Investor Lawyers Blog

Barclays to Pay $15M SEC Settlement Over Compliance Failures Following Lehman Brothers Acquisition, Pays $61.7M Fine to U.K.’s FCA Over Client Asset Issues

Published on: September 24, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Barclays Capital Inc. (BARC) has consented to pay $15 million to the U.S. Securities and Exchange Commission to resolve civil charges claiming that it did not make sure the financial institution was in proper compliance with securities laws and its own rules after acquiring Lehman Brothers’ advisory division. According to the regulator, the firm did not adopt and execute written procedures and policies or keep up the needed records and books to stop certain violations.

For example, says the SEC, Barclays executed over 1,500 principal transactions with advisory client accounts but did not seek the necessary written disclosures and get the requisite customer consent. It also made money and charged fees and commissions that were not consistent with disclosures for 2,785 advisory client accounts, underreported assets under management by $754 million when amending its Form ADV a few years ago, and violated the Advisers Act’s custody provisions.

The violations caused clients to lose about $472,000 and pay more than they should have, while Barclays made additional revenue that was greater than $3.1 million. Barclays has since paid back or credited $3.8 million plus interest to customers who were affected. It also consented to remedial action and will retain a compliance consultant to perform an internal review.

SEC News: Regulator Grants $30M Whistleblower Award and Charges Washington Investment Advisory Firm $600K for Undisclosed Principal Transaction, False Advertising

Published on: September 23, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Whistleblower to Get Over $30M Award in SEC Case

In its largest whistleblower award yet, the U.S. Securities and Exchange Commission will pay a bounty of over $30 million to an informant. Seeing that a whistleblower may be entitled to 10-30% of the amount recovered under the Dodd-Frank program, if the quality, unique information the person provided led to an enforcement action resulting in sanctions of over $1 million, a huge sum was obviously recovered.

In this particular case, the whistleblower resides abroad. Andrew Ceresney, SEC Enforcement Division Director, said that the individual brought the agency information about a fraud that otherwise would have been very hard to detect. He stated that whistleblowers anywhere in the world should see this latest award as incentive to report possible violations involving U.S. securities fraud.

T.J. Malone’s Lincolnshire Management Settles with SEC for $2.3M Over Purportedly Improper Allocations That Cost Its Funds

Published on: September 23, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Lincolnshire Management has consented to pay $2.3 million to the Securities and Exchange Commission to settle charges alleging improper expense allocations involving two of its funds’ investments in the same company. The New York-based private equity firm, which is run by businessman T.J. Maloney, claims to oversee $1.7 billion.

Lincolnshire acquired PCS Inc. via its debut fund. Several years later it acquired Computer Technology Solutions with the intention of merging the two. However, reports Forbes.com, the first fund ran out of money, so Lincolnshire used its second fund to pay for the acquisition.

Commingling investments can be precarious, especially as each fund had a slightly different investor base. Because of this, the firm created expense allocation policies that were paid directly to it. This meant that each company’s allocation would be determined by the percentage of respective contributions to the total revenue of the overall revenue. However, the policies were never put in writing, which sometimes led to misallocations.

Man to Pay $40.4M for Texas Securities Fraud Involving Bitcoin Ponzi Scam

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

Trendon T. Shavers, who is accused of operating a Texas Ponzi scam involving a Bitcoin scheme he operated from his residence must pay more than $40.4 million. The SEC filed a securities fraud case against him and his company Bitcoin Savings & Trust last year and sought disgorgement.

According to the regulator, Shavers, a Texas resident, raised more than 700,000 bitcoins while promising investors interest as high as 7% weekly. The allegedly fraudulent activities lasted from November 2011 through August 2012 when the Ponzi scam collapsed.

In a promo that he posted on online, Shavers solicited lenders, offering 1% interest daily for loans involving at least 50 bitcoins. He also published posts touting nearly zero risk, claiming that the business was doing exceptionally well. When his Texas securities scam failed, Shavers showed preference to longtime investors and friends when giving out redemptions.

SEC News: Regulator to Review Rule Change on New Hire Background Checks, Prepares Mutual Fund Regulations, and is Defendant of Oxfam America Lawsuit

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

FINRA Sends Background Check for New Hires Rule to the SEC

The Financial Industry Regulatory Authority is moving ahead with a rule change that would mandate that broker-dealers do a better job of vetting new hires. The SRO sent a rule to the Securities and Exchange Commission that would obligate brokers to implement written procedures to confirm the accuracy of information provided in an applicant’s U4 form.

Already, firms must review applicants for jobs. However, under the new rule, they would have to look into their public records.

FINRA Bars Ex-Wells Fargo Broker From Industry For Allegedly Bilking Customers, Expels HFP Capital Markets LLC for Securities Fraud

Published on: September 19, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority has barred a former Wells Fargo (WFC) registered representative from the brokerage industry. According to the self-regulatory organization, Ane S. Plate, who previously worked with Wells Fargo Advisors Financial Network in Florida, allegedly made fifteen unauthorized trades in a joint brokerage account of two customers between October 2013 and April 2014. The transactions resulted in $176,080 of cash proceeds, of which Plate is accused of pocketing $132,358.

The former Wells Fargo broker is also accused of setting up bi-weekly transfers from the brokerage account to a bank account that was in the name of one of her relatives. She then allegedly moved $7,700 to that account between December 2013 and May 2014.

Plate, who was working with Wachovia Securities when Wells Fargo acquired that firm, has since been fired after the latter discovered the purported theft. FINRA’s BrokerCheck reports that the customers that were harmed were fully reimbursed for the amount taken from them.

Fed to Charge U.S. Banks with More Stringent Capital Surcharge

Published on: September 19, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The Federal Reserve intends to impose a capital surge on the largest U.S. banks to lower the risks that come with certain financial firms that are still “too big to fail.” The requirement will require these institutions to maintain bigger cushions against possible losses.

Fed Governor Daniel Tarullo gave testimony about this planned surcharge in front of a Senate Banking Committee hearing earlier this month. The Fed also reportedly intends to penalize banks that depend too much on volatile types of short-term funding.

Ever since the 2008 economic crisis, banks have increased their capital and must abide by new rules. The Wall Street Journal reports that according to Federal Financial Analytics’ examination of six U.S. banks, between 2007 and 2013 these firms upped their capital by $29.07 billion.

Morgan Stanley to Pay a $280,000 Fine to CFTC for Records and Supervision Failures Involving SureInvestment and $35M Ponzi Scam

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

Morgan Stanley Smith Barney, LLC (MS) has settled civil charges by the U.S. Commodity Futures Trading Commission (CFTC) accusing the firm of records violations and inadequate supervision involving its know-your-customer procedures. Aside from a $280,000 fine, the broker-dealer will have to disgorge commissions from the subject accounts involved.

According to the regulator, Morgan Stanley did not diligently oversee its employees, officers, and agents when they opened firm accounts for a family of companies known as SureInvestment, which purportedly ran a hedge fund that was partially based in the British Virgin Islands-considered to be a risky jurisdiction. Because of this geographic circumstance, when the accounts were opened the firm should have subjected them to special observation pursuant to its procedures, including watching out for red flags indicating suspect activities.

The CFTC’s order, however, notes that even though there were a number of red flags in the account opening documents for SureInvestments, Morgan Stanley failed to identify them. Later, it was discovered that SureInvestment doesn’t even exist and that its owner, Benjamin Wilson, was conducting a $35 million Ponzi scam based in the U.K. (Wilson, who has pleaded to criminal charges brought by the Financial Conduct Authority, has been sentenced to time behind bars.)

Regulators Adjust Liquidity Rule for Big Banks

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

A new rule adopted by U.S. banks will require over thirty of the largest banks, including Citigroup (C) and JPMorgan Chase (JPM), to add another $100 billion in cash or cash-like investments to what they currently hold to make sure that the firms don’t run out of money in a crisis. Previous expectations were for the banks to raise around $200 billion to satisfy the rule’s requirements. However, regulators have since reduced that number.

The liquidity rule is supposed to protect the financial system and the economy during times of stress in the market so that the same issues that led to the failures of Bear Stearns and Lehman Brothers during the 2008 economic meltdown don’t happen. The regulation mandates that firms have enough safe assets to cover 100% of their net cash outflows for 30 days when there is economic turmoil. With the final liquidity ratio banks, with assets between $50 billion and $250 billion will calculate their positions monthly instead of daily. They have until January 1, 2016 to comply with the rule.

According to The Wall Street Journal, The Clearing House, a trade group that represents banks, has expressed approval of the changes to the final rule. U.S. officials have said the liquidity coverage ratio creates a good balance between economic growth and financial stability. For now, municipal debt securities will not be considered safe, “high-quality liquid assets” that can go toward a bank’s compliance. Meantime, however, some people have expressed worry that when the markets and the economy are good the rule could impede banks from investing or lending.

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.