Investor Lawyers Blog

Citigroup, Credit Suisse, Deutsche Bank, Merrill Lynch, & Other Firms Ordered by FINRA to Pay $43.5M Over Activities Related to Toys “R” Us IPO

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

The Financial Industry Regulatory Authority is fining 10 firms $43.5 million in total for letting their equity research analysts solicit investment business and offering favorable research coverage related to the the planned Toys “R” Us initial public offering. The firms were fined: $2.5 million for Needham & Co. LLC; $4 million for Wells Fargo Securities, LLC (WFC), Deutsche Bank Securities Inc. (DB), Morgan Stanley & Co., LLC (MS), and Merrill Lynch, Pierce, Fenner & Smith Inc. respectively; and $5 million each for JP Morgan Securities LLC (JPM), Barclays Capital Inc. (BARC), Goldman Sachs & Co. (GS), Citigroup Global Markets Inc. (C), and Credit Suisse Securities USA LLC (CS). FINRA rules state that firms are not allowed to use research analysts or promise favorable research to garner investment banking business.

In 2010, Toys “R” Us and its private equity owners asked the ten firms to compete for involvement in an initial public offering. The self-regulatory organization said that all of the institutions used equity research analysts when soliciting for this role.

The company asked the analysts to create presentations to determine what their views were on certain issues and if they matched up with the perspectives of the firms’ investment bankers. The firms knew that how well their analysts did with this would impact whether or not they would be given the underwriting role in the IPO.

SEC Headlines: Regulator Probes Oppenheimer Executive, Prepares Insider Trading Case Against Policy Research Firm, & Wants to Suspend Standard & Poor’s From Rating CMBSs

Published on: December 10, 2014 | by Shepherd Smith Edwards & Kantas, LLP

SEC Investigating Ex-Oppenheimer Executive for Securities Law Violations

According to Bloomberg.com, Robert Okin, Oppenheimer & Co.’s (OPY) former retail brokerage head, is under investigation by the Securities and Exchange Commission. In October, the agency’s enforcement division notified Okin that, based on a preliminary determination, it intended to file charges against him for securities law violations, including failure to supervise.

Okin is no longer with Oppenheimer. He resigned earlier this month to pursue “other interests.” Okin denies violating the Securities Exchange Act.

Ex-Ameriprise Manager Who Helped with SAC Capital Insider Trading Case Settles Charges Against Her

Published on: December 9, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Former Ameriprise Financial (AMP) Manager Reema D. Shah, who pleaded guilty to securities fraud earlier this year, will pay $390,103 to settle both the criminal and Securities and Exchange Commission cases against her. Shah, who was a tech stock picker for Ameriprise subsidiary RiverSource Investments, LLC, illegally recommended Yahoo Inc. stock in 2009 after she became privy to nonpublic data about a search engine partnership between the technology company and Microsoft Corp.

According to government officials, Shah traded information between ’04 and ’09 with research analysts, hedge fund managers, and consultants, including Robert W. Kwok, who was the source of the data about Yahoo and Microsoft. Shah previously gave information to Kwok about the company Autodesk and its acquisition of Moldflow Corporation. Kwok went on to buy 1,500 Moldflow shares, allegedly because of the tip, and made a $4,750 profit.

The regulator claims that because of the insider trading information that Kwok gave her, Shah compelled certain funds that she helped manage to buy about $700,000 Yahoo shares. These were later sold at a $388,807 profit.

Ex-California Insurer Charged with Running $11M Ponzi Scam

Published on: December 8, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Joseph Francis Bartholomew is charged with 30 felony counts related to his alleged operation of an $11 million Ponzi scheme. The 75-year-old former licensed insurance agent has been called Orange County, Ca.’s Bernard Madoff, after the financier who ran a multibillion-dollar Ponzi scam for decades. Bartholomew allegedly bilked over 27 investors.

According to the California State Department of Insurance, he used his insurance business, MBP Insurance Services, to get people to trust him. Those involved reportedly included a number of family trusts, a church, an ex-baseball player, and senior citizens.

The Orange County Register said that Bartholomew made false promises to investors telling them that they could earn fast returns of up to 40%. For example, he is accused of offering one investor an unsecured investment while making the claim that the customer would get $10,000 a month if he invested $500,000. Bartholomew allegedly gave fraudulent assurances that the investment on third party life insurance policies was a legitimate one. He also made other misrepresentations, including claiming that over the last decade there had been no problems getting payments to investors.

Goldman Sachs Must Pay $7.6M to Two Brokers for Wrongful Termination

Published on: December 8, 2014 | by Shepherd Smith Edwards & Kantas, LLP

A Financial Industry Regulatory Authority (FINRA) arbitration panel says that Goldman Sachs Group Inc. (GS) has to pay two brokers $7.6 million because they were wrongfully terminated. Luis Sampedro and Christopher Barra, who are now with UBS (UBS), claim that the Goldman made them forfeit deferred commissions after letting them go.

The two of them were a team at the financial firm until 2007. They filed their arbitration claim in 2010.

The withholding happened after the financial firm modified its compensation plan, requiring that a percentage of the brokers’ commission be retained as restricted stock units to vest. Goldman, however, fired the two men before their stock vested.

CFTC, FINRA, and SEC Fight Investor Fraud Together

Published on: December 5, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The Commodity Futures Trading Commission has launched CFTC SmartCheck. The site gives consumers information about financial fraud. It links to The Securities and Exchange Commission’s EDGAR product registration database and the Financial Industry Regulatory Authority’s BrokerCheck system, as well as to the National Futures Association. For the first time the three regulators are joining forces to combat investor fraud. The site makes checking the backgrounds of brokers and investment advisers more localized.

This year, the CFTC spent around $4.2 million in consumer protection and has an even bigger budget for next year. Under the Dodd-Frank Act, the CFTC was given authority to establish a consumer protection fund that covers whistleblower office and education initiatives.

Last month, the North American Securities Administrators Association announced that in 2013 state securities regulators increased the number of formal enforcement actions they initiated against licensed broker-dealer sales representatives, as well as firms and individuals that didn’t have a license. The states reported 810 actions against unlicensed firms or individuals, which is 34% more than the year before. There was an 89% rise in actions against (357) licensed broker-dealer agents between the same time period.

Madoff Ponzi Scam Victims Recover Over $10 Billion

Published on: December 5, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Six years after the collapse of Bernard Madoff’s multi-billion dollar Ponzi scam, over $10 billion has been recovered—that’s close to 60% of the principal that went missing after his arrest in 2008. Nearly $6 billion has been paid back to investors. Trustee Irving Picard recently provided these figures in an interim report.

Thousands of investors lost $17.5 billion in principal because of Madoff’s scheme. Even as a significant amount of the money has been returned to them, billions of dollars are being kept in reserve until the securities fraud lawsuits filed by victims wanting bigger payouts are resolved.

The Securities Investor Protection Corp. has spent over $1 billion to facilitate the recovery process. Picard was tasked with recovering investors’ funds. He has worked with forensic accountants, lawyers, and others to figure out who was owed money and who should be sued for benefiting from Madoff’s Ponzi scam. He has even able to recover investor funds via hundreds of lawsuits involving the Madoff clients and banks that didn’t know they were benefiting from the fraud.

Money Manager Paul Greenwood Gets 10 Years in Prison for $1.3B Investment Fraud

Published on: December 4, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. Commodity Future Trading Commission says that hedge fund Paul Greenwood has been sentenced to ten years behind bars. Greenwood, who was the general partner of WG Trading Co., pleaded guilty to numerous criminal charges, including securities fraud, wire fraud, money laundering, commodities fraud, and conspiracy in 2010.

Greenwood and fellow WG Trading manager Steven Walsh were indicted on charges that accused them of conspiring to bilk investor of $554 million in an investment scam that U.S. prosecutors say ran from 1996 through 2009. Greenwood admitted to “sort of” operating a Ponzi scam and spending a minimum of $75 million of investors’ funds to pay for his passion for museum-grade teddy bears and other lavish spending. The scheme purportedly cost investors somewhere between $800 million to $900 million.

U.S. District Judge Miriam Goldman Cedarbaum, who sentenced Greenwood, told him to forfeit another $83.5 million. He has until February 9, 2015 to report to prison. Prosecutors told the judge that Greenwood helped the government with its case. He also assisted a court-appointed receivership in finding around $900 million, which is nearly 90% of investor claims. As part of his plea deal, Greenwood said he would forfeit at least $331 million to the government.

Judge Orders Texas-Based Life Partners Holdings Inc., Two Executives to Pay $46.9M Over Securities Filings

Published on: December 3, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Life Partners Holdings Inc., its CEO Brian D. Pardo, and general counsel R. Scott Peden must pay $46.9M in penalties and disgorgement. This is the final judgment in the wake of a verdict in the U.S. Securities and Exchange Commission’s civil case. The jury found them liable for submitting securities filings that were misleading and untrue. Life Partners sells life insurance investments.

U.S. District Judge James Nowlin, in his judgment, said that oversight and compliance at the Texas-based company “were non-existent.” He accused the defendants of serious violations of securities laws.

The judgment is a partial vindication for the SEC. After the verdict was issued earlier this year, both sides declared the outcome a victory for each.

SEC Claims Fraud Involving a REIT and Bogus Senior Resident Occupants

Published on: December 3, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. Securities and Exchange Commission claims that two ex-executives at Assisted Living Concepts Inc. committed fraud by listing bogus occupants at certain senior residences to satisfy the lease requirements to run the facilities. The regulator is accusing former CFO John Buono and previous CEO Laurie Bebo of coming up with a scam that included bogus disclosures and manipulation of records and books when it started to look as if Wisconsin-based assisted living provider was going to default on covenants in a lease agreement with Ventas Inc., which is a real estate investment trust.

Per the covenants, ALC was obligated to keep up minimum occupancy rates and coverage rations while running the facilities or otherwise default on the lease. A default would have obligated the company to pay whatever rent was due for the lease’s remainder of term, which would have been tens of millions of dollars.

According to the SEC Enforcement Division, to meet covenant requirements Buono and Bebo told accounting personnel to work out coverage ratios and occupancy rates by factoring in phony occupants. These nonexistent occupants included Bebo’s relatives and friends, in addition to previous and former ALC employees (including some who had been fired and who hadn’t yet been officially hired), as well as a seven-year-old “senior resident.” Without this false information, contends the agency, ALC would have not met convenant requirements by substantial margins for several quarters in a row.