Investor Lawyers Blog

SEC Files First Enforcement Action Protecting Whistleblower Confidentiality Agreements

Published on: April 8, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The SEC has brought its first case for whistleblower protection violations involving Rule 21F-17. The Commission claims that KBR Inc. used language in confidentiality agreements that were improperly restrictive and could potentially impede the whistleblower process.

According to the regulator, KBR required that witnesses involved in certain internal investigative interviews sign confidentiality statements that contained language warning about potentially disciplinary action, including termination, if the matters involved were discussed with an external party without the legal department’s approval. Such probes typically involved claims of possible securities law violations. Because of this, the agency said the terms violated the rule, which bars companies from getting in the way of whistleblowers being able to report securities law violations to the Commission.

To settle, KBR will pay a $130,000 penalty. The company, however, is not denying or admitting to the charges. It did voluntarily consented to modify its confidentiality statement to include language that lets employees know they can report possible violations to federal agencies without the company’s approval or fear of reprisal. KBR also agreed to cease and desist from future Rule 21F-17 violations.

LPL Financial Should Pay $3.6M in Fines, Repayments for REIT Sales to Older Investors, Says NH Regulator

Published on: April 7, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The New Hampshire Bureau of Securities Regulation wants LPL Financial (LPLA) to pay clients $2.4 million in buybacks and restitution for 48 sales of nontraded real estate investment trusts that were purportedly unsuitable for elderly investors. The regulator, which says the firm did not properly supervise its agents, is also fining LPL $1 million plus $200,000 in investigative expenses.

The securities case springs from transactions involving an 81-year-old state resident that purchased a nontraded REIT from the firm in 2008. The investor, whose liquid net worth was $2.5 million and invested $253,000 in the financial instrument, would go on to lose a significant amount of money. A probe ensued.

The state regulator contends that the 48 REIT sales, totaling $2.4 million lead to concentration that went beyond LPL guidelines and that the firm sold hundreds of nontraded REITs to clients in New Hampshire on the basis of “clearly erroneous “client financial data, while frequently violating its own policies. LPL has reportedly admitted that 10 of the 48 transactions deemed unlawful by the state were unsuitable according to its own guidelines. The Securities Bureau wants to take away the firm’s license to sell securities in New Hampshire.

Two Firms Charged in Texas With Running Fraudulent Commodity Pool Must Pay Over $7.5M

Published on: April 6, 2015 | by Shepherd Smith Edwards & Kantas, LLP

A district court in Texas is ordering a permanent injunction against RFF GP, LLC, KGW Capital Management, LLC, and Kevin White. The order is related to a 2013 Commodity Futures Trading Commission complaint charging them with fraud and misappropriation related to the running of a commodity pool.

The regulator says that defendants bilked participants when they got them to invest in the hedge fund and the commodity pool, named Revelation Forex Fund, LP. The fund was supposed to trade in off-exchange foreign currency. According to the CFTC, however, the defendants fraudulently solicited about $7.4 million from over 20 participants, misappropriating some $1.7 million from their money to cover personal spending and other matters. They allegedly fabricated the fund’s performance and lied about White’s experience in investing.

The Securities and Exchange Commission also filed its Texas securities case against White and the firms, along with a few other entities. The SEC said that White promoted a sophisticated forex trading strategy that was low risk but would lead to huge earnings. He also touted the Revelation Forex as a $1 billion hedge fund that managed to bring in returns of over 393% returns while earning an over 36% compound yearly return rate. White marketed himself as having 25 years of experience working in Wall Street when he had worked just six years as a licensed securities professional in Texas before the NYSE barred him.

Barclays Must Pay Former Trader $9M, Ex-Raymond James Broker Gets Back $650K Award

Published on: April 6, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Financial Industry Regulatory Authority arbitrators have awarded Mayank Chamadia $3.7 million in compensation in his case against Barclays Plc. (BARC) Chamadia was placed on leave from the June 2013 to prepare testimony for a possible interest-rate manipulation case. He resigned in October 2013 to go work for another firm.

Although Chamadia wasn’t accused of any violations, he said that the leave time while at Barclays hurt not just his reputation but also his bonus earning power. Now, Barclays must pay Chamadia millions of dollars in deferred pay along with the compensation. The arbitrators found that the firm had “no basis” to reduce or keep payouts that had not yet vested. Chamadia’s lawyer says that this releases some $9 million in back pay that had vested, including interest, to his client.

In another financial representative case against a firm, Robert Fenyk, an ex-Raymond James Financial Services Inc. (RJF) adviser, recently saw his $650,000 award reinstated by the U.S. Court of Appeals for the First Circuit. The ruling comes after a five-year legal battle.

Investor Fraud News: NFL Free Agent Sues Bank of America For $20M, FINRA Arbitration Panel Awards $1.3M to Investor in Case Involving Ex-Stifel Broker, and Tony Thompson and His Brokerage Firm are Barred from Industry

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

Former Colts Football Player Sues Bank of America for $20M

Dwight Freeney, formerly with the Indianapolis Colts and currently an NFL free agent, is suing Bank of America (BAC) for securities fraud. He and his Roof Group LLC say they were bilked of over $20 million.

In his securities fraud case, Freeney contends that the bank’s wealth management division is to blame for taking part, aiding, and abetting in the scam that cost him money. He noted that Bank of America went after him in 2010 to become one of its high net worth and affluent clients.

Financier Lynn Tilton Sues the SEC After She is Charged with Securities Fraud

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

Lynn Tilton, the owner of the financial firm Patriarch Partners LLC, is suing the U.S. Securities and Exchange Commission. She wants the regulator to stop going after her for alleged financial fraud. Tilton claims that the agency did not abide by the U.S. Constitution when it chose to pursue its case against her via its own administrative proceeding rather than federal court.

The SEC is charging Tilton and her firm with securities fraud. The Commission contends that she concealed the poor performance of the assets that were underlying three CLO (collateralized loan obligation) funds, known as the Zohar Funds. The agency has been probing the Zohar I, II, and III funds for years. They contain securities put together by Patriarch and are made up mostly of loans to companies that the financial firm controlled.

Tilton and Patriarch had raised over $2.5 billion for the funds. The regulator said that because they concealed the low performances, the firm and Tilton were able to collect close to $200 million of fees they shouldn’t have received. The SEC said that “major conflict of interest” was a factor.

SIFMA Says White House Isn’t Entirely Right About The Cost of Abusive Trading to Investors

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

The Securities Industry and Financial Markets Association claims that the White House is employing a methodology that is flawed to make the claim that investors are losing around $17 billion in retirement funds yearly because of trading practices that are abusive. SIFMA is against imposing tougher rules against brokers, including a draft rule expected to be released by the U.S. Department of Labor mandating that those who offer retirement plan advice meet a fiduciary standard and place their clients’ best interests before their own. Right now, brokers must only satisfy a suitability standard of care with the requirement that they make appropriate recommendations even if they aren’t necessarily the best.

President Obama wants the Labor Department to go ahead with the rule proposal. In February, the White House put out a report finding that some brokers use excessive trading and costly investments to enhance their commission, as well as take part in other practices that end up costing investors big time.

SIFMA, however, in its new report, claims that the White House is disregarding how similar rule changes such as the one the DOL is expected to propose, impacted investors in the United Kingdom where approximately 310,000 lost their brokers during the first quarter of 2014 alone because their accounts were too small for the representative to handle. Another 60,000 investors were rejected by brokers for their low balances. However, while the U.K.’s rule prohibits brokers from getting paid commissions from mutual funds, the DOL doesn’t plan to institute such a ban.

FINRA Fines J.P. Turner, LaSalle St. Securities, and H. Beck For Report Supervision Lapses

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

The Financial Industry Regulatory Authority Inc. is fining J.P. Turner & Co., LaSalle St. Securities, and H. Beck Inc. $100K, $175K, and $425K, respectively, for lapses in supervising reports sent to clients. The reports provided asset summaries, and the self-regulatory organization is concerned that they had the potential to hide fraudulent activities.

A consolidated report typically contains information regarding most if not all of a customer’s financial holdings, wherever they are held. FINRA requires that these reports are accurate and clear. Failure to supervise these documents can cause regulatory issues, such as the possibility of inaccurate communication, data that is misleading or confusing, supervisory control lapses, and the use of consolidated reports for unethical or fraudulent reasons. The SRO’s regulatory notice 10-19 states that if a firm cannot properly supervise these reports then it should not distribute them and must make sure that registered representatives abide by this restriction.

During routine exams, FINRA found that representatives from the three firms prepared and issued consolidated reports to customers even if the documents hadn’t been properly reviewed beforehand. LaSalle St Securities, which had written procedures pertaining to consolidated reports, failed to enforce these and did not properly trained representatives on how to use the reports. The disciplinary action against the broke-dealers was related to private placement-involved matters.

Oppenheimer Must Pay $2.5 Million Fine, $1.25 Million in Restitution for Not Supervising Ex-Broker

Published on: March 29, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority is fining Oppenheimer & Co (OPY) $2.5M for not supervising Mark Hotton. The ex-broker stole from customers and excessively traded in their accounts. Oppenheimer must also pay $1.25 million in restitution.

To date, the brokerage firm has paid over $6 million to settle customer securities arbitration claims involving Hotton. This latest restitution will go to another 22 customers who did not file claims.

According to the self-regulatory organization, Oppenheimer did not properly investigate Hotton before hiring him, despite the fact that FINRA’s own records linked him to several customer complaints and criminal charges. After discovering that Hotton’s business partners sued him for bilking them out of millions of dollars, still the firm did not heighten supervision over him.

Ex-Rabobank Trader Banned from Financial Services Industry in Britain for Libor Manipulation, Another Pleads Not Guilty in the US

Published on: March 29, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Conduct Authority has banned Paul Robson, an ex-Rabobank Groep (RABO) trader, from the financial services industry in the United Kingdom. Robson pleaded guilty to U.S. fraud charges and was convicted for his involvement in a conspiracy to rig the London interbank offered rate (Libor). This is the FCA’s first public action against an individual for Libor manipulation.

Robson was the main submitter of yen Libor at the bank. FCA’s acting enforcement and market oversight director Georgina Philippou said that there was no way Robson could argue that he didn’t know what he was doing. The criminal charges submitted by the Southern District of New York last year said that while at Rabobank Robson was responsible for its yen Libor submission from January 2006 through at least November 2008. He then went to another brokerage firm before going to work at Bank of Tokyo-Mitsubishi UFJ, also in the U.K. The FCA said that Robson kept manipulating Libor through at least the beginning of 2011.

He is accused of colluding with co-workers and employees of other firms of manipulating the rate to their benefit. In May, trials are set to start for individuals charged with Libor rigging.