Investor Lawyers Blog

Wells Fargo to Pay $5M Over Inadequate Controls, Altered Documents

Published on: October 21, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Wells Fargo Advisers LLC has consented to pay $5M to resolve U.S. Securities and Exchange Commission charges accusing the firm of not keeping up adequate controls so that one of its employees would be unable to use a customer’s nonpublic information to engage in insider trading. Wells Fargo also was charged with taking too long to produce documents during the SEC’s probe and giving the regulator an altered document related to a review of a broker’s trading activities.

Federal law mandates that investment advisers and broker-dealers set up, keep up, and enforce procedures and policies so that material nonpublic data of customers is not misappropriated. This is the first time the Commission has charged a brokerage firm for not protecting a customer’s material, nonpublic data. Wells Fargo is settling the charges without admitting or denying wrongdoing.

The agency says that Wells Fargo broker Waldyr Da Silva Prado Neto found out in confidence from a customer that private equity firm 3G Capital Partners Ltd. was acquiring Burger King in 2010. The client had placed $50 million in the fund that would go on to acquire the hamburger chain. Prado then traded on the information before it was made public. The regulator filed insider trading charges in 2012.

UBS Brokers Are Still Selling Puerto Rico Muni Bonds

Published on: October 20, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Even after the slew of municipal bond fraud arbitration claims from investors blaming UBS AG (UBS) for their losses sustained in Puerto Rico municipal bonds, the brokerage firm has told its brokers to continue selling the funds to clients. However, notes the broker-dealer, representatives should make sure to evaluate their recommendations in a way that is in line with UBS policies and those of the Financial Industry Regulatory Authority.

The instructions to keep selling the bond funds were documented in a four-page, unsigned memo from UBS. The firm also instructed brokers to direct any questions about the suitability of any investment recommendations to the compliance department or a branch manager. According to Financial Adviser Magazine, a UBS spokesperson said that individual financial plans are customized to a client’s goals and wealth management needs. She also pointed out that Puerto Rico municipal bonds and closed-end funds had for over a decade rendered excellent returns and tax benefits.

Nevertheless, over the past twelve months, the losses from both Puerto Rico bonds and UBS’s closed-end bond funds tied to Puerto Rico debt have been huge. Already, UBS has been named in over 500 arbitration claims after there was a sharp drop in the value of Puerto Rico bonds last year. According to Reuters, FINRA intends to add another 800 arbitrators in Puerto Rico to hear these securities cases. Previously, there were about 70 arbitrators designated to preside over the muni bond fraud claims.

SEC Approves Regulations Involving REIT Prices and Arbitration Fraud Intervention

Published on: October 18, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. Securities and Exchange Commission has approved a Financial Industry Regulatory Authority-proposed rule that would create greater transparency of Nontraded real estate investment trusts. Under the new rule, investors will have to be provided with more information about the costs involved in buying shares of nontraded REITs.

With the existing practice, brokerage firms can list nontraded REITS as having $10/share price. The new rule would obligate broker broker-dealers to include a per share estimated value for an REIT or unlisted direct participation program on customer statements and make other disclosures.

Firms would calculate an REIT or DPP per share estimated value by either using the appraised value methodology or the net investment methodology. The appraised value method involves using the liabilities and assets of the REIT or DPP to determine the valuation upon which the share value would be based. The valuations would have to be conducted at least once a year by a third-party valuation expert. The net investment method involves brokerage firms articulating in customer statements that a portion of return of capital is included in a distribution and that this return lowers the estimated per share value listed on the statement.

SEC Wants to Bar Ex-Broker for Allegedly Misappropriating $2M

Published on: October 17, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. Securities and Exchange Commission has taken action to bar Paul Marshall, an ex-investment adviser and broker from the industry. Marshall is accused of misappropriating $2M in client assets.

Last year, the SEC charged him and his related investment advisers, Bridge Securities and Bridge Equity Inc., with fraud. The regulator contends that Marshall took client assets to cover his own spending, including child support, alimony, expensive vacations, and tuition for his kids. He purportedly diverted the money into accounts under his control, set up misleading account statements, and raised cash for FOGFuels Inc., a private placement he controlled.

The Financial Industry Regulatory Authority Inc. has already barred Marshall from associating with all brokerage member firms. Last month, the SEC ordered him to pay $15 million in disgorgement because of the money he made from the alleged securities scam.

Pension Fund Securities Lawsuits: JPMorgan to Face MBS Case, PERSM Files Class Action Case, & Institutional Clients Can Sue BP

Published on: October 17, 2014 | by Shepherd Smith Edwards & Kantas, LLP

JPMorgan Ordered to Face $10B Mortgage-Backed Securities Case

A federal judge said that JPMorgan Chase & Co. (JPM) must face a class action securities fraud lawsuit filed by investors accusing the bank of misleading them about the risks involved in $10B of mortgage-backed securities that they purchased from the firm prior to the financial crisis.

U.S. District Judge Paul Oetken certified a class action as to the bank’s liability but not for damages. He said it wasn’t clear how investors were able to value the certificates they purchased considering that the market hadn’t been especially liquid. He did, however, say that the plaintiffs could attempt again to seek class certification on class damages.

Ex-Ameriprise Adviser Pleads Guilty To Nearly $1M Fraud

Published on: October 16, 2014 | by Shepherd Smith Edwards & Kantas, LLP

SusanWalker, an ex investment adviser with Ameriprise Financial Inc. (AMP), has pleaded guilty to bilking two dozen clients of $980,000. She stole the funds from clients between ’08 and ’13, using the money to cover her own spending, including costly vacations.

Walker is accused of setting up investment accounts under several customers’ names but without their consent. She took money from clients’ retirement and brokerage accounts, placed the funds into the accounts under her control, and took out the funds to spend as she pleased. Ameriprise has paid back the customers that were harmed.

The firm fired Walker and her mother Barbara Stark in early 2013. Stark is not charged in this criminal case.

DOJ Charges Another Two Ex-Rabobank Traders Over Libor Manipulation

Published on: October 16, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. Department of Justice has indicted another two ex-Rabobank (RABO) traders over their alleged involvement in a London interbank offered rate manipulation scam. The charges widen the Federal Bureau of Investigation’s probe into the Dutch bank to include U.S. dollar Libor, as well as yen libor.

Anthony Allen and Anthony Conti, both from England, are the two ex-Rabobank derivatives traders that have been indicted. The charges accuse them of taking part in a Libor manipulation scam involving derivatives linked to both the yen and U.S. libor benchmark rates to benefit themselves and the bank.

In 2013, Rabobank reached a settlement with the Justice Department and consented to pay a $325 million penalty to resolve allegations related to the bank’s submissions for LIBOR and the Euro Interbank Offered Rate. The government had charged Rabobank with wire fraud for its involvement in manipulating both benchmark interest rates.

LPL Financial Fires Texas Branch Manager Over Selling Away Claims, Settles with Senior Investors in Massachusetts for $541,000 Over Faulty Variable Annuity Switches

Published on: October 15, 2014 | by Shepherd Smith Edwards & Kantas, LLP

According to his report on the central registration depository, LPL Financial (LPLA) branch manager James Bashaw was fired last month for allegedly engaging in selling away, which involves taking part in private securities transactions without written disclosure or approval from a brokerage firm, as well as borrowing from a client and taking part in a business transaction that created a possible conflict, again without obtaining the necessary firm approval or written disclosure.

Bashaw, also known as “Jeb” Bashaw, is considered one of the leading financial advisers in Texas. Barron’s magazine ranks him as number one in the state with assets totaling $3.8 billion.

According to Investment News, while the CRD, which is the central licensing and registration system for the securities industries and regulators, provided these details regarding Bashaw’s termination, LPL has not elaborated, except to report on his BrokerCheck profile that the broker did not follow industry regulations and firm policies. Bashaw is now registered with Wunderlich Securities Inc.

UBS is Fined $3.6M, Plus Must Pay $1.7M in Restitution Over Puerto Rico Closed-End Mutual Fund Sales

Published on: October 14, 2014 | by Shepherd Smith Edwards & Kantas, LLP

UBS Financial Services Incorporated of Puerto Rico (UBS) has reached a settlement with the Commonwealth’s Office of the Commissioner of Financial Institutions (OCIF) over UBS’s offering and sale of closed-end mutual funds in Puerto Rico. As part of the agreement, UBS will pay a $3.5 million fine, as well as $1.7 million in restitution to 34 clients. As is typical with such settlements, UBS is not denying or admitting to any wrongdoing.

After examining UBS’s operations between the periods of 1/1/06 through 9/30/13, OCFI discovered that UBS had placed clients with conservative risk tolerances in high concentrations of Puerto Rico Closed-End Funds (PRCEF). OCIF further alleged that UBS recommended or allowed these clients to use “non-purpose” loans to buy more PRCEF, which should have never happened. OCFI also reported irregularities in the way some clients’ accounts were managed and said UBS had engaged in inadequate supervision and recordkeeping.

The clients that are entitled to restitution are primarily elderly investors with low net worth and conservative financial profiles. UBS is going to pay them almost $1.7 million in restitution. This offer has to be made within 45 days of the settlement’s execution. The $3.5 million penalty will go to the Securities Trading, Investor Education and Training Fund.

Barclays to Pay $20M To Settle Libor Manipulation

Published on: October 14, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Barclays PLC (BARC) has consented to pay $20 million to settle complaints over the manipulation of the London interbank offered rate benchmark. As part of the accord, the bank will cooperate with a group of Eurodollar-futures traders that have filed lawsuits against other banks over Libor manipulation.

The deal resolves claims by firms and individuals that traded in Eurollar futures contracts and options on exchanges that were Libor based from 1/1/05 to 5/31/10. Now, a district court judge in Manhattan must approve the settlement.

This is the first settlement reached in the U.S. antitrust litigation involving investments linked to Libor. In addition to paying the $20 million, Barclays will help traders with their claims against other banks. This will include giving documents and information and other support to the plaintiffs so that they can bolsters their cases.