Investor Lawyers Blog

Standard & Poor’s on the Verge of Civil Settlement Over Real-Estate Bond Ratings, Reports WSJ

Published on: December 29, 2014 | by Shepherd Smith Edwards & Kantas, LLP

According to The Wall Street Journal, Standard & Poor’s Ratings Services is close to arriving at a securities settlement with regulators over the way they graded real-estate bonds. The agreement would resolve claims by the U.S. Securities and Exchange Commission, Massachusetts Attorney General Martha Coakley, and New York Attorney General Eric Schneiderman.

The proposed deal is over six commercial real estate bond ratings issued by the credit rater in 2011. In July of that year, S & P withdrew a preliminary rating on a $1.5 billion security comprised of commercial real-estate loans. The decision made debt issuers and investors very angry. (The deal was later partially overhauled and eventually went to market.)

S & P discovered discrepancies in the way its ratings methodology applied for commercial real estate deals. However, it said the incongruence was not outside what is considered an acceptable range. Still, investigators were compelled to look at the withdrawn rating and other deals from that period.

NASAA Wants Life Partners Held Accountable for Texas Securities Act Violations

Published on: December 28, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The North American Securities Administrators Association wants the Texas Supreme Court to rule that Life Partners Holdings Inc. has to face a class action securities lawsuit for selling unregistered securities. The state’s high court is set to determine whether to reverse a lower appeal court’s ruling to reinstate a case that accuses the company of selling the securities.

According to the group of securities regulators, violations of the Texas Securities Act were committed when Life Partners sold fractional interests in life insurance polices to investors and that this grounds for a case. The company wants the previous ruling, which found that life settlement contracts are not insurance contracts but are, in fact, investment contracts that are regulated under securities laws, overturned. Life Partners maintains that state securities law does not govern its product.

The putative class action securities case contends that three years ago, Life Partners was involved in a scam that involved offering and selling securities that were unregistered. A trial judge rejected the plaintiffs’ claims, accusing them of submitting a frivolous pleading.

Credit Suisse Ordered to Face $10B Mortgage-Backed Securities Fraud Lawsuit by NY AG

Published on: December 26, 2014 | by Shepherd Smith Edwards & Kantas, LLP

A New York State Supreme Court justice says that Credit Suisse Group AG (CSGN) must face a $10 billion securities lawsuit accusing the bank of mortgage-backed securities fraud. Justice Marcy Friedman refused to dismiss the case, saying that a trial will take place. She said that the state has shown that the Swiss financial institution may have engaged in misconduct.

New York sued Credit Suisse in 2012, accusing it of misrepresenting the risks involved in investing in mortgage-backed securities. The bank tried to claim that the state missed the three-year deadline it had for filing such a claim. NY, however, countered that it had six years to pursue its claim.

The state’s Attorney General, Eric Schneiderman, has been going after banks while helping beleaguered homeowners and trying to keep the number of foreclosures from going up. His office has used the Martin Act, which is the NY’s anti-fraud statute to make its cases. Under that law, it is illegal for sellers to make false promises about the securities they are selling. Schneiderman contends that Credit Suisse told investors that the mortgage securities were safe even though the bank knew that the residential loans backing them had “pervasive flaws.”

Exchange-Traded Fund Strategist F-Squared to Pay $35M to Settle Charges that It Misled Investors

Published on: December 24, 2014 | by Shepherd Smith Edwards & Kantas, LLP

F-Squared Investments Inc. has consented to pay $35M to settle Securities and Exchange Commission charges accusing the firm of making false claims regarding the performance of a key investment product. F-Squared admitted that it misled clients for several years about its AlphaSector strategy.

F-Squared is the largest marketer of index products that use Exchange-Traded Funds. The SEC claims that F-Squared falsely advertised that the AlphaSector investment strategy had a successful track record that was based on actual investment performance for real clients when, in fact, the algorithm touted didn’t even exist during the noted time period.

The algorithm was the basis of signals sent from a third party data provider indicating when to sell or buy an investment. F-Squared and Howard Present, its co-founder and ex-CEO, used the signals to develop the AlphaSector, a model portfolio of sector ETFs that could be rebalanced from time to time when the signals changed. After its launch in 2008, AlphaSector’s indexes became the company’s largest revenue source.

MF Global Holdings Ordered to Pay $100M Settlement to CFTC

Published on: December 24, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. Commodity Futures Trading Commission is fining MF Global Holdings Ltd. $100 million to settle allegations that the firm participated in wrongdoing that led to its own demise. In addition to the fine, the futures brokerage is responsible for giving back $1.212 billion in client funds that its MF Global Inc. was told to return last year. The company was also told to pay a $100 million penalty.

The consent order, which has just been entered by the U.S. District Court for the Southern District of New York’s Judge Victor Marrero, stems from a CFTC amended complaint charging MF Global Holdings and other defendants with unlawfully using customer money. As part of the settlement, the firm has admitted to the allegations related to its liability, which are related to its agents’ acts and omissions that were named in the complaint and order.

The CFTC said that MF Global Holdings, which ran the operations of MF Global Inc., was accountable for the latter’s unlawful use of segregated customer funds during the final week of October 2011. The Complaint accused MF Global Holdings of being responsible for its unit’s failure to notify the agency right away when it became aware of (or should have known) about the deficiencies that were arising in customer accounts, submission of false statements that did not show these deficiencies in reports to the CFTC, and its use of customer money for investments not allowed in securities that were very liquid or not readily marketable.

FINRA Orders Wells Fargo Units to Pay $1.5M For Anti-Money Laundering-Related Lapses

Published on: December 23, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority is ordering Wells Fargo Advisors Financial Network (WFAFN) and Wells Fargo Advisors (WFA) to collectively pay $1.5M for anti-money laundering (AML) failures. According to the self-regulatory organization, the two brokerage firms did not comply with a main component of the anti-money laundering compliance program when it did not require some 220,000 new customer accounts to go through an identity verification process. The failures purportedly occurred from 2003 to 2012.

The anti-money laundering compliance program mandates that brokerage firms set up and keep up a written Customer Identification Program that lets them confirm the identity of every customer setting up an account. The broker-dealer should use the CIP to get and verify a minimum amount of identifying data before opening a new customer account. The firms must also keep records of the verification process and let customers know that data is being gathered to confirm their identities.

FINRA said that the firms had a CIP system but it was deficient because of the electronic systems involved. Of the 220,000 new accounts that never had to undergo customer identify verification, some 120,000 of them were closed by the time the problem was identified.

Ex-Edward Jones Financial Adviser is Criminally Charged with Bilking Disabled Woman of Over $160K

Published on: December 22, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Jason Cox, a former Edward Jones financial adviser, is criminally charged with allegedly defrauding a disabled woman. Robert C. Yeamans, who is the woman’s now deceased father, had tasked Cox with managing her account. The woman, who is in her fifties, is developmentally disabled.

According to a federal complaint, Cox took at least $160,000 from the investment account set up for her. He allegedly structured transactions by taking out small amounts during a short time period so he wouldn’t have to fulfill bank reporting requirements for bigger sums.

When worried banking officials asked the woman about the money, she told them she put it in a business that Cox owned but did not know what kind of enterprise it was. The bank closed her account.

WGF Investments, Deutsche Bank Securities, Royal Bank of Canada Subject to Fines for Securities Violations and Misconduct

Published on: December 22, 2014 | by Shepherd Smith Edwards & Kantas, LLP

FINRA Fines WGF Investments $700,000 for Supervisory Failures

The Financial Industry Regulatory Authority is fining WGF Investments $700,000 for failing to commit the attention, time, and resources to certain duties related to supervising registered representatives. WGF is a midsize independent brokerage firm.

According to the self-regulatory organization, from 3/07-1/14, WGF did not supervise private securities transactions of one representative and failed to keep up an adequate supervisory system to make sure that the customer transactions taking place were suitable. The broker-dealer also is accused of not properly supervising one representative’s alternative investment sales.

Investors Name Icon Investments in Securities Arbitration Claims

Published on: December 19, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Investors are accusing brokerage firms of making inappropriate recommendations and selling investments in Icon Leasing Fund Eleven, LLC and Icon Leasing Fund Twelve, LLC to them even though they would not be able to withstand the high risks. The two funds are registered, non-traded Equipment Leasing Direct Participation Programs (DPPs).

Not only are the Icon Eleven and Icon Twelve investments very high risk and illiquid investments, but also there are little if any secondary markets where their shares can be sold. Investment dividends from Icon cannot be predicted because they are contingent upon profits made from equipment leases.

During their offering periods, the two funds started paying distributions. However, not long after Icon Eleven and Twelve stopped taking new investors, the investments’ value started to drop fast and dividend payments became inconsistent. The decline has resulted in significant financial losses for investors.

Credit Suisse Ordered to Pay $40M Verdict to Highland Capital

Published on: December 19, 2014 | by Shepherd Smith Edwards & Kantas, LLP

A jury is ordering Credit Suisse (CS) to pay a $40 million verdict to Highland Capital Management LP. The hedge fund firm, based in Texas, accused the bank of duping it into refinancing a real-estate development that wasn’t solid. According to the ruling, issued in state court in Dallas, Credit Suisse is 65% at fault.

Highland’s Claymore Holdings LLC claimed that the bank knew it was employing a flawed appraisal to garner investments in Lake Las Vegas, which was a massive residential and resort community of over 3,500 acres that filed for bankruptcy six years ago. Credit Suisse said the investment did not go well not because it misled Highland but because of the recession.

The hedge fund company, however, contends that the flawed appraisal used by Credit Suisse inflated the value of collateral behind $540 million in loans to refinance the community in 2007. Highland says that the motivation was the fees made by Credit Suisse to underwrite the transaction.