Investor Lawyers Blog

FINRA Fines Minneapolis Broker-Dealer $1M for Inadequate Supervision of Penny Stocks

Published on: September 13, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority has issued an enforcement action charging Feltl & Company for not notifying certain customers of the suitability and risks involving certain penny-stock transactions, as well as for failing to issue customer account statements showing each penny stock’s market value. The brokerage firm is based in Minneapolis, Minnesota.

FINRA claims that the firm failed to properly document transactions for securities that temporarily may not have fulfilled the definition of a penny stock and did not properly track penny-stock transactions involving securities that didn’t make a market.

Feltl made a market in nearly twenty penny stocks. The brokerage firm made $2.1 million from at least 2,450 customer transactions that were solicited in 15 penny stocks between 2008 and 2012. The SRO says it isn’t clear how much the firm made from selling penny stocks that it didn’t keep track of but that revenue from this would have been substantial.

FINRA Headlines: SRO Considers Revised Broker Bonus Plan, To Discuss Potential Dark Pool Rules, May Instigate Civil Action Against Wells Fargo, &Warns Investors About Frontier Markets

Published on: September 12, 2014 | by Shepherd Smith Edwards & Kantas, LLP

FINRA to Revive Proposal Mandating that Brokers Disclose Recruitment Incentives

The Financial Industry Regulatory Authority has decided to revive a proposal that would obligate brokers to notify clients of any incentives they received for being recruited by another firm. The self-regulatory organization had withdrawn the rule in June after getting over 180 comment letters.

Now, however, according to the agenda for FINRA’s next board meeting, the SRO intends to look at a revised recruitment practices policy that would make the recruiting firms delineate their compensation packages to clients who are thinking of moving their assets from the a broker’s previous firm to the financial representative’s new firm.

SEC to Dismiss Lawsuit Against SIPC Over Payments to Stanford Ponzi Scam Victims

Published on: September 11, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission has said that it no longer intends to continue trying to get the Securities Investor Protection Corporation to pay back investors the losses they sustained in R. Allen Stanford’s $7 billion Ponzi scam. The decision comes after the U.S. Court of Appeals for the District of Columbia Circuit ruled that the regulator failed to prove that the scheme’s victims were “customers” eligible for compensation by the SIPC. That decision upheld an earlier ruling by a district court in 2012.

Even though the SEC is no longer seeking to compel the brokerage industry insurance fund to pay the investors, the agency says it is committed to the victims and will keep working with the U.S. Department of Justice, the Stanford Receiver, and others in an effort to maximize investor recovery.

SIPC keeps a special fund to pay back investors if their securities and cash were lost when a brokerage failed. The agency, however, said it couldn’t compensate the Stanford Ponzi scam victims because their losses were not a result of a broker-dealer failing but due to their purchase of CDs from a foreign bank-assets that they are still holding and now have no value.

Government Probe of Height Securities Into Possible Insider Trading Expands to Hedge Funds

Published on: September 10, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. Securities and Exchange Commission is looking into whether anyone from the government illegally leaked to Wall Street traders that there was going to be a change in health-care policy. In 2013, The Wall Street Journal reported that just before the government announced news that was favorable to companies in regards to Medicare payments, health-insurance stocks rose. Investigators want to know whether insider trading was involved.

The stock rise, linked to the announcement that the Centers for Medicare and Medicaid Services would reverse its direction on intended funding cuts for private insurance plans, may have been spurred by an email sent by a Height Securities, a Washington-based policy research firm. The alert appears to have been partially based on information that an ex-congressional health-care aide, who is now lobbyist, gave to the firm.

Sources tell The WSJ that the SEC now possesses evidence of over 20 phone calls, instant messages, and emails between investors and Height Securities analysts from the time the email alert was issued to when the market closed. The exchanges involved the hedge funds Citadel LLC, Visium Asset Management LLC, Viking Global Investors LP, and Point72 Asset Management LP, which was previously called SAC Capital Advisors.

CFTC Notifies Justice Department of Criminal Rate Rigging, Looks at Possible Swaps Loophole

Published on: September 9, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. Commodities Trading Commission has notified the Department of Justice that there is evidence of criminal conduct related to the alleged manipulation of ISDAfix. The regulator had sent subpoenas to the biggest banks in the world in 2012 to find out if the benchmark, used to establish rates for trillions of dollars of financial products and track prices on interest-rate swaps, was rigged. The CFTC, however, can only file civil charges.

Benchmarks are integral to global finance. They help lenders determine what to charge borrowers and pension funds to figure out future obligations, among other uses. Regulators have been investigating claims that banks and brokers seeking to profit helped manipulate certain benchmarks, while investors lost out in the process.

Last week, the Alaska Electrical Pension Fund sued thirteen banks, including UBS (UBS), Citigroup (C), and Bank of America (BAC), and brokerage firm ICAP Plc (IAP) claiming they worked together to rig ISDAfix. UK securities regulators are also looking into the claims.

Mortgage Transfers to Nonbanks Get Closer Regulator Scrutiny

Published on: September 7, 2014 | by Shepherd Smith Edwards & Kantas, LLP

In the last two years, millions of borrowers with mortgages have been moved from banks to nonbanks. This can result in problems for home loan borrowers.

A reason for this is that a lot of banks are getting rid of their mortgage servicing rights. 14 of the leading bank servicers, including JPMorgan Chase & Co. (JPM), Wells Fargo & Co. (WFC), and Bank of America (BAC) have sold off over $1 trillion of these rights in the last two years. The primary buyers are nonbank servicers, which now handle one in every seven mortgages.

The Consumer Financial Protection Bureau, which is engaged in the oversight of nonbanks, enacted regulations earlier this year that extended rules for banks to nonbank servicers that collect mortgage payments and deal with foreclosures and modifications. Last month, the bureau also put out guidance on new regulations that specifies the way loan transfers to nonbanks should be dealt with, including a provision mandating that buyers and sellers conduct meetings in at timely manner to talk about the continuity of service before a mortgage is handed off. Sales contracts also must stipulate that mortgage documents need to be given to the new servicer. However, a recently released CFPB statement reported that some nonbank services are billing customers incorrectly, not honoring approved modifications, and losing paperwork.

Fidelity Investments Settles Class Action Lawsuits Over 401(K) Plan for $12 million

Published on: September 5, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Fidelity Investments has consented to pay $12 million to settle two class action employee lawsuits. The plaintiffs contend that the retirement plan provider was self-dealing in the FMR LLC Profit Sharing Plan and making money at their expense by offering employees high-cost fund options and making them pay excessive fees.

Over 50,000 ex- and present employees are eligible to receive from the settlement. Fidelity is accused of providing just its own funds in the retirement plan for its workers, with certain investment options having little (if any) track record, while failing to use an impartial process when choosing the investment options.

As part of the agreement, Fidelity Investments will now give employees a choice of non-Fidelity and Fidelity mutual funds, increase auto-enrollment to 7%, and allow participants of non-Fidelity mutual funds to benefit from revenue sharing, just like the participants of Fidelity mutual funds and collective trusts. The company also will keep offering a default investment alternative, the Fidelity Freedom Funds-Class. The Portfolio Advisory Services at Work program will be provided for free.

SEC Charges Immigration Attorneys with Securities Fraud Involving EB-5 Immigration investor Program

Published on: September 4, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The SEC is charging a Los Angeles-based immigration lawyer, his wife, and his law firm partner with securities fraud that targeted investors who wanted to gain U.S. residency through the EB-5 Immigration investor program. The program lets immigrants apply for U.S. residency if they invest in a project that helps create jobs for workers in this country.

According to the Commission, Justin, his spouse Rebecca Lee, and Thomas Kent raised close to $11.5 million from more than twenty investors that wanted to join the program. They told investors that they would qualify to join if they invested in an ethanol plant that was going to be constructed in Kansas.

The three of them are accused of taking the money and misappropriating it for other uses. Meantime, the plant was never constructed and no jobs were created. Yet Justin, Rebecca, and Thomas allegedly continued to deceive investors so that they kept believing that the construction project was in the works.

Securities Lawsuit Accuses Deutsche Bank, JPMorgan Chase, Credit Suisse, and Other Banks of Manipulating ISDAfix

Published on: September 4, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The Alaska Electrical Pension Fund is suing several banks for allegedly conspiring to manipulate ISDAfix, which is the benchmark for establishing the rates for interest rate derivatives and other financial instruments in the $710 trillion derivatives market. The pension fund contends that the banks worked together to set the benchmark at artificial levels so that they could manipulate investor payments in the derivative. The Alaska fund says that this impacted financial instruments valued at trillions of dollars.

The defendants are:

• Bank of America Corp. (BAC)

Study Assesses How Much Investment Advisory Firms Would Pay for SEC Exams

Published on: September 3, 2014 | by Shepherd Smith Edwards & Kantas, LLP

According to a study released by compliance consultant RIA in a Box, some investment advisory firms could end up paying millions of dollars in users fees each year to finance exams conducted by the Securities and Exchange Commission. The study addresses a bill that would let the regulator charge fees to cover exam costs. The agency has said that it needs more money to hire more RIA examiners.

The proposed measure is intended to help the SEC enhance its yearly examination rate. Right now, the exam rate is just 9% of the about 11,500 investment advisers that are registered with the agency.

Under the bill, the SEC would determine user fees according to how much it would cost to increase the amount and frequency of registered investment advisers. A firm’s assets under management, risks characteristics, and the number and kinds of clients would also be factored.