Investor Lawyers Blog

Gray Financial Group Sues the SEC for Using Administrative Law Judges

Published on: February 23, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Gray Financial Group Inc. is suing the Securities Exchange Commission over the agency’s use of its own administrative law judges instead of federal ones when trying enforcement cases. The lawsuit contends that the regulator’s administrative proceedings are a violation of the U.S. Constitution because the SEC judges are distanced from presidential supervision by at least two layers of tenure protection. The investment firm wants to block the Commission’s administrative action against it.

The regulator is probing whether the firm violated Georgia law when it invested in alternative investment for public pension funds in 2012. The plaintiff’s complaint said that the SEC sent out a Wells notice in 2014 noting that it found that Gray Financial did violate specific federal securities laws. It also said that even though there was no proof of related investment losses, the agency had started a confidential probe into the company.

The investment firm said that even though no formal charges were ever made, the nature of the probe was made public, which, it claims, compelled certain clients to terminate their business relationships with Gray Financial. This led to a decline in firm revenue.

SEC Cases: Brothers-In-Law Charged in Louisiana Insider Trading Scam, NY-Based Broker-Dealer Accused of CDO Liquidation-Related Fraud, & Colorado Ponzi Scam is Halted

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

The Securities and Exchange Commission is charging former VP of The Shaw Group’s construction operations Scott Zeringue and his brother-in-law Jesse Roberts III with insider trading. Zeringue has already agreed to settle the regulator’s charges by consenting to pay disgorgement of ill-gotten gains plus a penalty.

The SEC says that the insider trading took place in 2012 when Zeringue, while working at The Shaw Group, became privy to confidential data about the company’s upcoming acquisition by Chicago Bridge & Iron Company. Prior to the announcement of the deal, he bought 125 shares of Shaw stock and asked Roberts to buy for him, too. Roberts went on to tip others and they collectively made close to $1 million in illicit profits.

Meantime, parallel criminal charges have been filed against Roberts. Zeringue has already pleaded guilty to the criminal charges against him.

SEC Examines Whether Banks Are Complying With Capital Rules

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

The Securities and Exchange Commission is looking at efforts by banks to comply with capital rules. The regulator is searching for improper activities involving the way these financial institutions value complicated assets, as well as transactions used to transfer risks to other entities.

Following the financial crisis, when governments were compelled to rescue banks, regulators have increased how much capital lenders must hold in relation to assets. It has been the job of publicly traded banks to conform to new regulations. However, these new pressures may be compelling some to engage in certain behaviors, such as inaccurate valuations of the holdings of traders to improve profits.

Since the 2008 economic crisis, banks have upped capital requirements by keeping earnings and putting out shares. They’ve also reduced assets according to the rules that weight assets by risks. According to Bloomberg data, the five biggest Wall Street banks have gotten rid of over $200 billion—nearly 25% of risk-weighted assets linked to trading books in the eighteen months through September 2014. Banks have also modified models, lowered trading positions, and incorporated new rules.

U.S. Bank National Association Must Pay $18M to Peregrine Customers, Says Court

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

A district court issued a Consent Order placing a permanent injunction against the U.S. Bank National Association and mandating that the bank return $18 million to customers of Peregrine Financial Group, Inc. customers.

US Bank has offices in Iowa where Peregrine, a non-bank, nonclearing FCM (Futures Commission Merchant), and its owner Russell Wasendorf were based. Peregrine was also The bank was the depository for the non-bank and it held an account for customer-segregated funds that Wasendorf accessed when bilking over 24,000 clients. Some $215M was misappropriated.

In July 2012, the Commodity Futures Trading Commission put out a civil action against Peregrine and Wasendorf. The latter has pled guilty to criminal charges and received a 50-year sentence. He also has to pay over $215M in restitution.

US Probing Whether Morgan Stanley Data Breach Was Linked to Fired Financial Adviser

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

A U.S investigation into the way Morgan Stanley (MS) information became available for sale online is looking at whether hackers targeted financial adviser Galen Marsh after he took information from the bank. Marsh was fired for taking data on up to 350,000 wealth management clients. His lawyer, however, maintains that Marsh did not try to use, sell, or publish the information for personal gain.

Now, federal investigators want to know whether there was a breach to Marsh’s computer after he took the information from Morgan Stanley, especially as there is no evidence that the firm’s own computers were hacked.

It was in December that the broker-dealer discovered that information about some 900 of its customers were published on Pastebin, which is a website. Potential buyers were asked if they would pay for more information and use a virtual currency. Morgan Stanley had the information removed from public view immediately and notified the authorities.

DOJ Investigating UBS Over Losses Related To Firm’s V10 Enhanced FX Carry Strategy

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

UBS Group AG (UBS) is under scrutiny over losses related to its V10 Enhanced FX Carry Strategy. The complex financial product was sold to fund managers, businesses, and individual investors and touted as a high-yielding foreign-exchange investment that employed computer algorithms to reduce risks during volatile times.

Unfortunately, according to Bloomberg, in 2010 during the start of the debt crisis, the index to which the notes were tied lost 26% over two years. Now, sources tell Bloomberg, the U.S. Department of Justice is looking at whether traders shortchanged investors by charging them too much for executing the currency trades for the strategy.

The V10 Enhanced FX Carry Strategy created sales commissions while offering an opportunity to profit from these sales and purchases of underlying currencies. Investors bought notes tied to the V10 index, which is calculated by ranking currencies from the Group of 10 nations daily according to one-month interest rates. UBS would then bet on the three highest-yielding currencies advancing and the three lowest declining. During a rise in volatility over a predetermined level, positions would be switched. Now, investigators with the DOJ are looking at instant messages, talking to traders, and examining documents issued to customers to figure out whether UBS represented how much profit it was taking on the trades.

EU Fines ICAP $17M for Helping Traders Manipulate Yen Libor

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

The European Commission says that ICAP Plc has been ordered to pay a $17.2 million fine for helping traders manipulate benchmark interest rates linked to the Japanese yen. The word’s largest broker of transactions between banks is accused of spreading misleading data to lenders that set the yen Libor’s interbank lending rate, as well as helping traders communicate so they could collude with one another.

According to the Commission, the information was disguised as “predictions or expectations” but was actually geared toward influencing panel banks that were not involved in the infringements to turn in rates aligned with intended manipulations. The EU said ICAP facilitated six yen Libor cartels between ’07-’10 and attempted to get lenders to send rates that were similar to the panel. The broker also allegedly used other contacts to facilitate communication between an RBS trader and one from Citigroup (C). ICAP said it would appeal the fine and claims that the EU has shown no evidence that the broker engaged in violations of laws related to competition.

Authorities are looking into how bankers and derivatives traders worked together to make sure benchmarks were to their benefit, which could have affected over $300 trillion of financial products, loans, and contracts tied to the rate. While RP Martin Holdings Ltd., JPMorgan Chase & Co. (JPM), Deutsche Bank (DB), UBS AG (UBS), Royal Bank of Scotland Group Plc (RBS), and Citigroup already paid penalties to settle the EU’s case against them, ICAP refused. It has, however, paid $88 million of fines to United Kingdom and United States regulators to settle charges related to its contacts with traders at UBS.

Jury Says Ex-Envoy Involved in Stanford Ponzi Scam Must Pay $750K

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

A federal jury has decided that ex-U.S. Ambassador to Ecuador Peter Romero would not be allowed to keep over $758K in expenses, fees, and interest he earned while lending his legal counsel and credibility to Allen Stanford. Instead, he will pay that sum to the court appointed receiver.

Stanford was convicted in 2012 of fraud and money laundering, perpetuating a global multibillion-dollar scam in the process. His Houston-based empire was shut down in 2009 when the U.S. Securities and Exchange Commission accused him of running his $7 billion Stanford Ponzi scam that bilked thousands of investors. The scheme involved the sale of CDs from his bank in Antigua.

Receiver Paul Janvey contends that Romero and certain other consultants did not ask the most basic questions about Stanford’s bogus banking empire. Romero was invited to serve on Stanford’s International Advisory Board after sitting next to him at an inaugural ball for President George W. Bush in 2001.

New Details Accusing HSBC of Aiding Tax Evaders Emerge

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

New information regarding HSBC Holdings PLC’s (HSBC) history of aiding tax evaders has been released by ex-employee Hervé Falciani to a number of media outlet, as well as the International Consortium of Investigative Journalists. The data alleges that the bank kept secret accounts for a number of wealthy, celebrity, and/or unsavory individuals, including “dictators and arms dealers,” as well as clients that are on U.S. sanctions lists. HSBC also purportedly would advise clients on how to get around paying taxes in their home countries.

Falciani, an HSBC computer analyst who calls himself a whistleblower, has provided what the BBC is calling the largest data leak in the history of banking. He started sending information out in 2008, copying files onto personal storage devices. The information was sent to French Finance Minister Christine Lagarde, who now runs the International Monetary Fund. She notified other governments.

Falciani claims that in 2006,he notified his superiors at HSBC that there were flaws in data storage that could hurt client confidentiality. He said that no one paid attention. Bank officials, however, counter that Falciani issued no such warnings.

SEC Cases: Insider Trading Charges Filed Against Georgia Resident, Mutual Fund Adviser Accused of Improper Asset Handling, & Two-Ex CFOs Agree to Give Back Bonuses Because of Accounting Fraud

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

Atlanta, GA Man Accused of Making $740,000 for Insider Trading

The Securities and Exchange Commission is filing charges against a Georgia man who is accused of insider trading and making about $740,000 in illicit profits. Charles L. Hill allegedly traded in Radiant Systems stock based on the confidential insider data a friend gave him about an upcoming tender offer to purchase the company. The friend was a friend of a Radiant Systems executive.

In 2011, Hill bought about 100,000 shares valued at close to $2.2 million on the final day of trading prior to the public announcement of the acquisition. That was his first time buying stock of Radiant Systems, and before that it had been years since he’d purchased equity securities.