Investor Lawyers Blog

Insider Trading Roundup: Ex-Broker Pleads Guilty to Securities Fraud Involving IBM Acquisition, BNP Officials Are Under Scrutiny, and Ex-Billionaire Is Tried In Historic Brazilian Case

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

Former Stockbroker Pleads Guilty to Insider Trading in IBM Case

Daryl Payton, an ex-trader at Euro Pacific Capital Inc., has pleaded guilty to conspiracy to commit securities fraud. Payton was involved in an insider trading scam that revolved around software manufacturer SPSS Inc., which IBM acquired in 2009. A U.S. judge accepted his plea.

Three other people have admitted that they shared and traded on secret information about the deal when it was in the works. The confidential data came from Michael Dallas, a corporate lawyer who has not been charged but was identified in a related S.E.C. securities fraud lawsuit.

Puerto Rico’s Prepa Sees 219% Rise in Overdue Accounts With At Least $1.75 Billion Owed

Published on: November 18, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Puerto Rico’s Electrical Power Authority, also known as PREPA, is experiencing a surge in overdue accounts. According to a report from an FTI Consulting subsidiary, since 2012, the U.S. territory’s electrical authority has seen a 219% increase in the number of company and residential accounts that are at least 120 days late in making their payments. The report was generated as part of an agreement with the creditors, which retain more than $9 billion of the electrical utility company’s debt.

By September 2014, late balances owed to PREPA not just among businesses and residents, but also by government entities had hit $1.75 billion. At least $708.6 million were payments that were late by a minimum of four months.

Puerto Rico’s governmental entities owe about $758 million, with certain public corporations unable to even pay their electricity bills and refusing to agree to payment plans to get their accounts current. The FTI report recommends that Prepa put into place an amnesty period for clients that are delinquent, retain a collection agency, increase late fees and charges for reconnection, and push for timely payments.

Bank of Tokyo Mitsubishi Ordered By NY Regulators to Pay Another $315M in Penalties Over Transactions Involving Sanctioned Nations

Published on: November 18, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The New York Department of Financial Services says that Bank of Tokyo Mitsubishi UFJ must pay another $315 in penalties for misleading Benjamin M. Lawsky, the state’s Superintended of Financial Services, about transactions involving Iran, Myanmar, and Sudan. All three nations are subject to U.S. economic sanctions. The Japanese bank also agreed to take disciplinary action against three employees that allegedly took part in diluting a report submitted to Lawsky about the transactions.

One employee, who was a manager in the bank’s anti-money laundering compliance office, stepped down. The other two, who work in the compliance department, have been barred from conducting business with any financial institutions. As part of the settlement, Bank of Tokyo admitted to misleading the regulator.

Lawsky’s office fined the bank $250 million in a settlement last year over allegations that it had routed $100 billion of payments via 28,000 transactions involving the three countries through its New York office. The year before, Bank of Tokyo arrived at a separate agreement with the U.S. Department of Treasury for $8.6 million over allegedly 97 transfers valued at $5.9 million.

SEC Wants $602M Fund Set Up for Victims of SAC Capital’s Insider Trading

Published on: November 17, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. Securities and Exchange Commission is asking a district judge to authorize a fair fund to pay back people shareholders who didn’t participate in an insider trading scam involving shares of Wyeth LLC and Elan Corp. PLC. The regulator is seeking to reimburse people who traded the stocks over a seven-day period in July 2008, which is the week when SAC Capital Advisors LP liquidated a $700 million position in both companies because of illicit tips obtained by former fund manager Mathew Martoma. The SEC is suggesting that the $602 million it collected from SAC Capital over the matter should be used to repay the shareholders.

SAC Capital, now known as Asset Management LP, had agreed to pay $1.8 billion to settle a criminal indictment for the insider trading allegations. Of that money, $616 million was a penalty to the SEC over related charges. However, not all SEC commissioners are on board with the regulator’s fair fund recommendation. Commissioners Michael Piwowar and Daniel Gallagher have expressed their dissent.

Meantime, Martoma has just lost a bid to stay out of jail while he appeals his conviction. Martoma was sentenced to nine years behind bars after he was found guilty of three counts of conspiracy and securities fraud.

NASAA Identifies Investments Most Likely to Cause Harm in 2015

Published on: November 15, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The North American Securities Administrators Association has named what it believes are the financial products that pose the greatest threat to investors. The group said that a lot of these dangers involve new products employed in classic financial scamshttps://www.stockbroker-fraud.com, some propelled by the Internet. Many involve unlicensed agents seeking to sell unregistered products.

The Investments That NASAA Says Pose the Greatest Emergent Threats:

Binary Options: These are securities as options contracts with a payout that is dependent on whether the underlying asset goes up or down in value. These typically have an all-or-nothing payout structure that either gives an investor a pre-determined amount of money if the asset’s value goes up or nothing at all if it goes down. The latter option can place an investor at risk of losing the entire investment. Related risks may include illegal distributions, promotional scams, identity theft, purposely created losing trades, and the use of online trading platforms that do not comply with regulatory requirements.

$13B JPMorgan Chase Mortgage Settlement Was Not Sufficient, Says Whistleblower

Published on: November 15, 2014 | by Shepherd Smith Edwards & Kantas, LLP

According to Alayne Fleischmann, the whistleblower who gave the evidence which helped resident in a $13 billion mortgage settlement from JPMorgan Chase(JPM) to the U.S. Department of Justice last year, that amount was not enough. Fleischmann, a lawyer, joined the financial firm as a deal manager in 2006.

She says that not long after she started working there she noticed that about half of the loans in a multimillion-loan pool included overstated incomes. Such loans, she said, were likely at risk for default—a precarious position for both the investors and the securities. Fleischmann said that she notified management about how the bank was re-selling subprime mortgages to customers without letting them know about the risks. She also spoke about how one bank manager wanted to put in place a non-email policy so there would be no paper trail to show that the firm was aware that such activities were happening.

It was the sale of toxic sub-prime loans by JPMorgan and other US banks that incited the US housing market crisis, which eventually spurred the global financial meltdown of 2008. Repackaged loans were sold to pension funds and other institutional investors, with many buyers unaware of the high default risks involved.

Citigroup, Bank of America Are Selling Soured Home Loans, Sources tell Bloomberg

Published on: November 13, 2014 | by Shepherd Smith Edwards & Kantas, LLP

According to Bloomberg.com, sources are telling them that Citigroup (C) and Bank of America (BAC) are selling soured U.S. mortgages to satisfy the demand from investment firms that are raising the prices. For example, say the individuals who asked not to be named, Bank of America recently placed approximately $1 billion of beleaguered debt, including nonperforming loans. Meantime, Citigroup purportedly sold around $1 billion of re-performing and nonperforming mortgages.

Lenders are reportedly selling more defaulted mortgages to avoid the cost of holding the debt. Meantime, private-equity firms and hedge funds are trying to make money off of increasing home values. The number of firms looking to acquire debt that has soured is growing.

According to some critics, that housing regulators and other agencies have recently announced rulings that would decrease credit and lending standard for home mortgages is a sign that the government is making the kinds of errors that led to the 2008 housing crisis. With housing giants Freddie Mac (FMCC) and Fannie Mae (FNMA), handing over the majority of their earning to the Treasury Department, government-sponsored enterprises are now lacking the capital buffer they would need in the event there are losses. If the economy gets into trouble again, it may be up to taxpayers once more to bail these GSEs out. It was the U.S. Treasury that helped save Freddie and Fannie with $180 million as the government seized them, placing both under conservatorship.

Fidelity, Schwab, and Pershing Suspend Trading of Schorsch Nontraded Real Estate Investment Trusts

Published on: November 13, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Three more firms have decided to suspend trades of nontraded real estate investment trusts managed and backed by companies under Nicholas Schorsch’s control. The suspension comes following news of a $23 million accounting error involving American Realty Capital Properties Inc. (ARCP) which is Schorsch’s publicly treated REIT. ARCP owns Cole Capital Advisors Inc. and Cole Capital Partners.

The mistake was disclosed at the end of the month. ARCP revealed that the error occurred during the first half of the year and then was purposely left uncorrected. The latest firms to announce suspensions are Charles Schwab (SCHW), Pershing and Fidelity.

Schwab said it would suspend sales of Cole and American Realty Capital nontraded real estate investment trusts. Fidelity noted that it was going to stop facilitating subscriptions for certain Cole and Realty Capital Securities-affiliated nontraded REITs. Pershing told broker-dealers that use its clearing services that it would stop facilitating purchases of Cole Capital-sponsored investment products. More than thirty of the leading independent brokerage firms have clearing deals with Pershing.

Citibank, JPMorgan Among Firms to Pay $4.3B For Currency Rigging Penalties

Published on: November 12, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Royal Bank of Scotland Group Plc (RBS), UBS AG (UBS), (HSBC), Bank of America Corp (BAC), HSBC Holdings Plc, JPMorgan Chase & Co. (JPM), and Citigroup Inc. (C) will pay $4.3 billion in penalties to regulators in the United States and Europe for failing to stop traders from attempting to manipulate the foreign exchange market. Further penalties could also result not just for the banks but also for certain individuals in the wake of litigation accusing bank dealers of colluding amongst themselves to rig benchmarks that are used in determining foreign currency.

According to authorities, the dealers exchange confidential data regarding client orders and worked it out so their trades would enhance profits. This information was purportedly exchanged in online chat rooms. Regulators say the misconduct occurred from 2008 through October 2013. The probe has also widened to look into whether traders used confidential information to take bets on unauthorized personal accounts and if clients were charged excessive commissions by sales desks.

The currency rigging probe has led to the firing or suspension of over 30 traders while the number of automated trade transactions have increased. In the U.S. the Federal Reserve, the Justice Department, and New York’s financial regulator continue to investigate banks over foreign exchange trading. Meantime, some lawyers have spoke out about how the settlement doesn’t address client compensation.

Survey by FINRA Shows Investors Want More Regulatory Protections

Published on: November 11, 2014 | by Shepherd Smith Edwards & Kantas, LLP

According to a Financial Industry Regulatory Authority-released survey of investors, 92% of participants believe that there needs to be a regulatory “cop” to protect investors. 94% said that regulators should use the latest technology and tools on the job. The survey is intended to evaluate how investors feel about regulatory protections.

1,000 investors participated in the survey. Overall, said the self-regulatory organization, investors were in strong agreement that regulation and investor protections are key. The majority of investors also said that it is important that regulators detect when customers are sold unsuitable securities, if brokers are making trades to their benefit rather than that of investors, and when firms are taking risks that could hurt customers. 74% of those surveyed said they are in support of additional regulatory protections against broker misconduct.

The Survey was conducted over several days last month. Respondents came from a nationally distributed online panel. They had to meet certain criteria: U.S. citizen, at least 21 years of age, with primary or shared responsibility in their home for investment choices, and at least $10,000 in securities investments.