Investor Lawyers Blog

Barclays, Citigroup, J.P. Morgan Chase & Royal Bank of Scotland to Settle FX Rigging Allegations

Published on: May 7, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The Wall Street Journal says that U.S. prosecutors are getting ready to announce settlements reached with Barclays PLC ( BCS), Citigroup Inc. (C), Royal Bank of Scotland Group (RBS), and J.P. Morgan Chase & Co. (JPM) over allegations involving foreign currency exchange rate rigging. All four banks are expected to plead guilty to charges of criminal antitrust related to their traders’ alleged collusion in foreign currency markets. The Department of Justice has been investigating whether traders manipulated exchange rates so that their positions would benefit even if this meant financially hurting customers.

Barclays is expected to settle with a number of agencies in the U.S. and Europe for over $1 billion. Also expected to settle is UBS AG (UBS), which was the first bank to cooperate with federal investigators in this probe. The Swiss bank, however, will reportedly be granted immunity from prosecution.

Guilty pleas by the other firms, however, aren’t going to resolve all of the investigations into forex rigging. Other banks are still under scrutiny and settlements from them may be pending.

LPL Financial to Pay $11.7M Fine for Supervisory Failures

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

The Financial Industry Regulatory Authority Inc. said that LPL Financial (LPLA) must pay $11.7M in fines and restitution for widespread supervisory failures involving complex products sales. The self-regulatory organization said that from 2007 up to last month, the firm did not properly supervise certain exchange-traded funds, nontraded real estate investment trusts, and variable annuities. It also did not properly deliver over 14 million trade confirmations to customers and failed to properly supervise communications, including advertising, as well as the consolidated reports used by brokers.

According to the Letter of Acceptance, Waiver, and Consent, To grow LPL, its wholly-owned brokerage firm subsidiary, LPL Financial Holdings Inc. employed a strategy that included acquiring financial services firms, consolidating them with the broker-dealer, and bringing in more registered representatives. Unfortunately, said the SRO, the firm failed to dedicate enough resources to allow LPL to fulfill its supervisory duties.

As just one example, LPL did not have a system for either monitoring the duration of time customers held securities in accounts or enforcing concentration limits on complex products. Its system for reviewing trading activities in accounts had numerous deficiencies. Also, LPL did not submit trade confirmations in over 67,000 customer accounts.

City of Los Angeles, CA Sues Wells Fargo for Fraud

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

The city of Los Angeles has filed a civil complaint against Wells Fargo Bank (WFC). The lawsuit accuses the bank of encouraging employees to take part in conduct that was illegal and fraudulent, including setting up unauthorized accounts for customers, charging them unwarranted fees, and ruining their credit.

The city is looking to get a court order stopping the alleged wrongdoing. It wants penalties for every violation, as well as restitution for customers that were hurt. The case is applicable to residents of Los Angeles County and perhaps even customers outside that area.

According to the complaint, employees purportedly misused the confidential data of customers and neglected to close unauthorized accounts when the latter complained. Certain employees even allegedly raided customer accounts for money to set up additional accounts. When unwarranted fees went unpaid, the bank purportedly put customers into collections because of unauthorized withdrawals and damaging data on their credit cards because of these unwarranted fees.

RBC Capital Markets Must Pay $1M Fine and $434K Restitution to Customers Over Unsuitable Reverse Convertible Sales

Published on: April 30, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority is ordering RBC Capital Markets to pay restitution to customers for supervisory failures that allowed for the sale of reverse convertibles that were unsuitable for them. The firm must pay them about $434,000 plus a $1 million fine.

According to the self-regulatory organization, RBC Capital Markets lacked supervisory systems that were reasonably designed to identify transactions that warranted review when the reverse convertibles were sold to customers. This purported inadequacy is s a violation of FINRA’s rules and suitability guidelines.

Although RBC had guidelines for selling reverse convertibles, specific criteria were established regarding annual income, investment goals, liquid net worth, and investment experience. Because of this, the firm was unable to detect the sale of 364 reverse convertible transactions by 99 of its registered representatives. The transactions involved 218 accounts and they were not suitable for the account holders. The customers lost at least $1.1 million.

More than $600K Whistleblower Award to Be Issued in SEC’s First Retalitation Case

Published on: April 30, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission will award a whistleblower more than $600,000 for providing original information that resulted in a successful enforcement action. That’s 30% of the total monies collected related to the case,

In the Matter of Paradigm Capital Management, Inc. and Candace King Weir. It’s also the maximum percentage of funds that a whistleblower can get in in such an action.

The Commission charged Paradigm with taking retaliatory action against the whistleblower for reporting the possible misconduct. Retaliatory actions included removing the person from their position and changing their job duties, making the individual investigate the wrongdoing that was alleged, and other acts that caused the whistleblower to feel marginalized.

Ex-Sonics Special Assistant Accused of $4M Wire Fraud, Ponzi Scam

Published on: April 29, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Steve Gordon, who used to be the special assistant to the Seattle SuperSonics basketball team, has been charged with federal wire fraud. Gordon is accused of using false pretenses to initiate at least $4 million in business deals. The criminal charges come after a 10-month probe by the Federal Bureau of Investigation.

Gordon, who also worked with the Minnesota Timberwolves and the Portland Trail Blazers, is accused of creating a Ponzi scam that involved at least 30 investors. Newer investors’ money was allegedly used to pay earlier investors their promised returns.

The wire fraud count accuses him of using misrepresentations, fraudulent promises and false pretenses, and concealing material facts to solicit money from investors. He also purportedly used his friendship with ex-Microsoft SCEO Steve Ballmer by falsely claiming that the billionaire was his partner and financial backer. However, according to the fraud charges, Ballmer never promised to give Gordon any money.

Puerto Rico’s General Obligation Rating is Downgraded to CCC+

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

Standard & Poor’s (“S&P”) has just downgraded the general obligation rating of Puerto Rico from a rating of B to a rating of CCC +. The ratings agency said the downgrade was because the market access prospects for the U.S. territory have weakened even further and Puerto Rico’s ability to fulfill its financial commitments is becoming more and more linked to the economic and business conditions in the Commonwealth, which are not strong.

The credit rater is also putting the general obligation rating on CreditWatch negative, which means the rating could go even lower into junk bond status and closer to a default. S&P lowered its ratings on the first-lien and second-lien sales tax bonds of the Puerto Rico Sales Tax Financing Corp. from B to CCC + as well. The bonds of the Puerto Rico Employees Retirement System and the Puerto Rico Municipal Finance Agency also received downgrades with a negative outlook.

S&P says that unless the conditions in Puerto Rico get better, the territory won’t be able to sustain its financial commitments. The ratings agency said there was not currently a consensus on key aspects of the 2016 budget and that this could make fiscal pressure and liquidity worse. In a letter from Puerto Rico’s Government Development Bank to its governor, there were concerns about liquidity problems unless the government starts tax reform and enacts a budget. S&P stated that if the budget is delayed or flawed there might be an even further ratings downgrades.

SEC Investigates Bank of America Merrill Lynch

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

According to The Wall Street Journal, the U.S. Securities and Exchange Commission is investigating Bank of America Corp. (BAC) and its Merrill Lynch unit to find out if the lender broke rules established to protect customers accounts. According to sources in the know, over a three-year period, Merrill Lynch used different kinds of big, complex trades and loans to save on funding expenses and free up billions of dollars in money and securities for trading that it otherwise would have needed to keep off-limits.

Bank of America put a halt to the trades in 2012 in the wake of internal dialogue over possible risks involved. The trades involved strategies that existed when the bank purchased Merrill Lynch in 2009.

Now, the SEC wants to know if the strategies violated the protection rules and if regulators were misled about the bank’s actions. It also is trying to determine if retail brokerage funds were placed at risk for the purpose of making more money.

FINRA and SEC Unveil Report on Senior Investors, Cite Concerns About Unsuitable Recommendations

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

The Financial Industry Regulatory Authority and the Securities and Exchange Commission have put out a report, the Senior Investment Initiative, to help brokerage firms come up with better procedures and policies for older investors. With the current low yields on traditional savings accounts and investments that are more low risk, FINRA and the SEC’s Office of Compliance Inspections and Examinations are worried that broker-dealers could be recommending investments that may be to risky or unsuitable for seniors who want higher returns. They are also worried that the firms are not properly disclosing the terms and risks of these securities.

Considering that by 2040 there are expected to be some 79 million Americans in the 65 and over age group, information in this report is important for helping tackle investment issues as they relate to seniors. OCIE’s Director Andrew J. Bowden pointed out that seniors are now more than ever more dependent on their investments to help with retirement. Bowden noted that it is important that older investors are treated fairly and get suitable recommendations and appropriate disclosures about the risks, costs, and benefits of their investments.

The two agencies examined some 44 brokerage firms. They looked at brokerage firm reps training, communications, arresting, account documentation, use of certain designations, disclosures, supervision, and customer complaints.

Morgan Stanley Sued by Home Shopping Founder’s Widow for $170M

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

Lynnda L. Speer, the widow of Home Shopping Network co-founder Roy M. Speer, is suing Morgan Stanley Wealth Management (MS), a branch manager, and an adviser for over $170 million. Mrs. Speer contends that the firm and adviser Ami Forte took part in excessive trading, abused their fiduciary duty, and were involved in unauthorized use of discretion.

Now, she is seeking $78 million for Florida Statute violations, up to $66 million in portfolio damages, and up to $44 million for disgorgement and excess commission damages. Also named in the complaint submitted to the Financial Industry Regulatory Authority is Morgan Stanley branch manager Terry McCoy.

Reuters reports that Speer’s case accuses Morgan Stanley of not properly supervising its brokers and failing to act in the best interests of Mr. Speer. When Speer died in 2012 at the age of 80 his estimated worth was approximately $775 million.