Investor Lawyers Blog

Pacific West Faces SEC Fraud Charges Over Life Settlements

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

The Securities and Exchange Commission is charging Pacific West Capital Group Inc. with securities fraud and other violations. The regulator contends that the investment firm and its owner, Andrew B. Calhoun IV, misled clients about life settlements.

According to the SEC, Calhoun and Pacific West raised close to $100 million over the last decade from more than 3,200 investors that bought life settlements in 125 life insurance polices. For more than two years, the two of them allegedly used proceeds from the sales to pay the premiums on life settlements that had been previously sold, while concealing that the life insurance policyholders were living beyond their projected life expectancy. Calhoun and his company are accused of make their life settlements seem more successful than they actually were even as they spent the primary reserves to pay policy premiums.

With life settlements, an investor purchases a life insurance policy share with the understanding that he/she will get part of the death benefit later. The investor is the one responsible for the premium payments and keeps the policy until the insured’s passing. Upon the insured’s death the investor is entitled to the policy’s death benefit.

Deutsche Bank Settlement Over Libor Rigging Likely to Exceed $1.5B

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

According to media reports, Deutsche Bank AG (DB) could settle allegations over Libor manipulation with U.S. and British regulators as early as this month. A source reports that the settlement is likely to be larger than $1.5 billion and unit Deutsche Bank Group Services may even plead guilty.

Regulators expected to be involved in any settlement are the U.S. Department of Justice, the Department of Financial Services in New York, the Commodity Futures Trading Commission, and U.K.’s Financial Conduct Authority. Deutsche Bank is one of several banks probed over accusations of London interbank offered rate manipulation.

Libor is the key interest rate linked to mortgages, credit cards, student loans, and other instruments. The bank is accused of giving false data to a British Banker’s Association daily survey, which impacted Libor’s daily rate in numerous currencies, such as the U.S. dollar, the Euro, and the yen.

U.S.’s $1B Mortgage Bond Trial Against Nomura Holdings Comes to a Close

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

Closing arguments took place this week in the Federal Housing Finance Agency’s mortgage-backed securities lawsuit against Nomura Holdings Inc. (NMR). The U.S. regulator claims that the bank made false statements when selling some $2 billion in MBSs to Freddie Mac (FMCC) and Fannie Mae (FNMA).

A lawyer for the bank said that FHFA’s claimed losses were not the fault of Nomura or that of Royal Bank of Scotland (RBS), which the government is also pursuing over the securities. Instead, contended the attorney, market conditions during the 2008 economic crisis were to blame.

The is the first of 18 MBS fraud cases over about $200 million in securities that different banks sold to mortgage finance giants to go to trial. Already, FHFA has gotten $17.9 billion in settlements with the other financial firms, including JPMorgan Chase & Co. (JPM), Bank of America Corp. (BAC), and Deutsche Bank AG (DB). There was just this case and the one against Royal Bank of Scotland remaining.

SEC Sues Ex-New York Giants Cornerback Over Alleged Ponzi Scam

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

The U.S. Securities and Exchange Commission is suing a former New York Giants player for allegedly helping to run a Ponzi scam. According to the regulator, Will Allen and his business partner Susan Daub raised over $31 million from investors, promising them profits from loans made to professional athletes. Allen and Daub managed Capital Financial, which was compromised of several companies.

The SEC said that the alleged financial scam took place from 7/12 through 2/15 and involved over 40 people investors, who were told they could make up to 18% in interest. The Commission contends that Allen and Daub misled investors about the circumstances, terms, and the existence of certain loans.

For example, according to the complaint, last year, at least two dozen investors handed over approximately $4 million that was supposedly going to go toward a $5.6 million loan for an NHL player. They were given a copy of a promissory note and loan agreement that was supposed to have been signed by both Allen and the player. The player was to make monthly payments.

SEC Files First Enforcement Action Protecting Whistleblower Confidentiality Agreements

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

The SEC has brought its first case for whistleblower protection violations involving Rule 21F-17. The Commission claims that KBR Inc. used language in confidentiality agreements that were improperly restrictive and could potentially impede the whistleblower process.

According to the regulator, KBR required that witnesses involved in certain internal investigative interviews sign confidentiality statements that contained language warning about potentially disciplinary action, including termination, if the matters involved were discussed with an external party without the legal department’s approval. Such probes typically involved claims of possible securities law violations. Because of this, the agency said the terms violated the rule, which bars companies from getting in the way of whistleblowers being able to report securities law violations to the Commission.

To settle, KBR will pay a $130,000 penalty. The company, however, is not denying or admitting to the charges. It did voluntarily consented to modify its confidentiality statement to include language that lets employees know they can report possible violations to federal agencies without the company’s approval or fear of reprisal. KBR also agreed to cease and desist from future Rule 21F-17 violations.

LPL Financial Should Pay $3.6M in Fines, Repayments for REIT Sales to Older Investors, Says NH Regulator

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

The New Hampshire Bureau of Securities Regulation wants LPL Financial (LPLA) to pay clients $2.4 million in buybacks and restitution for 48 sales of nontraded real estate investment trusts that were purportedly unsuitable for elderly investors. The regulator, which says the firm did not properly supervise its agents, is also fining LPL $1 million plus $200,000 in investigative expenses.

The securities case springs from transactions involving an 81-year-old state resident that purchased a nontraded REIT from the firm in 2008. The investor, whose liquid net worth was $2.5 million and invested $253,000 in the financial instrument, would go on to lose a significant amount of money. A probe ensued.

The state regulator contends that the 48 REIT sales, totaling $2.4 million lead to concentration that went beyond LPL guidelines and that the firm sold hundreds of nontraded REITs to clients in New Hampshire on the basis of “clearly erroneous “client financial data, while frequently violating its own policies. LPL has reportedly admitted that 10 of the 48 transactions deemed unlawful by the state were unsuitable according to its own guidelines. The Securities Bureau wants to take away the firm’s license to sell securities in New Hampshire.

Two Firms Charged in Texas With Running Fraudulent Commodity Pool Must Pay Over $7.5M

Published on: April 6, 2015 | by Shepherd Smith Edwards & Kantas, LLP

A district court in Texas is ordering a permanent injunction against RFF GP, LLC, KGW Capital Management, LLC, and Kevin White. The order is related to a 2013 Commodity Futures Trading Commission complaint charging them with fraud and misappropriation related to the running of a commodity pool.

The regulator says that defendants bilked participants when they got them to invest in the hedge fund and the commodity pool, named Revelation Forex Fund, LP. The fund was supposed to trade in off-exchange foreign currency. According to the CFTC, however, the defendants fraudulently solicited about $7.4 million from over 20 participants, misappropriating some $1.7 million from their money to cover personal spending and other matters. They allegedly fabricated the fund’s performance and lied about White’s experience in investing.

The Securities and Exchange Commission also filed its Texas securities case against White and the firms, along with a few other entities. The SEC said that White promoted a sophisticated forex trading strategy that was low risk but would lead to huge earnings. He also touted the Revelation Forex as a $1 billion hedge fund that managed to bring in returns of over 393% returns while earning an over 36% compound yearly return rate. White marketed himself as having 25 years of experience working in Wall Street when he had worked just six years as a licensed securities professional in Texas before the NYSE barred him.

Barclays Must Pay Former Trader $9M, Ex-Raymond James Broker Gets Back $650K Award

Published on: April 6, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Financial Industry Regulatory Authority arbitrators have awarded Mayank Chamadia $3.7 million in compensation in his case against Barclays Plc. (BARC) Chamadia was placed on leave from the June 2013 to prepare testimony for a possible interest-rate manipulation case. He resigned in October 2013 to go work for another firm.

Although Chamadia wasn’t accused of any violations, he said that the leave time while at Barclays hurt not just his reputation but also his bonus earning power. Now, Barclays must pay Chamadia millions of dollars in deferred pay along with the compensation. The arbitrators found that the firm had “no basis” to reduce or keep payouts that had not yet vested. Chamadia’s lawyer says that this releases some $9 million in back pay that had vested, including interest, to his client.

In another financial representative case against a firm, Robert Fenyk, an ex-Raymond James Financial Services Inc. (RJF) adviser, recently saw his $650,000 award reinstated by the U.S. Court of Appeals for the First Circuit. The ruling comes after a five-year legal battle.

Investor Fraud News: NFL Free Agent Sues Bank of America For $20M, FINRA Arbitration Panel Awards $1.3M to Investor in Case Involving Ex-Stifel Broker, and Tony Thompson and His Brokerage Firm are Barred from Industry

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

Former Colts Football Player Sues Bank of America for $20M

Dwight Freeney, formerly with the Indianapolis Colts and currently an NFL free agent, is suing Bank of America (BAC) for securities fraud. He and his Roof Group LLC say they were bilked of over $20 million.

In his securities fraud case, Freeney contends that the bank’s wealth management division is to blame for taking part, aiding, and abetting in the scam that cost him money. He noted that Bank of America went after him in 2010 to become one of its high net worth and affluent clients.

Financier Lynn Tilton Sues the SEC After She is Charged with Securities Fraud

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

Lynn Tilton, the owner of the financial firm Patriarch Partners LLC, is suing the U.S. Securities and Exchange Commission. She wants the regulator to stop going after her for alleged financial fraud. Tilton claims that the agency did not abide by the U.S. Constitution when it chose to pursue its case against her via its own administrative proceeding rather than federal court.

The SEC is charging Tilton and her firm with securities fraud. The Commission contends that she concealed the poor performance of the assets that were underlying three CLO (collateralized loan obligation) funds, known as the Zohar Funds. The agency has been probing the Zohar I, II, and III funds for years. They contain securities put together by Patriarch and are made up mostly of loans to companies that the financial firm controlled.

Tilton and Patriarch had raised over $2.5 billion for the funds. The regulator said that because they concealed the low performances, the firm and Tilton were able to collect close to $200 million of fees they shouldn’t have received. The SEC said that “major conflict of interest” was a factor.