Investor Lawyers Blog

Oppenheimer to Pay $20M Settlement to the SEC and FinCEN Over Penny Stock Violations

Published on: January 28, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Oppenheimer & Co. (OPY) has consented to pay $20 million to resolve settlements with the U.S. Securities and Exchange Commission and the Financial Crimes Enforcement Network. The firm is accused of not properly identifying and reporting suspect trades in penny stocks. The low priced, highly speculative securities are easy to manipulate and involve in pump-and-dump scams.

At least 16 Oppenheimer customers in several U.S. states were reportedly identified as having engaged in “suspicious activity.” Admitting guilt, the broker-dealer acknowledged that it did not set up and implement a proper anti-money laundering program nor did it perform sufficient due diligence on a foreign correspondent account. Oppenheimer also said that it failed to comply with the USA PATRIOT Act’s Section 311, which allows FinCEN’s director to decide whether a foreign financial firm is a money laundering risk.

The government agency said that because Oppenheimer did not notify its foreign correspondent financial institutions of the special measures under Section 311, the firm ended up conducting business without setting up the necessary procedures, policies, and internal controls that allow it to reasonably report and detect suspect fraud activity from ’08 to ’14.

White House Looking At Whether Brokers Are Costing Workers Billions in Retirement Funds

Published on: January 27, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Bloomberg News is reporting that according to a memo drafted by President Obama’s Council of Economic Advisers Chair Jason Furman, the White House may be pushing for tighter oversight over brokers who deal with retirement accounts. Furman noted that research shows that excessive trading, increased commissions, and other broker practices may be costing investors up to $17 billion a year-and that even this estimate may be conservative. His memo said that investors might be losing up to 10% of their long-term savings because they receive conflicted investment advice.

This could lead to a Labor Department regulation that would establish a fiduciary obligation requiring these brokers to act in the best interests of their clients. Right now, brokers are merely obligated to make sure that they reasonably believe they are making the right recommendation to a client.

Such a fiduciary duty rule is one that Bank of America Corp (BAC), Morgan Stanley (MS), and other firms have lobbied against. They contend that this type of regulation would not only be more expensive but also it would leave smaller investors with fewer investment choices.

John Carris Investments Expelled by FINRA

Published on: January 27, 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. Both 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 while not telling customers that was were the money went. Offering sales were also used by Carris to cover his personal spending.

Another Institutional Investor Fraud Lawsuit Accuses American Realty Capital Properties Of Violating Securities Laws

Published on: January 26, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The New York City Retirement Systems and TIAA-CREF have joined other institutional investors in suing . They contend that the real estate investment trust violated federal securities laws when it allegedly made misleading and false statements that misrepresented the company’s business, as well as took part in a scam to fool the market and artificially inflate American Realty securities prices.

The securities laws claims are related to a $23 million accounting error that REIT made during last year’s first stated quarters, misstating the company’s adjusted operation funds. While ARCP eventually disclosed the mistakes, the plaintiffs claim that the company’s senior executives did not at first correct the error when it was discovered. The institutional investors believe that this was because executives wanted to get class members to buy American Realty securities at inflated prices.

TIAA-CREF and the $158.7 billion pension fund are seeking lead plaintiff class action securities status for their institutional investor fraud lawsuit.

Insider Trading News: SEC Sues Ex-Capital One Data Analysts, U.S. Attorney Bharara Wants Rehearing in Case Involving Overturned Convictions, and Judge Vacates Four Men’s Guilty Pleas

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

Ex-Capital Data One Analysts Are Defendants in SEC Insider Trading Lawsuit

The U.S. Securities and Exchange Commission is suing Nan Huang and Bonan Huang, two former Capital One data analysts, for insider trading. The regulator contends that the two of them used nonpublic data to trade in consumer retail companies’ shares before earnings and sales reports were issued. They allegedly used sales information that the credit card company had collected from millions of customers.

According to the SEC lawsuit, from 11/13 to 1/15 the two analysts made hundreds, perhaps thousands of keyword searches for sales information on at least 170 companies that are publicly traded. They had access to this data because part of their job was to serve as fraud investigators.

Former Canadian Broker’s Securities Fraud Conviction Involving U.S. Transactions is Upheld

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

The United States Court of Appeals for the Third Circuit has upheld the securities fraud conviction of George Georgiou. The ex-Canadian broker was convicted of U.S. stock manipulation involving brokerage accounts in his native country and international locations.

Georgiou, who appealed the conviction, said that under the U.S. Supreme Court decision Morrison v. National Australia Bank Ltd., his conviction is not allowed because there is no evidence that the securities transactions took place in United States. This means, he argued, that extra-territorially was applied in his case.

In the Morrison ruling, the deeming of transactions as domestic isn’t determined by the location of the fraud’s origination, but rather, where the securities were sold and bought. The Third Circuit, therefore, decided to hold that the sale and purchase of securities happens where “irrevocable liability” to execute them is incurred. The court said that irrevocable liability includes where the contracts were formed, purchase orders were made, money was exchange, and titles were passed.

Texas State Securities Board Was Special Prosecutor in $1M Securities Fraud Case

Published on: January 22, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Alberto Alba Villareal was sentenced to five years behind bars for defrauding investors in a $1 million Texas securities fraud. Villareal was convicted of theft of property for stealing money. The funds he procured were supposed to go toward funding a new insurance company. The Texas State Securities Board was a special prosecutor in the case. Villareal is from South Texas.

As part of his sentence, Villarreal must pay complete restitution to the investor who purchased a $1 million investment contract in Nafta Holdings LLC, which was the new insurer’s controlling company. Villareal must also serve ten years probation.

According to court testimony and his indictment, Villareal took part in a number of financial deceptions to raise funds for the controlling company, even telling the investor that the Texas Insurance Code mandated that there be $4 million in capital and additional cash to open a new insurance company-even though the amount he quoted was about twice what the law actually stipulated.

SEC Adopts Rules Improving Transparency in the Security-Based Swap Market

Published on: January 22, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission has adopted rules mandating that security-based swap data repositories register with the regulator. They also prescribe public dissemination and reporting requirements for security-based swap transaction information.

The rules were mandated under the Dodd-Frank Wall Street Reform and Consumer Protection Act’s Title VII and they are supposed to increase transparency in the security-based swap market, while establishing a regulatory framework for “swap data repositories.”

The new rules require that data warehouses not only register with the Commission but also that they set up governance standards, appoint a chief compliance officer, and require the reporting of certain information to the public. For now, all swaps will have to be reported within 24 hours. This requirement could change as regulators examine the way this impacts the cost and ability of financial firms to execute large trades. The big banks that currently dominate the swaps market in the United States are Goldman Sachs Group Inc. (GS), JP Morgan Chase & Co. (JPM), Citigroup (C), Bank of America Corp. (BAC), and Morgan Stanley (MS).

Investment Adviser Fraud Cases Lead to Civil Charges, Criminal Convictions, and Investor Losses

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

SEC Accuses Elm Tree Investment Advisors, its Founder, of $17M Securities Fraud

The Securities and Exchange Commission has filed fraud charges against Elm Tree Investment Advisors LLC and its founder Frederic Elm for running a Florida-based securities scam that raised over $17 million in a little over a year. The regulator contends that Elm, his firm, and the funds Elm Tree Motion Opportunity LP, Elm Tree “e”Conomy Fund LP, and Elm Tree Investment Fund LP misled investors and used the bulk of the funds to issue Ponzi-like payments. Elm also is accused of using the money to purchase expensive homes, jewelry, and autos, as well as cover his daily living expenses.

According to the SEC, Elm, his unregistered advisory firm, and the three funds violated the regulator’s anti-fraud rules as well as federal securities laws. The Commission wants relief for investors as well as the restoration of the purportedly ill-gotten gains and financial penalties.

Standard & Poor’s to Pay Almost $80 Million to Resolve SEC Charges Over Ratings Fraud Involving CMBSs

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

Standard & Poor’s has agreed to settle U.S. Securities and Exchange Commission charges accusing the credit rating agency of fraudulent misconduct when rating certain commercial mortgage-backed securities. As part of the settlement, S & P will pay close to $80 million—$58 million to resolve the regulator’s case, plus $12 million to settle a parallel case by the New York Attorney General’s Office, and $7 million to resolve the Massachusetts Attorney General’s case.

The SEC put out three orders to institute resolved administrative proceedings against the credit rater. One order dealt with S & P’s practices involving conduit fusion SMBS ratings methodology. The Commission said that the credit rating agency’s public disclosures misrepresented that it was employing one approach when a different one was applied to rate several conduit fusion CMBS transactions, as well for putting out preliminary ratings on two transactions. To resolve these claims S & P will not rate conduit fusion CMBSs for a year.

The SEC’s second order said that after S & P was frozen out of the market for its conduit fusion ratings in 2011, the credit rating agency published a misleading and false article claiming to show that it’s overhauled credit ratings criteria enhancement levels could handle economic stress equal to “Great Depression-era levels.” The Commission said that S & P’s research was flawed, were made based on inappropriate assumptions, and the data used was decades off from the Depression’s serious losses. Without denying or admitting to the findings, S & P has consented to publicly retract the misleading and false data about the Depression era-related study and rectify inaccurate descriptions that were published about its criteria.