Investor Lawyers Blog

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.

U.S. Department of Labor’s Fiduciary Rule for Retirement Advisers Hits Another Snag

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

Just as the Department of Labor appeared poised to push out its proposal to impose a fiduciary standard on retirement advisers, financial industry members have once more stepped forward to try to implement certain changes.

Last month, financial industry trade groups met with White House aide Valerie Jarrett to express their worries. The groups are concerned that certain restrictions will limit how much compensation brokers that sell investments for IRAs would be able to get for their services. They believe that this will stop representatives from dealing with investors who have middle-range incomes.

Meantime, the DOL contends that the proposed rules are needed to protect retirees and workers from getting advice that may be tainted by conflicts of interest. For example, a broker might be tempted to sell a retirement investment product that comes with a high-fee, which could hurt a client’s savings.

JPMorgan Sued by Indiana Church

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

The Christ Church Cathedral of Indianapolis is suing JPMorgan (JPM) for securities fraud. The church contends that the financial firm purposely mismanaged its money over the last ten years, causing $13 million in losses. Eli Lilly, the founder of pharmaceutical giant of the same name, gifted a large trust fund to the Episcopal congregation. Mr. Lilly appointed three local banks as trustees but JPMorgan became involved after it acquired two of the banks in 2004.

Court filings claim that once JPMorgan came on board the church’s portfolio of stocks and bonds were replaced by the firm’s own funds, including alternative investments, which involve higher fees paid to the firm. Over eight years the firm’s management fees went up from $35K to $177K, while it reaped in additional fees for selling proprietary products. By the close of 2009, the church was invested in over 50 investment funds— 75% of those were in the firm’s own products.

In 2004, when the firm took over the church’s trust fund, the congregation had $34.6 million. By the end of 2013 it had $31.6 million. Because of this, the congregation has been unable to do all of its charitable works. The church believes that its investment strategy should have let it take money from its endowment to fund its aid work without losing any money. The Christ Church Cathedral of Indianapolis wants JPMorgan to pay back the $13 million losses, which includes lost profits.

California Insider Trading Ring Made Almost $750K in Illegal Profits, Says the SEC

Published on: February 5, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission says that former Barclays Capital (ADR) analyst John Gray, his friends Christian Keller and Kyle Martin, and Aaron Shephard committed California insider trading, making close to $750K in illegal profits. They did this by allegedly trading right before four corporate news announcements were made. To settle the securities fraud case, the four men will pay $1.6 million in total.

According to the SEC, Gray, who was an analyst for Barclays at the time, and Kelly traded on confidential merger data that the latter obtained during his job as a trader for two Silicon Valley-based public companies. They purportedly tried to hide the trades by putting them in a brokerage account held under Martin’s name. Gray also tipped Shephard, so that he too could make trades before the announcements.

The first acts of inside trading purportedly occurred when Gray and Keller traded on confidential merger data that Keller found out about while working as an Applied Materials Inc. financial analyst. The traded prior to that company’s acquisition of Semitool Inc. as well as before the one for Varian Semiconductor. When Keller left Applied Materials, their insider trading scam continued while he worked for Rovi Corporation, where he learned to profitably trade in the company’s securities before negative news about Rovi would be announced.

Hedge Fund Fraud Leads to Criminal Convictions

Published on: February 4, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Francisco Illarramendi has been sentenced to 13 years behind bars for a Connecticut securities scam that involved hundreds of millions of dollars from the state oil company of Venezuela. The 45-year-old ex-hedge fund manager said he committed the crimes to conceal investment losses and because he was pressured by corrupt government officials in the South American country.

Illarramendi, a Venezuelan-American, devised a currency arbitrage market that he claims made $60 billion for the government in Caracas, which kept it from failing. In 2005, he began his hedge fund scam to conceal $5 million in losses in a failed bond transaction that was made for the Venezuelan government. Illarramendi contends that he and his family were threatened with violence if they refused to go along.

The judge, however, noted that the former hedge fund manager took $20 million for his own purposes. In time, the fraud grew as Illarramendi continued to use his hedge funds to cover what now exceeded over $500,000 million. He also paid million of dollars in bribes to government officials in Venezuela for sending the oil company’s money to him, which he invested. Illarramendi pleaded guilty to fraud and conspiracy to obstruct justice in 2011. To date, the court appointed receiver has recovered enough to pay investor claims of over $345 million but more needs to be recovered.

UBS Under Scrutiny in New Tax Evasion Probe

Published on: February 4, 2015 | by Shepherd Smith Edwards & Kantas, LLP

U.S. prosecutors have opened a new investigation into whether UBS AG (UBS) helped Americans avoid paying taxes via investments that were banned in the country. The government is looking at whether the Swiss bank used bearer securities, which may be used as if they were cash. These securities were phased out of the financial system in the U.S. more than thirty years ago because they can be used in money laundering and tax evasion.

According to the Wall Street Journal, not only are prosecutors in the U.S. attorney’s office in Brooklyn looking at evidence of whether bank employees played a role in allowing securities fraud and tax evasion to happen, but also they are seeking proof that there may have been a criminal cover up internally. A whistleblower is involved in this latest probe.

In 2009, UBS paid $780 million to resolve a tax evasion investigation by the Department of Justice. The Swiss bank admitted that it encouraged this type of conduct. As part of the settlement it disclosed the identities of 250 American banking clients. It settled another U.S. lawsuit in which it revealed the names of 4,450 U.S clients with UBS accounts.

Standard & Poor’s Settles Inflated Ratings Case for $1.5 Billion

Published on: February 3, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Credit rating agency Standard & Poor’s will pay $1.5 billion to settle a number of lawsuits accusing the company of inflating the ratings of mortgage securities in the lead up to the 2008 economic crisis. As part of the deal, S & P’s parent company McGraw Hill will pay $687.5 million to the U.S. Justice Department and $687.5 million to the District Columbia and 19 states over their inflated ratings cases.

The U.S. sued the credit rater in 2013, asking for $5 billion and claiming that S & P had bilked investors. The company fought the claims, arguing that the First Amendment protected its ratings and contending that the mortgage ratings case was the government’s way of retaliating after S & P downgraded the United States’ own credit rating. As part of the settlement, the credit rating agency said it found no evidence that retaliation was a factor.

S & P is not admitting to violating any law. It noted that its mission is to give the marketplace information that is independent and objective and employees are not allowed to influence analyst opinions because of commercial relationships.

Sun Antonio Spurs Star Tim Duncan Files Texas Investment Adviser Fraud Case

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

NBA All-Star Tim Duncan is suing his investment adviser for securities fraud. The San Antonio Spurs basketball player says that his financial representative, Charles Banks, made investment recommendations based on conflicts of interest. Duncan claims that because of this he sustained substantial financial losses. According to one source, the NBA star lost more than $20 million.

In his Texas securities case, Duncan says that Banks, who gave him investment advice for seventeen years, took advantage of their relationship for personal gain. Duncan claims that Banks suggested he invest several million dollars in beauty products, hotels, sporting goods, and wineries that the latter either had a financial stake in or owned. The NBA basketball player also says that Banks was able to garner a $6.5 million bank loan using Duncan’s forged signature.

Unfortunately, professional athletes are targeted by financial fraudsters. With their large incomes and, in some cases, inexperience with managing their money and investments, there are scammers who will take advantage of their investment adviser relationship with them to try to make money. Because pro athletes can only play at the NBA, NFL, MLB, and NHL levels for a certain amount of years, unexpected and substantial financial losses caused by securities fraud may prove devastating for athletes and their families.