Investor Lawyers Blog

California Insider Trading Ring Made Almost $750K in Illegal Profits, Says the SEC

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

The Securities and Exchange Commission says that former Barclays Capital (ADR) analyst John Gray, his friends Christian Keller and Kyle Martin, and Aaron Shephard committed California insider trading, making close to $750K in illegal profits. They did this by allegedly trading right before four corporate news announcements were made. To settle the securities fraud case, the four men will pay $1.6 million in total.

According to the SEC, Gray, who was an analyst for Barclays at the time, and Kelly traded on confidential merger data that the latter obtained during his job as a trader for two Silicon Valley-based public companies. They purportedly tried to hide the trades by putting them in a brokerage account held under Martin’s name. Gray also tipped Shephard, so that he too could make trades before the announcements.

The first acts of inside trading purportedly occurred when Gray and Keller traded on confidential merger data that Keller found out about while working as an Applied Materials Inc. financial analyst. The traded prior to that company’s acquisition of Semitool Inc. as well as before the one for Varian Semiconductor. When Keller left Applied Materials, their insider trading scam continued while he worked for Rovi Corporation, where he learned to profitably trade in the company’s securities before negative news about Rovi would be announced.

Hedge Fund Fraud Leads to Criminal Convictions

Published on: February 4, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Francisco Illarramendi has been sentenced to 13 years behind bars for a Connecticut securities scam that involved hundreds of millions of dollars from the state oil company of Venezuela. The 45-year-old ex-hedge fund manager said he committed the crimes to conceal investment losses and because he was pressured by corrupt government officials in the South American country.

Illarramendi, a Venezuelan-American, devised a currency arbitrage market that he claims made $60 billion for the government in Caracas, which kept it from failing. In 2005, he began his hedge fund scam to conceal $5 million in losses in a failed bond transaction that was made for the Venezuelan government. Illarramendi contends that he and his family were threatened with violence if they refused to go along.

The judge, however, noted that the former hedge fund manager took $20 million for his own purposes. In time, the fraud grew as Illarramendi continued to use his hedge funds to cover what now exceeded over $500,000 million. He also paid million of dollars in bribes to government officials in Venezuela for sending the oil company’s money to him, which he invested. Illarramendi pleaded guilty to fraud and conspiracy to obstruct justice in 2011. To date, the court appointed receiver has recovered enough to pay investor claims of over $345 million but more needs to be recovered.

UBS Under Scrutiny in New Tax Evasion Probe

Published on: February 4, 2015 | by Shepherd Smith Edwards & Kantas, LLP

U.S. prosecutors have opened a new investigation into whether UBS AG (UBS) helped Americans avoid paying taxes via investments that were banned in the country. The government is looking at whether the Swiss bank used bearer securities, which may be used as if they were cash. These securities were phased out of the financial system in the U.S. more than thirty years ago because they can be used in money laundering and tax evasion.

According to the Wall Street Journal, not only are prosecutors in the U.S. attorney’s office in Brooklyn looking at evidence of whether bank employees played a role in allowing securities fraud and tax evasion to happen, but also they are seeking proof that there may have been a criminal cover up internally. A whistleblower is involved in this latest probe.

In 2009, UBS paid $780 million to resolve a tax evasion investigation by the Department of Justice. The Swiss bank admitted that it encouraged this type of conduct. As part of the settlement it disclosed the identities of 250 American banking clients. It settled another U.S. lawsuit in which it revealed the names of 4,450 U.S clients with UBS accounts.

Standard & Poor’s Settles Inflated Ratings Case for $1.5 Billion

Published on: February 3, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Credit rating agency Standard & Poor’s will pay $1.5 billion to settle a number of lawsuits accusing the company of inflating the ratings of mortgage securities in the lead up to the 2008 economic crisis. As part of the deal, S & P’s parent company McGraw Hill will pay $687.5 million to the U.S. Justice Department and $687.5 million to the District Columbia and 19 states over their inflated ratings cases.

The U.S. sued the credit rater in 2013, asking for $5 billion and claiming that S & P had bilked investors. The company fought the claims, arguing that the First Amendment protected its ratings and contending that the mortgage ratings case was the government’s way of retaliating after S & P downgraded the United States’ own credit rating. As part of the settlement, the credit rating agency said it found no evidence that retaliation was a factor.

S & P is not admitting to violating any law. It noted that its mission is to give the marketplace information that is independent and objective and employees are not allowed to influence analyst opinions because of commercial relationships.

Sun Antonio Spurs Star Tim Duncan Files Texas Investment Adviser Fraud Case

Published on: January 31, 2015 | by Shepherd Smith Edwards & Kantas, LLP

NBA All-Star Tim Duncan is suing his investment adviser for securities fraud. The San Antonio Spurs basketball player says that his financial representative, Charles Banks, made investment recommendations based on conflicts of interest. Duncan claims that because of this he sustained substantial financial losses. According to one source, the NBA star lost more than $20 million.

In his Texas securities case, Duncan says that Banks, who gave him investment advice for seventeen years, took advantage of their relationship for personal gain. Duncan claims that Banks suggested he invest several million dollars in beauty products, hotels, sporting goods, and wineries that the latter either had a financial stake in or owned. The NBA basketball player also says that Banks was able to garner a $6.5 million bank loan using Duncan’s forged signature.

Unfortunately, professional athletes are targeted by financial fraudsters. With their large incomes and, in some cases, inexperience with managing their money and investments, there are scammers who will take advantage of their investment adviser relationship with them to try to make money. Because pro athletes can only play at the NBA, NFL, MLB, and NHL levels for a certain amount of years, unexpected and substantial financial losses caused by securities fraud may prove devastating for athletes and their families.

DOJ Gets Ready to Wrap Mortgage Bond Case Against Standard & Poor’s, Probes Moody’s

Published on: January 31, 2015 | by Shepherd Smith Edwards & Kantas, LLP

According to the Wall Street Journal, the U.S. Department of Justice has been meeting with ex-Moody’s Investor Service (MCO) executives to talk about the way the credit ratings agency rated complex securities prior to the 2008 financial crisis. Sources say that the probe is still in its early stages and it is not certain at the moment whether the government will end up filing a bond case against the credit rater.

DOJ officials are trying to find out whether the company compromised its standards in order to garner business. The government’s focus is on residential mortgage deals that took place between 2004 and 2007.

Moody’s and credit rating agency Standard and Poor’s gave triple A ratings to the deals so that even conservative investors were buying the subprime loan-backed securities. The investments later proved high risk. When the housing market failed, the bond losses cost investors billions of dollars.

PFS Investments, Ex-Broker Under Investigation for Securities Fraud that Bilked At Least Twenty Customers

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

The Financial Industry Regulatory Authority is accusing former broker Barkley Lundy, who worked with PFS Investments, of defrauding at least 20 customers. The self-regulatory organization claims that from at least 1/11 through 3/14, Lundy took these clients’ funds and placed the money in his own bank accounts. He also purportedly generated fake investments, issuing monthly payments to customers to conceal the securities fraud. FINRA says that Lundy violated FINRA Rule 2010 when he comingled customer monies.

The SRO said that Lundy kept a list of customers, setting up a payment schedule for them to receive monthly payments. PFS Investments was unaware of the payment schedule and the list. Lundy moved the money of a few of his customers from his account into their bank accounts and then moved the funds into their PFS accounts. He also worked it out so that these customers bought mutual fund shares that were customer-held. Lundy explained the fund movements as “dividend reinvestments.”

He gave one customer, per that client’s request, tax forms to track the monthly payments. FINRA, however, says that the documents were fabricated and contained falsified information. Meantime, Lundy made it appear as if PFS Investments not only provided the documents but also created them.

Libor Manipulation Cases Get the Green Light from U.S. Courts

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

The U.S. Supreme Court says that bond buyers cannot be made to wait to appeal a decision tossing out their antitrust claims over alleged Libor interest manipulation. The nation’s highest court overturned a ruling that favored Bank of America Corp. (BAC), Barclays PLC (BARC ), Royal Bank of Scotland Group PLC (RBS), and other banks.

The decision involves antitrust litigation claiming that the biggest banks in the world conspired to manipulate the Libor benchmark interest rate. It was then up to the Supreme Court to decide when a party can appeal a ruling that impacts only certain claims in litigation that has been consolidated.

The plaintiffs, Linda Zacher and Ellen Gelboim, bought bonds with Libor-linked interest rates. They sued the banks, accusing them of antitrust violations. Their case was consolidated with over five-dozen Libor cases. The consolidated litigation accuses the banks of trying to manipulate the benchmark rate.

Oppenheimer to Pay $20M Settlement to the SEC and FinCEN Over Penny Stock Violations

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

Oppenheimer & Co. (OPY) has consented to pay $20 million to resolve settlements with the U.S. Securities and Exchange Commission and the Financial Crimes Enforcement Network. The firm is accused of not properly identifying and reporting suspect trades in penny stocks. The low priced, highly speculative securities are easy to manipulate and involve in pump-and-dump scams.

At least 16 Oppenheimer customers in several U.S. states were reportedly identified as having engaged in “suspicious activity.” Admitting guilt, the broker-dealer acknowledged that it did not set up and implement a proper anti-money laundering program nor did it perform sufficient due diligence on a foreign correspondent account. Oppenheimer also said that it failed to comply with the USA PATRIOT Act’s Section 311, which allows FinCEN’s director to decide whether a foreign financial firm is a money laundering risk.

The government agency said that because Oppenheimer did not notify its foreign correspondent financial institutions of the special measures under Section 311, the firm ended up conducting business without setting up the necessary procedures, policies, and internal controls that allow it to reasonably report and detect suspect fraud activity from ’08 to ’14.

White House Looking At Whether Brokers Are Costing Workers Billions in Retirement Funds

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

Bloomberg News is reporting that according to a memo drafted by President Obama’s Council of Economic Advisers Chair Jason Furman, the White House may be pushing for tighter oversight over brokers who deal with retirement accounts. Furman noted that research shows that excessive trading, increased commissions, and other broker practices may be costing investors up to $17 billion a year-and that even this estimate may be conservative. His memo said that investors might be losing up to 10% of their long-term savings because they receive conflicted investment advice.

This could lead to a Labor Department regulation that would establish a fiduciary obligation requiring these brokers to act in the best interests of their clients. Right now, brokers are merely obligated to make sure that they reasonably believe they are making the right recommendation to a client.

Such a fiduciary duty rule is one that Bank of America Corp (BAC), Morgan Stanley (MS), and other firms have lobbied against. They contend that this type of regulation would not only be more expensive but also it would leave smaller investors with fewer investment choices.