Investor Lawyers Blog

Texas-Based Broker-Dealer Faces SEC Charges Over Supervisory and Customer Protection Violations

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

The Securities and Exchange Commission is charging H.D. Vest Investment Securities with violating customer protection rules. The regulator contends that the Texas-based broker-dealer did not adequately supervise registered representatives that are accused of misappropriating customer monies.

H.D. Vest will pay a penalty to settle the charges. It has consented to get an independent compliance consultant that will help the firm enhance its supervisory controls.

The SEC’s order, which institutes a settled administrative proceeding, said that the firm did not have proper procedures and policies to oversee the external business activities of representatives. This allowed some of them to use outside businesses to bilk the brokerage firm’s customers. Some even deposited or moved customer brokerage funds into these external business accounts.

Citigroup, Wells Fargo, JPMorgan Chase, And 27 Other Big Banks Pass Fed Stress Tests’ Phase One

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

The 31 biggest banks in the U.S. all passed the first phase of the Federal Reserve’s stress test. This is the first time since the tests have been conducted on banks with over $50 billion in assets that all of them stayed above capital requirements.

Banks have been building their capital reserves, based on tougher Fed requirements, to protect against any losses. Included among the firms that did well are Wells Fargo (WFC), Citigroup (C), JPMorgan Chase (JPM), and Goldman Sachs (GS).

Based on the results thus far, the Federal Reserve said the big U.S. banks are healthy enough to keep lending if there were to be a serious recession, even if corporate debt markets failed, housing and stock prices dropped, and unemployment were to reach 10%.

Doral Bank In Puerto Rico Fails

Published on: March 5, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The Federal Deposit Insurance Corp. announced that The Office of the Commissioner of Financial Institutions of Puerto Rico has shut down Doral Bank in San Juan. The FDIC is now the bank’s receiver. Many investors have lost money through the Puerto Rico Conservation Trust Fund.

Banco Popular de Puerto Rico has now purchased $3.25 billion of Doral’s assets to acquire the defunct bank’s operations, including its deposits. A day after Doral shuttered its doors, 26 of its former branches reopened. Eight of them are now run by Banco Popular (OTCMKTS: BPESY), which resold the other 18 branches and their deposits to FirstBank Puerto Rico, Banco Popular North America, and Centennial Bank. The latter two now run Doral’s U.S. branches.

Doral Bank had approximately $5.9 billion in overall assets and $4.1 billion in deposits ending in 2014. Regulators determined that it was “critically under-capitalized.” After the FDIC notified the bank that it wouldn’t be able to use a $229 million tax refund for its Tier 1 capital, it was unable to raise more capital.

Broker and Adviser News: Morgan Stanley Sues Ameriprise Broker, Former UBS Broker Alleges Investor Risk Levels Were Mischaracterized, and Ex-Bank of America Merrill Lynch Trainees Seek Overtime

Published on: March 5, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Morgan Stanley Accuses Ex-Broker, Now With Ameriprise, of Trying to Take Clients

Morgan Stanley Wealth Management is suing one of its ex-brokers, John McCallion, who is now with Ameriprise Financial Services (AMP). The wirehouse claims that McCallion went into Morgan Stanley’s (MS) computer system before leaving the firm and changed his clients’ phone numbers so he could take their business with him.

The firm contends that while McCallion gave it a list of his clients’ information, he put the data on a USB drive that could not be opened on Morgan Stanley’s computers because of security issues. The Ameriprise broker has consented to a temporary restraining order that blocks him from pursuing the firm’s clients. He also is facing a FINRA arbitration claim over the matter. McCallion had at first tired to argue against the temporary order and he denied taking the confidential list or trade secrets.

Texas Wyly Brothers Must Pay SEC $299.4M for Securities Fraud

Published on: February 28, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Sam Wyly and his late brother Charles Wyly’s estate must pay $299.4 million for committing securities fraud. The final judgment comes months after a jury found them civilly liable.

The SEC sued the Texas billionaire brothers in 2010. The regulator accused them of making $553 million in undisclosed profits when they traded in four companies that used trusts in the Isle of Man. The companies included Scottish Annuity & Life Holdings Ltd., Sterling Commerce Inc., Michaels Stores Inc., and Sterling Software Inc.

The SEC contends that the Wylys established the complex trust system so they could make untaxed profits from concealed trades in companies that they controlled. The scam purportedly occurred over a period lasting a decade.

SEC Examines The Way Companies Deal with Whistleblowers

Published on: February 28, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. Securities and Exchange Commission is looking at whether companies are stifling corporate whistleblowers. The regulator has submitted letters to companies to request a number of documents, including employment contracts, nondisclosure agreements, confidentiality deals, and settlement agreements entered into since the Dodd-Frank Act became law. SEC officials are worried that there has been a backlash against whistleblowers.

Some of the documents come with clauses that get in the way of an employee notifying the government about wrongdoing at the company, as well as about other securities law violations. Firms may even demand that employees give up their rights to benefits from government investigations, which takes away the incentive that is provided by the SEC whistleblower program.

Under the SEC whistleblower program, tipsters may be entitled to receive 10-30% of penalties collected if the information provided results in an enforcement action that brings in sanctions of over $1 million. In 2014, the regulator looked at over 3,600 tips about possible securities law violations. The number of tips has gone up in recent years. The Dodd-Frank Act bars companies from getting in the way of employees submitting such tips.

Bill Seeks to Eliminate Mandatory Arbitration Clause From Brokerage Contracts, While SEC Approves New Public Arbitrator Limits

Published on: February 27, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The Investor Choice Act in Congress, A U.S. House bill written by Keith Ellison, D-Minn., is looking to stop investment advisers and brokers from obligating investors to pursue their claims in arbitration instead of going to court. The proposed legislation would bar pre-dispute mandatory arbitration clauses in contracts between clients and their representatives.

As of now, almost all brokerage agreements, and an increasing number of investment adviser ones, come with provisions mandating that investors take their disputes to the arbitration system, which is run by the Financial Industry Regulatory Authority. There are those that believe that the forum favors brokers and advisers. Meantime, others say that the arbitration system is much more efficient for investors than going to court.

This is not the first time that Ellison has pushed for ending mandatory arbitration. He unveiled a similar bill in 2013 but it did not become law. The Public Investors Arbitration Bar Association has put out a statement voicing its support for Ellison’s latest bill, which it says gives investors back their right to choose whether they want to take their dispute to court or arbitration.

Judge Temporarily Blocks Meredith Whitney Fund From Making Investor Payouts in the Wake of BlueCrest Capital Opportunities Lawsuit

Published on: February 27, 2015 | by Shepherd Smith Edwards & Kantas, LLP

New York State Supreme Court Justice Jeffrey K. Oing says that he is temporarily stopping Meredith Whitney’s American Revival Fund from making investor payouts until there is a hearing about the securities lawsuit filed against the fund by BlueCrest Capital Opportunities Ltd. The plaintiff, a BlueCrest Capital Management affiliates, contends that Whitney’s fund did not honor its request to give back its now $46 million investment.

BlueCrest Capital Management, owned by billionaire Michael Platt, is Whitney’s largest investor. Now, its affiliate wants its stake back in the American Revival Fund. BlueCrest Capital Opportunities Ltd. filed its lawsuit in Bermuda at the end of last year. It was Platt who helped Whitney start her firm, Kenbelle Capital.

According to data gathered by Bloomerg.com, 2014 saw institutional investors getting involved in hedge funds and the largest players, with the funds on average returning approximately 2% over the first 11 months. Whitney’s fund, however, was down for most of that time. Her CFO and co-founder left and BlueCrest sought to get out not long after investing. BlueCrest maintains that a Kenbelle executive accepted the redemption request at first but no payment was made at the expected date.

Nontraded REIT Inland American Reduces Its NAV After Asset Sale

Published on: February 26, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Inland American Real Estate Trust Inc. (IARE) has lowered its estimated share value by 42.4%, because the company sold or spun off different assets over the last year. Among these were its hotel portfolios, now a listed real estate investment trust known as Xenia Hotels & Resorts Incorporated.

Inland American submitted a filing with the U.S. Securities and Exchange Commission, stating that $4 was its most current estimated share value. Prior to that, concluding 2013, the nontraded REIT said that its most recent valuation was at $6.94/per share value. Inland American Real Estate Trust Inc. said it was reducing its yearly distribution from 50 cents to 13 cents.

Inland American president and chief executive Thomas P. McGuinness noted that Xenia constituted a significant chunk of its assets, with each stockholder getting one share of Xenia common stock for every eight Inland American common stock shares held at end of business on January 20. That was the spin-off date. Because of this, stockholders of Inland American now own common stock shares in both Xenia and Inland.

Morgan Stanley, DOJ Arrive at $2.6B Mortgage Bond Settlement

Published on: February 25, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Morgan Stanley (MS) has reached an agreement in principal with the U.S. Department of Justice to resolve claims related to its sale of mortgage bonds. The government probe looked into allegations that the financial firm misrepresented the quality of home loans that were packaged into bonds.

The broker-dealer, however, still needs to negotiate with the DOJ about other terms, including what would be included in a signed statement of facts. The settlement doesn’t resolve probes by state litigators.

Morgan Stanley’s financial agreement is much smaller than what other firms have paid when settling with the Justice Department. Citigroup Inc. (C) paid $7 billion, J.P. Morgan Chase & Co. (JPM) paid $13 billion, and Bank of America Corp. (BAC) paid $16.65 billion.