Investor Lawyers Blog

New Jersey Hedge Fund Manager Faces SEC Charges for Bilking Small Businesses Out of Over $4M

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

The Securities and Exchange Commission is charging Nicholas Lattanzio with hedge fund fraud. The New Jersey man is accused of pretending to be a hedge fund manager and bilking small companies out of over $4 million.

According to the regulator, Lattanzio falsely promised small businesses that he would organize project financing for them and bring in healthy returns on money they invested in his Black Diamond Capital Appreciation Fund. He purportedly told them that they could take their money out of the project if the financing didn’t happen. He also allegedly claimed that the fund had up to $800 million under management and a history of generating double-digit returns.

The SEC, however, says that the fund never held anything above $5 million in assets and that Lattanzio took investors’ money for his own spending, including the purchase of an expensive home, a luxury car, merchandise from Tiffany & Co., over $760K in credit card debt, private school tuition for his children, and other expenses.

According to the SEC’s complaint two of Lattanzio’s victims were small companies seeking capital to finance their business. Lattanzio purportedly told them directly and through representatives that the companies would be able to get capital through a lending facility as long they invested a percentage of the capital that they wanted with Black Diamond first.

Two Stockbrokers, Biotech Employee Face Insider Trading Charges Related to Pharmaceutical Trials and A Merger

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

The U.S. Securities and Exchange Commission is charging three men with insider trading in the stock and options of Ardea Biosciences Inc. Those charged included the company’s senior director of information technology Michael J. Fefferman, his brother in-law Chad E. Wiegand, and Akis C. Eracleous. Wiegand and Eracleous are stockbrokers.

According to the regulator, Fefferman had knowledge of material nonpublic data and tipped Wiegand prior to public announcements about two pharmaceutical trials, the acquisition of Ardea Biosciences by AstraZeneca PLC, and a licensing agreement for a cancer drug.

The Commission said that the insider trading happened from 4/09 to 4/12. SEC Philadelphia Regional Office Director Sharon B. Binger said that Fefferman breached his duty to his company’s shareholders when he shared confidential information about the important corporate events before the news was made public. She accused Eracleous and Wiegand of taking unfair advantage of the investing public by using this information to trade before others had access to the same knowledge.

Wiegand purportedly used the tip to buy stock in Ardea using different customer accounts. He then allegedly tipped Eracleous so he could do the same. The alleged insider trading generated about $530K in profits.
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Renowned Money Manager Who Was Fired from Merrill Lynch is Named in Several Investor Fraud Cases

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

Thomas J. Buck, the money manager who was let go from Merrill Lynch (MER) earlier this year, is the subject of several investor complaints alleging misrepresentation, unauthorized trading, and other wrongdoing. The cases could impact his new position at RBC Wealth Management.

The Financial Industry Regulatory Authority says there have been five complaints against the high-profile broker, who was fired from Merrill Lynch after more than three decades with the broker-dealer. The firm cited “loss of confidence” and a number of compliance lapses as reasons for the termination.

One investor is claiming losses caused by allegedly excessive trading and unsuitable investment recommendations. The investor is asking for $125K in damages. Four other claims are still pending.

Investors Targeted by Advanced-Fee Scams Using Bogus Regulator Websites and Fake Broker Identities

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

The Financial Industry Regulatory Authority issued an alert warning non-U.S. and U.S. investors about scammers who use fake regulator websites and identities to steal money. Some scammers have even used FINRA’s name or pretended to be employed by the self-regulatory organization.

These fraudsters will typically ask for an advance payment of a service fee and then disappear upon receipt of the money. The fee is supposedly for services that involve buying non-performing stock that already belongs to the person they are targeting with the offer to pay a high price. The fraudster may even pretend to be a securities regulator or industry professional.

According to FINRA, there are investors in the UK who have received phone calls from individuals claiming to be with securities firm that were subject to disciplinary actions by regulators. These callers will typically try to procure advance payment for the return of money that was lost while the investor was associated with the firm.

U.S. investors have also been targeted. The Securities Investor Protection Corporation even issued its own warning against scammers pretending to be the SIPC or another organization with similar powers. SIPC has the authority to keep up a reserve fund for customers of brokerage firms that become insolvent. However firm liquidations that go through SIPC do not require investors to pay a fee so they can recover their monies.
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Canadian Trader Must Pay Over $1M For Short Selling Violations

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

Andrew L. Evans, a trader living in Canada, has consented to pay over $1 million to resolve charges that he shorted U.S. stocks in companies planning follow-on offerings and then illegally purchased shares in the offerings to generate substantial profits at little to no risk. The Securities and Exchange Commission said that through his firm Maritime Asset Management, Evans violated Rule 105, federal securities laws’ anti-manipulation provision, multiple times.

Under Rule 105, short selling in an equity security is not allowed during the restricted period, which is typically five days leading up to a public offering, nor is buying the security via the offering. By buying the shares at a lower price in the follow-on offerings that could cover his sort sales, Evans allegedly made over $580K in illegal profits.

The SEC said that the short selling violations happened between 12/10 and 5/12. Under the settlement, Evans must pay over $582K in disgorgement, more than $63K in prejudgment interest and a penalty of more than $364K. A court must still approve the settlement.

Trustee Says that Texas Company Life Partners Holdings Bilked Investors

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

According to bankruptcy trustee H. Thomas Moran II, Life Partners Holdings (LPHIQ) ran a scam to bilk its investors. The Texas company, which sold over $1.3 billion of fractional interests in individual life insurance policies to over 20,000 individuals, is accused of unnecessarily demanding that a lot of investors pay yearly premiums on policies that had enough funds to pay for future premiums. Many of these investors were forced to resell or abandon these investments while company insiders made money.

Now, Moran wants a court to give him permission to pool all of the policies and use accessible cash to pay premiums where necessary. This would relieve investors of having to continue to put more of their funds into the scam to keep their investments.

Life Partners used to be a huge player in the secondary market for life insurance. The company makes arrangements to purchase life insurance policies from people. Life Partners would then divide up the policies into fractional interests. Retail investors would buy the rights to collect on them.
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SEC’s Use of In-House Judge in Insider Trading Case is Likely Unconstitutional, Rules Federal Judge

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

A federal judge has ruled that the decision by the Securities and Exchange Commission to have an in-house judge in an insider trading case was “likely unconstitutional.” In the wake of his decision, U.S. District Judge Leigh Martin May agreed to put a temporary stop to the regulator’s administrative case against Charles Hill unless the case is presided over by a judge who fulfills the requirement for constitutional appointment. The hearing in the insider trading case against Hill was scheduled to begin next week.

Hill, a self-employed Atlanta real estate developer, disputes the regulator’s allegations that he made illicit gains of $744K from trading on a tip a friend purportedly provided about the takeover of Radiant Systems Incorporated. The company was about to be acquired by NCR Corp. for $1.2 billion in 2011.

Hill filed his own lawsuit against the SEC, challenging its decision to have in-house administrative law judge James Grimes preside over his case. Grimes was retained through the SEC’s office of in-house judges instead of having the appointment approved by the regulator’s commissioners. Now Judge May is saying, per Hill’s argument, that the Commission may have broken constitutional protections.

Former Stockbroker Pleads Guilty to Fraud Involving $6M Ponzi Scam

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

Sunil Sharma, a former stockbroker who hasn’t been part of the securities industry for over 10 years, has pleaded guilty to fraud charges. The 68-year-old is facing 20 years behind bars for starting what prosecutors claim was a $6 million Ponzi scam that ran from 2008 to 2014.

He allegedly raised $8.36 million from over 30 investors, paying old investors with new investors’ money. According to officials, Sharma misappropriated some $2.5 million of investor funds for his own spending, including a cruise trip, leases for expensive cars, and a down payment on a house.

Investors received statements showing gains even as Sharma continued to lose their funds. He falsely claimed that investors were putting their money in safe investments when really the day trading strategy he employed was high risk.

States Take Action to More Easily Identify Barred Brokers Who Are Still Selling Insurance

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

The National Association of Insurance Commissioners (NAIC) has agreed to steps that will allow for the easier identification of brokers who have been barred from the securities industry yet continue to sell other products. The association is tasked with providing states regulatory guidance, as well as drafting model laws.

It is not uncommon for securities brokers to sell insurance, as well as other products and services. Even after someone has lost the license to sell bonds and stocks, he/she is still legally allowed to sell insurance with an insurance license. This type of license also lets individuals sell products that are like securities, such as fixed annuities and equity indexed annuities. Now, regulators are worried that such leniency will enable further bad behavior from brokers who have already been barred.

It was the Wall Street Journal that first reported on how many states can’t do a lot to track these brokers. Because of inconsistent coordination between regulators and insurance watchdogs, the latter may not even know that a broker has been barred from the securities industry. An insurance license lends credibility to ex-brokers even when they have a questionable broker record.

DOJ Prepares Mortgage Fraud Cases Against More Banks

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

According to the Wall Street Journal, the U.S. Department of Justice and state officials are readying more mortgage fraud cases against up to nine banks, with resolutions against Morgan Stanley (MS) and Goldman Sachs Group (GS) possibly finalized as early as later this month. Most negotiations are reportedly in the earlier stages and could go on for months.

The cases are over residential mortgage-backed securities that fell in value during the economic crisis. Individual securities cases are expected rather than a collective agreement. Other banks that are expected to settle include Credit Suisse Group AG (CS), Barclays PLC (BARC), HSBC Holdings PLC, Deutsche Bank AG (DB), UBS AG (UBS), Royal Bank of Scotland Group PLC (RBS), and Wells Fargo & Co. (WFC).Settlements could range in size from a few hundred million dollars to up to $3 billion depending on the extent of misconduct allegedly involved.

Also likely to be involved least some of the RMBS cases are the attorneys general of Illinois, Massachusetts, New York, and other states that also took part in the earlier rounds of RMBS fraud cases against banks.