Investor Lawyers Blog

Boston Investment Adviser Must Pay Two Investors A $48M Arbitration Award

Published on: April 21, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Investment Advisory firm Family Endowment Partners and its managing partner Lee Weiss have been ordered to pay a $48 million securities arbitration award to clients for private investments they made in Biosyntec Polska, a company that owned a tobacco company in Poland and purportedly patents a cigarette filter that was supposed to dramatically transform the tobacco industry.

James and Jane Sutow accused the Boston investment advisor and Weiss of making investment recommendations that were not suitable and grossly negligent, selling unregistered securities using material and fraudulent misstatements, and failing to disclose conflicts of interest in the recommendations they made. More than $20 million in investments were recommended by Family Endowment Partners and Weiss to the claimants.

The Sutows invested $9 million in the Polish company over a three-year period. Iman Emami, the head of the group that purchased Biosyntec Polska, was someone Weiss had been acquainted with for a long time. Emami supposedly held the filter patents. The filter was supposed to use rosemary extract to get rid of most of the free radicals found in cigarette smoke. The Sutows also made investments in companies related to the Polish company, including $9.7 million in funds run and crated by the RIA and Weiss. However, none of the investments came with offering documents or information that gave the claimants complete and fair disclosure of material facts.

Securities Class Action Says ARCP Made Over $900M From Acquisition Binge

Published on: April 20, 2015 | by Shepherd Smith Edwards & Kantas, LLP

According to the amended complaint of an investor class action securities case, American Realty Capital Properties Inc. made over $900 million in commissions, fees and payments issued to company insiders after it started an acquisition binge to raise its share price and capital. The non-traded real estate investment trust purportedly started the buying frenzy, which lasted for three years, after completing its $69.8M IPO in 2011 and discovering that its share price was wallowing under the initial public offering price. The lead plaintiff in the case is the Teachers Insurance and Annuity Association of America, which is a retirement and annuities plan behemoth.

The securities lawsuit contends that because the lower than desired price was holding up ARCP’s ability to raise a significant amount of capital, the acquisition strategy allegedly involved artificially raising adjusted operation funds—a key metric for investors when evaluating an REIT’s performance. The plaintiffs believe that senior insiders at ARCP knew that the tactic was the only way to make the hefty fees. Over $917 million in payments went straight to ARCP insiders and the company’s affiliates.

Because of the acquisition binge, ARCP went from owning 63 properties and having $13 million in assets to owning over 4,400 properties and $21.3 billion in assets. The complaints claims that indirect and direct payments to ARCP insiders purportedly included $186.6 million subordinated distribution fees, and $333 million in fees and commissions. Some of the fees were allegedly triggered by ARCP’s buying of non-traded REITs American Realty Capital Trust IV Inc. and American Realty Capital Trust II, both defendants in the case. Other payments included $21.6 million for sales purportedly made to ARCP for equipment, fixtures, and furniture, $63.4 million for strategic advisory services, and $17.7 million for financing coordinating fees.

Texas Securities Scam Allegedly Bilked Investors of $4.4M

Published on: April 18, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission has filed a lawsuit accusing Mieka Energy Corporation of Texas Securities Fraud. The oil and gas company and Daro Ray Blankenship, its president and founder, allegedly defrauded at least 60 investors located in different states of about $4.4 million. The regulator is also charging Vadda Energy Corporation, the publicly traded parent company of Mieka, of fraud and reporting violations, including deceptively promoting Mieka’s investments as a successful venture.

The scam is said to have taken place between 2010 and 2011, when investors were purportedly fooled into investing funds that were supposed to purchase energy-related investments while making big returns on other investments. The SEC said that Blankenship and Mieka engaged in boiler room cold calling to market these investments related to drilling, production, and oil and gas exploration.

To get around federal securities regulations, Mieka and Blankenship called their securities offering a “joint venture” and said that the investment interests were not securities, when really, under federal securities law, they were. The regulator said that Blankenship took all of the offering proceeds and spent the money on unrelated projects and expenses. He then used deceptive updates and misleading public filings to mislead investors.

Former Tullett Prebon Broker, Rabobank Trader Plead Not Guilty To Libor Manipulation Charges

Published on: April 17, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Noel Cryan, an ex-Tullett Prebon Plc (TLPR) broke, has pleaded not guilty to conspiring to manipulate the London interbank offered rate related to the Japanese yen. He is charged with conspiracy to defraud, which purportedly would have occurred in 2009, in London.

Cryan is among numerous brokers that the U.K. Serious Fraud Office has charged for Libor rigging. Meantime, in the U.S., Anthony Conti, who is also a former Rabobank Groep trader, has pleaded not guilty to Libor manipulation charges.

The 46-year-old, who is English, didn’t combat extradition to the United States. He was released on bond and allowed to go home and vacation in France. He could go to trial at the same time as Anthony Allen, the ex-global liquidity and finance head of Rabobank. Allen pleaded not guilty to similar charges. Both men are accused of involvement in the scam to manipulate the U.S. dollar and yen Libor to make money on derivatives linked to benchmarks for the bank.

Former JPMorgan Chase Investment Adviser Faces Criminal and Civil Charges for Allegedly Stealing $20M from Clients

Published on: April 16, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Michael Oppenheim, an ex-JPMorgan Chase (JPM) investment adviser, was arrested this week and charged with bilking clients of at least $20 million. Oppenheim worked for the firm from 2002 until March of this year.

Authorities claim that starting as early as 2011, Oppenheim convinced clients to allow him to take money out of their accounts to invest in low-risk municipal bonds. Instead, he allegedly used the funds to get cashier’s checks that he put into brokerage accounts that he controlled. He also used the money to trade options and stocks in different companies.

Because his options trading activities were generally unprofitable, most of his investments lead to losses. By last year he’d lost some $13.5 million. Oppenheim was also purportedly using client money to pay for a home loan and cover bills. He is accused of concealing his embezzelment by using fraudulent client statements and transferring funds among his clients.

Former UBS Puerto Rico Executives File a $10M FINRA Arbitration Claim Against the Firm

Published on: April 15, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Siblings Teresa and George Bravo, who formerly worked as financial advisors at UBS Financial Services Inc. of Puerto Rico (UBS-PR), have filed a $10 million Financial Industry Regulatory Authority (FINRA) arbitration claim against the firm. The Bravos, both were senior vice presidents at the broker-dealer, claim that management deceived not just customers but also employees about proprietary closed mutual funds.

The Bravos said that they thought working with UBS would help them be of better service to their clients, which is why they left their old firm. However, the allegedly fraudulent conduct taking place at UBS created material conflicts of interest for them and other employees. The Bravos are contending that during the three years they worked at UBS, they were repeatedly deceived, mistreated, threatened, and coerced before being forced out.

They collectively managed over $120 million in client assets while working for UBS. According to their complaint, the Bravos said that UBS created a high-pressure atmosphere to get brokers to find and sell more of UBS’s proprietary closed-end mutual funds or risk termination otherwise. Teresa Bravo says that she was even duped into buying $100,000 in mutual funds herself. She and her brother are accusing UBS of deceiving customers for its own protection and trying to artificially preserve the Puerto Rican closed-end funds market.

SEC Settles With Ex-Freddie Mac Executives Over Allegations They Mislead Investors Over Mortgage Risks

Published on: April 15, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission has reached as settlement with three ex-Freddie Mac executives accusing them of knowingly misleading investors about the quality of high-risk mortgages that the company bought heading into the end of the housing boom several years ago. The former executives are ex-Freddie Mac (FMCC) CEO Richard Syron, ex-chief business officer Patricia Cook, and former senior VP of credit policy and portfolio management Donald Bisenius. The SEC accused the three executives of saying that there was little subprime exposure for Freddie even as they bought more loans with subprime qualities.

Under the agreement, the three ex-executives agreed that they wouldn’t sign certain reports that are required by finance chiefs or chief executives for a certain period of time, and would pay $310,000 to a fund to pay back bilked investors. Insurance from Freddie Mac will cover the amount.

Considering that the regulator tried to get bars to prevent the three of them from serving as company directors or officers, as well as pay financial penalties, the agreements reached highlight the challenges the U.S. has had in bringing and winning cases against individual executives over the 2008 economic crisis.

FINRA Bars Owner of Broker-Dealer, Seller of Illiquid Equipment-Leasing Funds for Misusing Investor Money

Published on: April 14, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority has barred the owner of Commonwealth Capital Corp. from the securities industry. Kimberly Springsteen-Abbott is accused of misusing investor funds.

Commonwealth Capital Securities Corp., a wholesaling brokerage firm, packages and distributes illiquid equipment-leasing funds. Springsteen-Abbott is broker-dealer director and the president of the parent company.

According to FINRA, Abbott and her husband charged thousands of dollars of personal spending on the same credit card that they used for business expenses. She would then allocate the investors’ money to cover her own expenses, including an Alaskan cruise, holiday family meals, a trip to Disneyland, holiday décor for her home, clothing, grocery bills, pharmacy expenses, and car rentals. Springsteen-Abbott allegedly tried to hide her misconduct by lying to the self-regulatory organization, which was looking into the allegations, as well as to the FINRA hearing panel about what she did with the money.

Plaintiffs Appeal Federal Court’s Ruling Dismissing Their 401(K) Lawsuit Against Fidelity

Published on: April 13, 2015 | by Shepherd Smith Edwards & Kantas, LLP

A notice of appeal was submitted with the 1st U.S. Circuit Court of Appeals by plaintiffs seeking to overturn a ruling by a federal district court dismissing their 401(K) case against Fidelity Investments. The case is In Re Fidelity ERISA Float Litigation.

According to the plaintiffs, who are participants in a number of defined contribution plans, as record keeper for several of the plan, the financial firm breached its fiduciary duty when managing the plans’ float income. This is the money made from interest-bearing accounts that 401k) plans use temporarily before plan assets are disbursed and participants move their funds among different investment choices.

The plan participants believe that Fidelity used the float income to cover administrative and record-keeping costs, which was not part of their agreement with the firm in terms of the fees they were supposed to pay it. However, U.S. District Judge Denise Casper dismissed their complaint last month, finding that the plaintiffs did not plausibly allege that “float income is a plan asset.” Casper noted that she did not consider Fidelity an ERISA fiduciary in relation to float. Now, however, the plaintiffs’ lawyers are disagreeing with Casper’s ruling.

Pacific West Faces SEC Fraud Charges Over Life Settlements

Published on: April 11, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission is charging Pacific West Capital Group Inc. with securities fraud and other violations. The regulator contends that the investment firm and its owner, Andrew B. Calhoun IV, misled clients about life settlements.

According to the SEC, Calhoun and Pacific West raised close to $100 million over the last decade from more than 3,200 investors that bought life settlements in 125 life insurance polices. For more than two years, the two of them allegedly used proceeds from the sales to pay the premiums on life settlements that had been previously sold, while concealing that the life insurance policyholders were living beyond their projected life expectancy. Calhoun and his company are accused of make their life settlements seem more successful than they actually were even as they spent the primary reserves to pay policy premiums.

With life settlements, an investor purchases a life insurance policy share with the understanding that he/she will get part of the death benefit later. The investor is the one responsible for the premium payments and keeps the policy until the insured’s passing. Upon the insured’s death the investor is entitled to the policy’s death benefit.