Investor Lawyers Blog

MetLife Sues Regulators Over Systemic-Risk Designation

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

MetLife Inc. (MET) has filed a lawsuit seeking to overturn a U.S. finding that forces the insurer to be subject tougher oversight under the Dodd-Frank Act. This case is the first challenge of its kind by a non-bank financial firm. MetLife, which was given the systematically important financial institutions (SIFI) designation by the U.S. Financial Stability Oversight Council (FSOC), is opposing the label, which earmarks it as “too big to fail.”

In a statement, MetLife said that the label is “premature,” and that it doesn’t consider itself an SIFI. Companies given the SIFI label are subject to tougher oversight by the Federal Reserve, including stricter leverage, capital, and liquidity requirements. Other non-banks that have been designated SIFIs include:

• American International Group (AIG)

SEC Accuses Canadian Man of Fraudulent Trading Scam, Use of “Layering” Strategy

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

The Securities and Exchange Commission is charging a Canadian citizen with running a market manipulation scam that involved making orders to trick others into selling or purchasing U.S. publicly traded stocks at prices that were depressed or artificially inflated. The strategy is known as “layering.” U.S. Attorney’s Office for the District of New Jersey has filed criminal charges against Aleksandr Milrud in a parallel action.

According to the SEC’s complaint, submitted in a federal court, Milrud started recruiting online traders primarily in Korea and China beginning at least as early 2013 and giving them the cut of the profits made from the scheme. He purportedly gave traders access to trading accounts and told them how to avoid coming under the regulatory scrutiny when layering.

To avoid detection, Milrud would wire funds to an offshore account and have the money delivered to him in a suitcase, as well as use middlemen. He also allegedly had traders use multiple user names, addresses, computers, and Internet protocols (IP).

JPMorgan Suspends Forex Trader for Alleged Disclosures Involving Royal Bank of Scotland-Related Activities

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

Bloomberg is reporting that according to a source, JPMorgan Chase & Co. (JPM) has suspended currency dealer Gordon Andrew for alleged wrongdoing involving his work at Royal Bank of Scotland Group Plc. (RBS). According to The Wall Street Journal, people familiar with the matter say that the firm discovered evidence that Andrew disclosed trading data to employees of other banks. The forex trader does a lot of work converting huge amounts of euros into pounds at benchmark rates related to subsidies that the EU pays to British farmers every year.

Andrew began working for JPMorgan in October 2012 after Richard Usher, an RBS colleague, also switched to the firm. Usher was JPMorgan’s chief currency dealer in London until 2013 when he was put on leave during a global probe into foreign exchange market manipulation. He left the firm the following year. Regulators in the U.K. and the U.S. have since fined JPMorgan $1 billion related to the rigging probe. RBS was ordered to pay a $634 million fine.

Today, the WSJ reported that the probes into currency market manipulation have led to new signs of possible wrongdoing. Sources tell the newspaper that JPMorgan has even put aside another $900 million to cover investigation-related costs as well as legal bills. Meantime, broker-dealer Tullett Prebon PLC (TLPR) has started an internal review into its currency market practices. One of its brokers was allegedly referred to as a trade conduit in one chat room. That broker still works for the firm. In 2014, British fraud prosecutors charged an ex-Tullet broker with assisting other bank traders in manipulating trades.

Investment Adviser News: Barred Representative is Now a Finance Coach, Bellingham Man Gets Prison Term for Bilking Seniors

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

According to the Securities and Exchange Commission, ex-investment adviser Sherwin Brown is continuing to offer financial advice even though the regulator barred him from the industry and ordered him to pay $1.3 million for allegedly diverting client monies. Brown now calls himself a “money coach” and has kept his Jamerica Financial Inc. in operation, receiving compensation for his services. At a certain point, the firm, which has since been ordered inactive, had nearly $30 million in assets under management.

The regulator contends that between 6/11 and 5/14, a Wells Fargo & Co. (WFC) account in Jamerica Financial’s name received over 120 deposits totaling $330,000. The deposits were payable to Brown and his company. Notes in check memo lines indicated that the money was for investment advisory services.

Brown, who was barred from the industry in 2011, operates TheOfficialMoneyCoach.com, which includes a blog on investing. The site also promotes his investment books.

BATS Global Market Settles Stock Exchange-Related Claims Involving High-Frequency Traders for $14M

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

The U.S. Securities and Exchange Commission is charging BATS Global Markets Inc. $14 million to resolve claims that two of the exchanges that the company purchased last year did not disclose important information to investors about the way the markets work. The settlement resolves the regulator’s probe into the way Direct Edge Holdings LLC gave certain high-speed traders the upper hand over others by withholding details about certain orders. Direct Edge and BATS merged together in 2014.

Order types are the directions investors use to trade on exchanges. High-frequency traders will often use complex versions of order types to compete in today’s fast markets. In 2009, Direct Edge offered up a number of new order types after talking with two high-frequency trading firms. However, what it purportedly did not do was properly disclose to the pubic the way the order types worked.

In the SEC order, the agency notes that one trading firm, whose name was not disclosed, told Direct Edge that if it introduced a certain order type, the firm would up the number of orders by over four million more.

Orders Dallas Man to Pay Over $1.4M in Restitution, Penalty Over Texas Securities Scam Involving Forex Commodity Pool

Published on: January 12, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. Commodity Futures Trading Commission says that a federal court has issued a supplemental Consent Order of Permanent Injunction mandating that Steven Lyn Scott pay over $760,000 in restitution, a $700K penalty, as well as post-judgment interest for his involvement in a Forex commodity pool scam. It was the U.S. District Court for the Northern District of Texas that put out the order, which comes after a CFTC enforcement action charged the Dallas resident with customer fund misappropriation, solicitation fraud, and registration violations related to running a commodity pool scam.

According to The Court, from early January 2009 through at least the end of March 2011, Scott fraudulently solicited a minimum of $1,146,000 from over 40 pool participants for their involvement in pool investment vehicles that were to trade in contracts, off-exchange agreements, or transactions in foreign currency on a margined or leveraged basis. Many of the participants lived in Texas and included his friends, relatives, and others.

A May 5, 2014 Consent Order, issued earlier by this same court, noted that Scott invoked the name of his entity Stewardship Financial Exchange when pursuing pool participants. He is accused of guaranteeing returns of 2-5% a month for participants that signed up for six months.

Investment Adviser, Ameriprise Financial Services Sued by Hanson McClain Over Client Information

Published on: January 12, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Registered investment adviser Hanson McClain is suing Ameriprise Financial Services Inc. (AMP) and Thomas Chandler for purportedly taking confidential client data and soliciting its customers. The investment adviser says that not only is this a contract breach but also it violates California law. Chandler was formerly an investment adviser for Hanson McClain, which has about $1.6 billion in assets under management.

Hanson McClain submitted its complaint in September, just days after Chandler departed. In November, the court allowed a preliminary injunction barring Ameriprise and Chandler from getting in touch with the clients under dispute and ordering them to give back certain documents until the case is resolved. In December, the RIA submitted an amended complaint requesting a permanent injunction barring Chandler from soliciting clients. Hanson McClain wants compensatory damages as well as the return of its clients’ information.

The firm says that Chandler took the data from its servers, moving the information to a personal email account. The data allegedly includes account numbers, names, net worth, and other pertinent information for clients whose total net worth is around $540,000. Hanson McClain also claims that Chandler asked for the emails of its “platinum” clients and then connected with them via LinkedIn. The RIA contends that Ameriprise and one of its branch managers worked with Chandler to take the information.

JPMorgan to Pay $500M to Resolve Mortgage Settlement Involving Bear Stearns, Says Source

Published on: January 10, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Reuters and Bloomberg are reporting that according to person familiar with the case, JPMorgan Chase (JPM) has consented in principal to resolve a class action case related to Bear Stearns’ sale of $17.58B of faulty mortgage securities for $500 million. JPMorgan purchased Bear Stearns in 2008.

The agreement settles claims that Bear Stearns violated federal securities laws when, from May 2006 to April 2007. it sold certificates backed by over 47,000 primarily subprime and low documentation “Alt-A” mortgages in over a dozen offerings. Almost all certificates were eventually reduced to “junk” status even though 92% of them had been given “trip-A” ratings previously.

The plaintiffs, led by the New Jersey Carpenters Health Fund and, the Public Employees’ Retirement System of Mississippi, claim that offering documents included misleading and false statements about underwriting guidelines that Bear’s EMC Mortgage unit and other lenders used, as well as inaccuracies related to associated property appraisals. According to the lawsuit, because of the omissions and false statements, the class bought certificates that were a lot risker than what they were represented as and unequal in quality to other investments that received the same credit rating.

SEC Judge Orders Two Investment Advisers to Pay Over $6.3M Related to Bernard Madoff-Linked Hedge Funds

Published on: January 9, 2015 | by Shepherd Smith Edwards & Kantas, LLP

A Securities and Exchange Commission administrative law judge says that investment advisers Larry Grossman and Gregory Adams must pay over $6.3M in restitution and fines for misleading clients who invested in hedge funds tied to Ponzi fraud mastermind Bernie Madoff. Administrative law judge Brenda Murray issued her ruling last month.

The two investment advisers are Sovereign International Asset Management founder Larry Grossman and Gregory Adams, who agreed to buy Sovereign from Grossman in 2008. The firm filed for bankruptcy four years later.

Per the SEC administrative complaint, Grossman did not know that the two hedge funds that he primarily recommended to clients were linked to Madoff. The Commission contends that Grossman violated his fiduciary duties to his clients when he neglected to conduct due diligence on the funds, which were run by a man named Nickolai Battoo. Grossman also purportedly did not notify clients that he was getting paid $3.4 million in consulting fees and referral money for recommending certain funds. After Grossman sold Sovereign to Adams, the former owner continued working in several capacities at the firm and never actually told clients that the sale even happened.

Alternative Fund Manager Faces SEC Case, Criminal Charges Alleging $16M Fraud Involving Fake Loans and GL Beyond Income Fund

Published on: January 9, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. Securities and Exchange Commission has filed a civil case against alternative fund manager Daniel Thibeault accusing him of taking some $16 million in assets from the GL Beyond Income Fund (GLBFX). Thibeault was arrested on securities fraud charges over the same matter last month.

According to the SEC, Thibeault took out faked loans using Taft Financial Services, which is an intermediary that he allegedly controlled, to steal money from the funds. The purported securities scam is said to have begun in 2013, after the GL fund started losing money. The Commission says that in certain cases documents for the loans that were withdrawn via Taft are missing or had errors in them, including inaccurate birth dates for borrowers.

The regulator’s complaint also names GL Investment Services, which Thibeault indirectly owns. The registered investment adviser, which had about $130 million in assets from approximately 700 clients, is accused of advising customers to put money in the GL fund.