Investor Lawyers Blog

Bank of America’s Merrill Lynch to Pay $2.5M to Massachusetts Over Compliance Rule Relapse

Published on: March 23, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Merrill, Lynch, Pierce, Fenner & Smith, a Bank of America unit (BAC), will pay the state of Massachusetts $2.5 million to resolve charges that it did not abide by its own compliance rules. According to Secretary of the Commonwealth William Galvin, the firm did not properly supervise employees in January 2013 over two presentations that were made to financial advisers in Boston.

The presentations, which allegedly were not properly vetted by compliance staff, were geared toward helping advisers grow their business and oversee the services that they offer clients. Part of the presentations provided training on how to double production via the transfer of customer assets from brokerage accounts that were commission-based to ones with fiduciary fee-based options. Disclaimers about client suitability or advisers’ fiduciary duties were not provided.

According to Merrill Lynch’s own procedures and policies, its compliance team must approve these types of presentations beforehand. A Bank of America spokesperson, however, maintains that no clients were harmed. The firm has since reemphasized to its employees the importance of making sure that internal presentations are properly approved first.

US Prosecutors May Revoke Currency Rigging Settlements

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

According to Bloomberg.com, U.S. prosecutors are thinking about revoking settlements in currency manipulation settlements that were agreed upon years ago and going after banks for manipulating interest rates. The Department of Justice is looking at whether banks violated the earlier deals that resolved those investigations, which stipulated that they would not break the law. If the government finds that banks did in fact commit crimes after the earlier settlements were reached it would be able to revoke those deals.

It has been a common practice for the DOJ to offer deferred prosecution and non-prosecution settlements in probes involving a number of matters, including market manipulation and violations of sanctions. Banks admit responsibility while cooperating with the investigation.

To rescind such a deal would be unprecedented. Among the banks that have settled probes over London interbank offered rate, also known as Libor, are Royal Bank of Scotland Group Plc (RBS), Barclays Plc (BARC), and UBS Group AG (UBS).

Over $44M Lost in Alleged Investment Adviser Scam Involving Total Wealth Management

Published on: March 19, 2015 | by Shepherd Smith Edwards & Kantas, LLP

According to a court-appointed receiver, investors who were the victim of a financial scam allegedly run by Total Wealth Management founder Jacob Cooper lost more than $44 million of assets. The investors are suing Cooper and other principals of the investment adviser.

Cooper pursued investors using “Uncommon Wealth,” his weekly radio show in which he’d discuss retirement planning. According to InvestmentNews, He capitalized on his past history as an Eagle Scout, as well as he was a Mormon and his dad had been in the U.S. Marine Corps, to grow a more than $100 million business with over 600 clients.

Cooper and other firm principals allegedly pooled about 6% of the $100 million and placed them in the Altus Funds, which are proprietary investment funds. These funds then invested in unsuccessful ventures, as well as in Private Placement Capital Notes-the latter did pay interest until two years ago.

Bank of New York Mellon Corp. Settles Currency Fraud Lawsuits Involving Pension Funds for $714M

Published on: March 19, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Bank of New York Mellon Corp. (BK) has agreed to pay $714 million to settle claims that it bilked pension funds and others by overcharging for currency transactions. The settlements resolve cases by New York Attorney General Eric Schneiderman and Manhattan U.S. Attorney Preet Bharara, as well as both private cases and probes by the U.S. Department of Labor and the U.S. Securities and Exchange Commission.

The lawsuits involve the bank’s “standing instruction” for its foreign exchange program: Clients are supposed to let the bank unilaterally deal with foreign-exchange transactions.

The bank admitted that it notified certain clients that it was determined to obtain them the best rates possible even as the firm gave them the ones that were among the worst interbank rates. The bank had previously denied the claims because the lawsuits were submitted in 2011, not agreeing until the following year to modify pricing disclosures. In February, Bank of New York Mellon said it would modify 4tth quarter results to make room for a $598 million litigation cost as it was getting ready to resolve certain claims, including those involving foreign exchange.

Financial Fraud Victims’ Suffering is More Than Just Monetary, Affirms FINRA Report

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

According to “Non-Traditional Costs of Financial Fraud,” which is a new research report by the FINRA Investor Education Foundation, almost two-thirds of financial fraud victims who reported that they’d been bilked experienced at least one non-financial consequence to a serious degree. The findings show other ways in which this type of crime takes a toll on its targets.

Some 600 fraud victims took the survey online. Respondents were at least 25 years of age. Among the findings:

• The most commonly named non-financial fraud costs included serious stress, anxiety, sleeping problems, and depression.

HTG Capital Partners Files High-Frequency Trading Lawsuit Alleging That It Was the Victim of Spoofing

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

The Chicago high-frequency trading firm HTG Capital Partners is suing rival traders, claiming that “John Doe defendants” engaged in spoofing to manipulate the market. The illegal practice was outlawed in 2010 under the Dodd-Frank Act. Spoofing involves attempting to deceive market participants into thinking large orders for futures contracts are being made to get others to make trades.

The practice may involve a trader making large orders for selling or buying and then canceling the orders right away and doing the opposite. However, the fake bids and offers make it appear as if prices are moving. This lets trading algorithms take advantage of the slit-second changes that occur. Those who are spoofed end up selling for less or buying for more than they wanted.

HTG is seeking $100,000 in damages and wants CME Group, the derivatives exchange where the alleged spoofing occurred, to identify the defendants. High-frequency trading provides the cloak of anonymity. CME, which owns the New York Mercantile exchange and the Chicago Mercantile Exchange, is the largest futures market in the world.

Ex-Green Bay Packers’ Bruce Wilkerson Awarded $2M Against Resource Horizons Group Over Ponzi Scam Involving Rogue Broker

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

Bruce Wilkerson, the former tackle of the Green Bay Packer, has been awarded $2 million against Resource Horizons Group. The ex-NFL player lost $650,000 in an alleged Ponzi scam run by Robert Gist, an alleged rogue broker at the Georgia-based financial firm.

Unfortunately for Wilkerson the former pro football player is unlike to get his money back, which was a substantial chunk of his net worth. The now defunct broker-dealer closed shop in November after it was slapped with more $4 million in judgments in two arbitration awards that it could not afford to pay. The Financial Industry Regulatory Authority has suspended the firm for not complying with the award, as well as canceled its license.

The arbitration awards are also linked to Gist, who in 2013 consented to pay $5.4 million to resolve Securities and Exchange Commission charges accusing him of running the Ponzi scam and converting the money for personal use over a 10-year period. At least 32 customers were allegedly bilked.

CNL Lifestyle Properties REIT Dips in Value, May Sell Ski Resorts

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

Even though the commercial real estate industry has recently rallied, shares of the nontraded real estate investment trust CNL Lifestyle Properties Inc. continue to plummet. According to the nontraded REIT’s filing with the SEC, as of the end of 2014 its board of directors approved a $5.20/share valuation—that’s a 24% decline from a year before when the share valuation had been modified to $6.85/share. Launched more than 10 years ago, CNL Lifestyle Properties original price was $10/per share.

Now the nontraded REIT has retained investment bank Jefferies LLC (JEF) to look at whether it makes sense to sell more of its properties or list on an exchange. Already, CNL Lifestyle Properties reached a deal in December to sell its senior housing assets portfolio to the Senior Housing Properties Trust for $790M. Proceeds from the sale will go toward paying debt, and possibly to shareholder distributions or strategic costs for enhancing properties in the CNL Lifestyle Properties portfolio.

The nontraded REIT is also considering whether to sell over a dozen ski resorts located all over the United States. Collectively, the properties are worth hundreds of millions of dollars. CNL Financial Group’s senior managing director, quoted on ABCNews.com, has said that the company is also looking at its theme parks and marinas as it explores its options.

Consumer Groups Accuse SEC of Not Protecting Retail Investors and Poorly Regulating Investment Advisers

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

A letter to the SEC from consumer groups claims that the agency is not meeting its obligation to make sure that retail investors are getting the protections they need. The Consumer Federation of America, Americans for Financial Reform, Fund Democracy, Consumer Action, Public Citizen, and AFL-CIO gave an outline of how they want the regulator to enhance financial adviser regulation, which they believe could be more robust.

They are calling on the Commission to execute “concrete steps” to up the standards bar for brokers when it comes to giving investment advice. For right now, brokers only have to recommend investments that in general are a fit for the clients’ investment goals and risk tolerance level, even as investment advisers must abide by a fiduciary obligation.

The letter from the groups also talks about improving financial adviser disclosure in regards to compensation and conflicts, reforming the sharing of revenue, placing limits to mandatory arbitration for disputes between investors and their financial representatives, strengthening regulations for high-risk financial products, and enhancing required disclosures from financial advisers to investors about financial products.

Nomura Holdings Goes to Court in FHFA Mortgage Case Alleging that Freddie Mac and Fannie Mae Were Misled

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

Nomura Holdings (NMR), one of 18 financial institutions (including Goldman Sachs (GS), Deutsche Bank (DB), Bank of America (BAC), and J.P. Morgan (JPM)) that was sued by the Federal Housing Finance Agency for allegedly misleading Freddie Mac (FMCC) and Fannie Mae (FNMA) about the risks of mortgage-backed securities leading up to the financial crisis, is getting ready to go to court next week after refusing to settle with the government. The Japanese bank contends that not only did the two mortgage giants go looking for mortgage pools, but also they sought to make sure that certain of these mortgages would allow them to meet the Department of Housing and Urban Development’s affordable housing goals.

According to Nomura’s legal team, when choosing the loans as part of the loan groups that would support the tranches they planned on buying, Fannie and Freddie “carefully analyzed loan-level data” to make sure that the loan pools behind their certificates contained “as many goal-qualifying loans as possible.” This would suggest that while a lot of investors were trying to avoid risky loans to individuals that had low credit scores, Freddie and Fannie were doing the opposite by looking for high risk loans while making money with fat interest-rate yields—meaning they knew the risks they were taking on.

In other Nomura-related news, one of its ex-traders, Matthew Katke, has entered a guilty plea for conspiracy to commit securities fraud following a federal indictment against him. Katke traded in collateralized loan obligations and misled customers.