauded over 300 investors via multiple offerings of promissory notes that his companies DayStar Finding LP and F.A. Voight & Associates LP had issued.

In its complaint, the SEC said Voight recently raised $13.8 million that he claimed would be a loan to InterCore Inc., a company start up. The loan was supposed to fund the deployment of a DADS-a Driver Alertness Detection System.

Voight allegedly told prospective investors that the technology was to be installed in millions of buses and trucks. He promised 30 to 42% yearly interest rates on the promissory notes to be paid out by the company, which he said it could do “many, many times over.”

However, the Commission claims that Voight as aware he was making false claims because he was an InterCore board member and knew that the company was financially beleaguered and could not repay the loans. Voight allegedly used the money from new investors to pay off earlier investors or funnel them to InterCore via another two partnerships that belonged to him. The money would then be sent to subsidiary InterCore Research Canada, Inc.
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Ex-UBS and Citigroup Trader Gets 14 Years in Prison for Libor Rigging

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

A jury in London has found Tom Hayes, a former trader at Citigroup (C) and UBS (UBS), guilty of multiple counts of conspiring to rig the London interbank offered rate. He was sentenced to 14 years in prison.

Prosecutors accused him of heading up the scam to manipulate the yen Libor. They said that he asked rate setters and traders at UBS and other banks, as well as outside brokers, to manipulate the rate so that his trading positions would benefit. He also is accused of giving brokers incentives to help him get other banks to rig the rate.

Hayes had defended himself, arguing that he acted in line with industry standards and did not think his conduct was improper. He claims that his superiors knew about his activities.

Hayes was considered one of the top traders internationally. He made hundreds of millions of dollars in revenue for UBS by trading interest-rate swaps. After going to Citigroup, he was fired in 2010 for rigging Libor. While he initially denied wrongdoing, he eventually entered into an agreement to plead guilty. As part of that deal he was to testify against alleged co-collaborators.

Aegis Capital Fined $950K by FINRA Over Penny Stock Scheme

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

Aegis Capital Corp. must pay $950,000 to resolve allegations that it engaged in the improper sales of billions of shares of unregistered penny stock. The securities case was brought by the Financial Industry Regulatory Authority last August. According to the self-regulatory organization, the New York-based brokerage firm facilitated a penny stock scheme that resulted in $24.5 million in customer profits and $1.1 million in commissions. Aegis is also accused of supervisory lapses related to anti-money laundering.

The SRO said that from April 2009 to June 2011 the brokerage firm liquidated about 3.9 billion shares of five penny stocks that were unregistered even though they should have been registered with the Securities and Exchange Commission. Also, FINRA contends, Aegis and compliance officers disregarded red flags related to the transactions.

For example, an ex-securities broker who was barred from the industry was the one who referred the customers involved to Aegis. This broker controlled the activity in a number of accounts at the firm. Without looking further into this questionable scenario, Aegis sold the unregistered shares.
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