Investor Lawyers Blog

New Details Accusing HSBC of Aiding Tax Evaders Emerge

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

New information regarding HSBC Holdings PLC’s (HSBC) history of aiding tax evaders has been released by ex-employee Hervé Falciani to a number of media outlet, as well as the International Consortium of Investigative Journalists. The data alleges that the bank kept secret accounts for a number of wealthy, celebrity, and/or unsavory individuals, including “dictators and arms dealers,” as well as clients that are on U.S. sanctions lists. HSBC also purportedly would advise clients on how to get around paying taxes in their home countries.

Falciani, an HSBC computer analyst who calls himself a whistleblower, has provided what the BBC is calling the largest data leak in the history of banking. He started sending information out in 2008, copying files onto personal storage devices. The information was sent to French Finance Minister Christine Lagarde, who now runs the International Monetary Fund. She notified other governments.

Falciani claims that in 2006,he notified his superiors at HSBC that there were flaws in data storage that could hurt client confidentiality. He said that no one paid attention. Bank officials, however, counter that Falciani issued no such warnings.

SEC Cases: Insider Trading Charges Filed Against Georgia Resident, Mutual Fund Adviser Accused of Improper Asset Handling, & Two-Ex CFOs Agree to Give Back Bonuses Because of Accounting Fraud

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

Atlanta, GA Man Accused of Making $740,000 for Insider Trading

The Securities and Exchange Commission is filing charges against a Georgia man who is accused of insider trading and making about $740,000 in illicit profits. Charles L. Hill allegedly traded in Radiant Systems stock based on the confidential insider data a friend gave him about an upcoming tender offer to purchase the company. The friend was a friend of a Radiant Systems executive.

In 2011, Hill bought about 100,000 shares valued at close to $2.2 million on the final day of trading prior to the public announcement of the acquisition. That was his first time buying stock of Radiant Systems, and before that it had been years since he’d purchased equity securities.

Securities Fraud Cases: NY Hedge Fund Manager Bilks Investors of Over $800K, Maize Fund Scam Leads to Restitution, Madoff Ponzi Scheme Victims Get $355M, and Kentucky Scheme Ends with Probation, Compensation

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

SEC Says New York Hedge Fund Manager Stole From Investors

The U.S. Securities and Exchange Commission says that Moazzam Malik, a purported hedge fund manager in NYC, stole money from investors. Malik allegedly falsely claimed to be running a hedge fund holding about $100 million in assets under management. He is accused of touting high returns.

Malik raised over $840,000, but his fund, which didn’t make actual investments, never held over $90,177 in assets. Instead, he kept taking out money and spending the funds. He refused to give investors back their money, even pretending to be a fund employee and sending out an e-mail saying that he had passed away. Mailk purportedly kept soliciting investors even as he received redemption requests.

SEC Commissioners Oppose Regulator’s Leniency Toward Oppenheimer, Despite Violations

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

SEC Commissioners Luis Aguilar and Kara Stein, both Democrats, say that they were among those that voted to grant Oppenheimer & Co. (OPY) special benefits even after the brokerage firm committed rules violations. It was just last month that the broker-dealer consented to pay a $20 million penalty while admitting to failures and resolving charges related to its failure to detect money laundering.

In that case, also settle with the Financial Crimes Enforcement Network, the firm did not properly identify and report suspicious penny stock trades, even though numerous Oppenheimer customers reportedly were involved in such activities. The broker-dealer admitted that it failed to establish a suitable anti-money laundering program and did not perform proper due diligence on a foreign correspondent account.

Yet, the regulator overturned the automatic disqualification that should have come with the violation. That happened when SEC Chairman Mary Jo White and the other two members (both Republicans) outvoted the Democratic member. Now, Oppenheimer is allowed to continue selling hedge funds to rich individuals. As part of the condition for the leniency, the broker-dealer will retain a law firm and consultant to make sure that its procedures and policies fall in compliance.

Bank of America Used Subsidiary to Finance Trades, Helped Hedge Funds, Others, Avoid Taxes

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

According to The Wall Street Journal, internal documents show that Bank of America Corp. (BAC) used its Bank of America National Association, a subsidiary backed by the U.S. government, to finance controversial trades that allowed certain clients to get around paying taxes. A bank spokesperson said that the practice, which involved transactions by its investment banking arm in Europe, was phased out last year.

However, as far back as at least 2011 senior Bank of America investment bank officials in England purportedly began pressing at staff to avail of the lower funding costs of the U.S. unit, which doesn’t pay as much as business units for borrowing money. The purpose was to bring in more hedge fund clients, including those involved in dividend arbitrage tax trades. With that strategy, sophisticated investors are able to avoid or lower their withholding taxes on stock dividends.

There have been questions as to whether using an entity that holds federally insured deposits to pay for high-risk investment banking trades is appropriate. One employee even filed a whistleblower submission to the SEC about the banking subsidiary’s involvement.

SEC Claims Investment Adviser Paid for Fraud Settlement With Client Monies

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

The U.S. Securities and Exchange Commission is accusing investment adviser Jacob Cooper and his Total Wealth Management firm of using client funds to pay for a settlement in a fraud case. Now, in the wake of the allegations, the RIA is facing new securities charges.

According to the regulator, Total Wealth Management found clients via a weekly radio show, of which Cooper was the host, and also through free lunches.The SEC contends that Cooper and his firm misused investor money and bilked clients via “administrative” fees that went unexplained. The fees ranged from $3,500 to $7,500/per account. The regulator says that to resolve an SEC administrative action from last year, the investment adviser allegedly borrowed $150K in client funds.

The action accused Cooper of pooling about 75% of clients’ $100 million in assets, placing them in a private fund, and then investing that in unaffiliated funds, which gave clients an undisclosed revenue-sharing fee. In its most recent complaint, the SEC said that Cooper also used investor money to cover the legal fees on a class action that clients brought. These clients were unable to end their relationship with the RIA or take out their money. Following the class action securities case, Cooper sent out an email notifying clients that because of this litigation, all of them would now have to contend with fee increases.

U.S. Department of Justice Wants Citigroup, Barclays, JPMorgan Chase, and Royal Bank of Scotland to Plead Guilty to Criminal Charges In Currency Antitrust Investigation

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

According to The Wall Street Journal, the Justice Department is going to try to make four big banks plead guilty to criminal anti-trust charges related to its traders’ alleged collusion in foreign-currency markets. The financial institutions are Citigroup Inc. (C), Barclays PLC (BARC), Royal Bank of Scotland (RBS), and J.P. Morgan Chase & CO. (JPM). Meantime, separate criminal fraud cases are being pursued against the individuals whose involvements are suspected.

The DOJ’s probe is examining whether bank employees manipulated foreign-currency exchange rates to their benefit, and in certain cases, hurting customers. In a separate investigation, New York’s Department of Financial Services is looking at whether some of the biggest banks used computer programs to manipulate foreign exchange rates. The department installed monitors at Deutsche Bank AG (DB) and Barclays in 2014 and has sent subpoenas to Goldman Sachs (GS), Société Générale, and BNP Paribas about the way they use these types of programs. The subpoenas were sent not because there was necessarily evidence of wrongdoing but because the banks are actively involved in these markets.

As we mentioned in a recent blog post, JPMorgan has just agreed to pay $99.5 million to settle its portion of a currency rigging case. In that litigation, institutional investors are accusing 12 banks of rigging prices in the foreign exchange market. By settling the financial instruction is not denying or admitting to wrongdoing.

John Carris Investments Expelled by FINRA

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

A FINRA panel has expelled John Carris Investments LLC, along with Chief Executive Officer George Carris from the securities industry. Bot are accused of suitability violations and fraud.

According to the panel, Carris and JCI were reckless when selling shares of stock and promissory notes. They purportedly left out material facts and used misleading statements. Both have been barred for manipulating Fibrocell’s stock price via the unfunded purchases of big stock blocks and engaging in trading that was pre-arranged through matched limit orders.

The FINRA panel said that JCI and Carris acted fraudulently when they did not reveal the poor financial state of parent company Invictus Capital yet sold the latter’s stock and notes. Material facts were purportedly left out of offering documents. Rather than shutting down operations when it ran out of net capital compliance, JCI kept selling Bridge Offering notes to investors and using money from the sales to remedy its net cap deficiency, all the while not telling customers that was were the money went. Offering sales were also used by Carris to cover his personal spending.

UBS Financial Puerto Rico’s Chairman Told Brokers to Sell More Bond Funds in 2011

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

Reuters is reporting that in 2011, before the prices of UBS Financial Services Inc. of Puerto Rico’s (UBS) proprietary bond funds dropped, the firm’s chairman, Miguel Ferrer, told brokers to either start selling more UBS Puerto Rico bond funds or find a new job. He spoke after the brokerage firm’s representatives began to express reservations about selling the bond funds to their customers because of, among other issues, the high risks that were involved.

According to Reuters, sources in the know said that when UBS asked their brokers about their reluctance to sell the funds, they gave Mr. Ferrer and UBS nearly two dozen reasons, including concerns with low liquidity, excessive leverage, instability, oversupply, and because of the concentration of Puerto Rican government debt, which UBS had underwritten.

UBS has come under fire not just for pushing its own funds to clients for whom they were not appropriate, but also for improperly directing some of them to borrow money from another UBS unit to purchase more fund shares. The Federal Bureau of Investigation, along with the Securities and Exchange Commission, are reportedly looking into the allegations.

J.P. Morgan Under Scrutiny Over China Hirings

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

According to The Wall Street Journal, U.S. prosecutors and regulators are probing the Asian hiring practices of J.P. Morgan (JPM) and a number of other banks. The probe focuses on the Foreign Corrupt Practices Act, which is a U.S. law that prohibits giving anything of value to foreign government officials in order to gain a business edge.

Hiring employees in order to garner something in return is one area of scrutiny. The WSJ cited the hiring of the son of Chinese commerce minister Gao Hucheng even though he didn’t do well on job interviews, accidentally sent a sexually explicit email to a human resources employee, and exhibited other traits that purportedly made him a liability. Yet, during job cuts, the bank didn’t let him go and would have given him another position. Hucheng reportedly said that he would “go extra miles” for J.P. Morgan if his son wasn’t laid off.

Although China’s commerce ministry isn’t a client of the firm it has influence over business and is entitled to rule on mergers among multinationals that engage in business in that country. However, both father and son have not been accused of wrongdoing.