Investor Lawyers Blog

SignalPoint Asset Management to PAY SEC Fine for Breach of Fiduciary Duty

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

The Securities and Exchange Commission is ordering the comptroller and principals of SignalPoint Asset Management to pay $215,000 for breach of fiduciary. The regulator claims that the Missouri-based registered investment adviser breached its fiduciary duty when it did not tell clients about certain conflicts of interest.

The SEC says that SignalPoint principals Dennis R. Walker, Jonathan C. Timson and John W. Handy Jr. failed to disclose that they had control of the RIA when they advised clients to invest in it. This failure to disclose the conflict is a violation of the Advisers Act.

Michael Orzel, SignalPoint’s comptroller, was responsible for filing and drafting the RIA’s Form ADVs that also failed to disclose that Walker, Timson, and Handy were not just the principals of the registered investment adviser but also its control persons.

Non-Traded REITs, Structured Products, and Private Placements Remain Under Regulator Scrutiny

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

According to state regulators, non-traded real estate investment trusts, structure products, and private placements, are some of the financial instruments that the states and insurance regulators are watching closely. First Deputy Commissioner of the Iowa Insurance Division Jim Mumford and Alabama Securities Commission director Joseph P. Borg recently spoke at a panel at the Insured Retirement Institute’s Government, Legal and Regulatory Conference.

Borg noted that a growing number of agents are now selling unlicensed financial products, with insurance agents selling private placements and getting clients away from insurance products and into Regulation 506 of Regulation D. The rule establishes a safe harbor for securities’ private offerings. Such instruments are only supposed to be made available to accredited investors and non-accredited investors that have enough sophistication to be able to assess this type of investment. Agents, however, have tried to circumvent securities laws by claiming that a (nonexistent) attorney gave them a letter stating that the private offering actually wasn’t a security.

Also up for sale lately are self-directed IRAs and promissory notes. Structured products have also been quite popular, although unfortunately, Borg noted, many agents and brokers don’t even understand what they are selling.

FINRA Official Says Variable Annuity Sales Top Investor Complaint List

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

According to Financial Industry Regulatory Authority chief risk officer Carlo di Florio, variable annuities continue to among the products named the most in customer complaints. He spoke at the Insured Retirement Institute’s Government Legal & Regulatory conference in D.C. on Monday.

Di Florio, who is also the head of strategy at the self-regulatory agency, said that some variable annuities are taking on features similar to complex structured products. This includes caps that restrict how high returns can reach during market rallies and buffers that place a limit on how much annuities are allowed to fall when the market drops.

Annuities that have caps and buffers are different from the more conventional annuities in that the two make a product even more complex by varying market volatility exposure. FINRA wants to make sure that investors know what they are getting involved in when they purchase any kind of variable annuity.

Deutsche Bank, Wells Fargo, Citigroup Sued by Pimco and Blackrock Over Trustee Roles Involving Mortgage Bonds

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

Pacific Investment Management Co. and BlackRock Inc. (BLK) are leading a group of investors, including Charles Schwab Co. (SCHW), Prudential Financial Inc. (PRU), DZ Bank AG, and Aegon in suing trust banks for losses they sustained related to over 2,000 mortgage bonds that were issued between 2004 and 2008. Defendants include units of US Bancorp (USB), Deutsche Bank AG (DBK), Wells Fargo (WFC), HSBC Holdings (HSBA.LN), Citigroup (C), and Bank of New York Mellon Corp (BK).

The investors are accusing the banks of breaching their duty as trustee when they did not force bond issuers and lenders to buy back loans that did not meet the standards that buyers were told the bonds possessed. It is a trustee’s job to make sure that principal payments and interest go to bond investors. They also need to make sure that mortgage servicing firms are abiding by the rules that oversee defective loans or homeowner defaults.

Trustees, however, have said that their duties are restricted to tasks like supervising the way payments are made to investors and giving regular reports about bond servicing. They disagree about having a wider oversight duty to fulfill.

OppenheimerFunds, Franklin Templeton Sue Over Puerto Rican Debt Law

Published on: July 2, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Investment firms OppenheimerFunds Inc. and Franklin Templeton (BEN) have filed a lawsuit claiming that Puerto Rico’s new law, which lets certain government agencies restructure their debt, violates the constitution. Lawmakers in Puerto Rico approved the bill last month.

Aside from its power agencies, the entities that would be allowed to restructure the debt under the new law include Puerto Rico’s water and transportation agencies. Collectively, all of the agencies have about $19.4 billion in outstanding bonds. The Act does not have provisions for restructuring tax-backed bonds and general-obligation bonds.

The two fund managers together hold about $1.7 billion in Puerto Rico Electric Power Authority debt. They want the legislation, known as the Public Corporations Debt Enforcement and Recovery Act, blocked.

US Supreme Court Will Hear Appeal Over Libor Antitrust Claims

Published on: July 2, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The United States Supreme Court has agreed to hear an appeal in Ellen Gelboim et al v. Bank of America Corp. The lawsuit was filed by bond investors who lost money in securities tied to the London Interbank Offered Rate and the manipulation of the global benchmark interest rate. Now, the nation’s highest court is granting their request to let their claims go forward and will hold oral arguments on the lawsuit during its next term.

For the last three years, different kinds of investors have filed numerous securities fraud cases against the largest banks in the world claiming that they manipulated Libor. Last year, a district court judge allowed investors to pursue certain claims but threw out their antitrust claims.

Judge Naomi Reice Buchwald said that the settling of Libor was not competitive but, rather, cooperative; it involved banks providing data to a trade group that established the rate. Plaintiffs therefore could not prove that anticompetitive behavior harmed them.

Broker Fraud: Ex-Investors Capital Rep. is Indicted in Ponzi Scheme, Credit Suisse Sues Two Ex-Brokers Over Client Data Theft, and SEC Files More Insider Trading in IBM-SPSS Acquisition

Published on: July 1, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Ex-Investors Capital Rep. Charged in $2.5M Ponzi Scam

Patricia S. Miller, a former Investors Capital Corp. representative, has been indicted on charges that she ran a $2.5 million investment fraud. She is accused of promising clients high yields for placing funds in “investment clubs.” Miller allegedly took this money and either gambled it away or used it to pay for her own spending.

According to prosecutors in Massachusetts, alleged fraud took place from 2002 through May 2014. Investors Capital fired Miller last month. Her BrokerCheck Report notes that the independent broker-dealer let her go because she allegedly misappropriated funds, borrowed client money, generated false documents, and engaged in “fraudulent investment activity.” Miller is charged with five counts of wire fraud.

Goldman Sachs Execution & Clearing Ordered to Pay $800K FINRA Fine for Not Preventing Trade-Throughs in its Dark Pool

Published on: July 1, 2014 | by Shepherd Smith Edwards & Kantas, LLP

FINRA is fining Goldman Sachs Execution & Clearing, L.P. (GS) $800,000. The self-regulatory organization says that for almost three years the firm did not have written procedures and policies that were reasonably designed enough to keep trade-throughs of protected quotations in National Market System stocks from taking place through its SIGMA-X dark pool. As a result, over an 11-day period in 2011, almost 400,000 trades were carried out at SIGMA-X through a quotation that was protected with a price that was lower than the NBBO.

Trading centers are supposed to either direct orders to trading centers with the best price quotes or trade at the prices that are the best quotes. The SRO says that the firm did not know this was happening in part because latencies in market information at Goldman’s dark pool were not detected soon enough.

Goldman Sachs has already given back $1.67M to customers who were disadvantaged. By settling, the firm is not denying or admitting to the FINRA charges. However, it agreed to the entry of the SRO’s findings.

BNP Pleads Guilty to Criminal Charges Over Sanctions Violations, Pays $8.8B Fine

Published on: June 30, 2014 | by Shepherd Smith Edwards & Kantas, LLP

BNP Paribas SA (BNP) has pleaded guilty to criminal U.S. charges that it violated sanctions. As part of the plea deal, the bank will pay an $8.8 billion fine.

According to the allegations, BNP processed funds involving Cuba, Iran and Sudan. The bank pleaded guilty to conspiracy, falsifying bank records, and conspiring to violate the International Emergency Economic Powers Act. It will not be allowed to clear U.S. dollars for up to a year. This suspension is significant, since dollar clearing is key to doing business with international clients.

With the BNP case, authorities are making it clear that no bank is immune from criminal charges. The probe revolved around its commodity-trade finance enterprises in Geneva, Switzerland and Paris, France. Unauthorized dollar payments were made for oil companies to entities in Iran and Sudan.

U.S. Supreme Court Issues Ruling in Halliburton Case Involving Fraud-On-The-Market Theory, Class Action Securities Cases

Published on: June 28, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Ruling in Halliburton v. Erica P. John Fund, the U.S. Supreme Court has left the fraud-on-the-market theory intact. However, they may have made it easier for large companies to get the courts to throw out class action securities cases sooner.

Halliburton Co. wanted to block a class action lawsuit accusing the company of inflating its stock price. A number of investors are claiming that they lost money after the stock price fell following news that it misrepresented revenues, overstated a merger’s benefits, and understated its liability in asbestos litigation.

Under the theory, securities fraud lawyers can use stock prices as proof that a company took part in fraud without having to prove that investors depended on company statements (or omissions of statements) when making decisions. Many corporate lawyers had hoped that the court would get rid of the 1988 precedent it made when it ruled in Basic V. Levinson more than 25 years ago. However, Chief Justice John Roberts wrote in the opinion for the justices that Halliburton didn’t offer any “special justification” for overruling the fraud-on-the-market presumption. (Justice Clarence Thomas, who ruled unanimously with the court, issued a separate opinion and was joined by Justices Samuel Alito and Antonin Scala. He said that Basic should have been overruled.)