Investor Lawyers Blog

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.

Puerto Rico’s Debt Gets Downgraded to “B” by Fitch Ratings

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

Credit rating agency Fitch Ratings (“Fitch”) has downgraded the general obligation and related debt of Puerto Rico to “B”, rating it even further into junk territory and three notches under investment grade, because of worries about the U.S. territory’s ability to go through with planned financing. As a result of the downgrade of the general obligation debt, the Puerto Rico Aqueduct and Sewer Authority senior lien revenue bonds were also downgraded.

The ratings reduction is related to a new law in the Commonwealth. The law is supposed to help overhaul public debt by letting certain government agencies with a reported $19.4 billion in outstanding bonds restructure their debt. Fitch is worried that because of the way the restructuring is delineated in the law, this could result in debt payment suspensions while “precluding timely payments” of principal plus interest until proceedings are finalized.

Fitch also reduced the rating of Puerto Rico’s sales tax entity COFINA, pension funding bonds, and the Public Building Authority government facilities’ revenue bonds. The credit rating agency pointed to mixed economic signs, such as accelerated year-over-year declines in the labor force and yearly drops in the monthly economic activity index of the Government Development Bank, as the reason for the new downgrades. Recently, Standard & Poor’s also reduced the general obligation debt of Puerto Rico to junk bond status- a BB, which is right below investment grade.

Ex-F-Squared CEO Still Battling SEC, Firm Dealing With Fallout from Securities Fraud Charges

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

F-Squared Investments Inc. has laid off 40 workers-that’s one-fourth of its staff-as it continues to deal with the ongoing asset losses in the wake of the securities fraud charges filed against it by the U.S. Securities and Exchange Commission last year. During a routine examination, the regulator discovered that the asset management company allegedly had deceived investors by claiming its performance history was based on a real trading record going as far back as 2001 when F-Squared had just back-tested its algorithm. F-Squared is the biggest marketer of index products using ETFs (exchange-traded funds).

The SEC accused the firm of falsely promoting its AlphaSector investment strategy and its supposed excellent track record as based on its investment performance for real clients instead of the backtesting. Due to a calculation error, the results were inflated by 350%.

F-Squared settled the SEC charges for $35 million and the firm’s new CEO, Laura P. Dagan, said that F-squared has been putting more effort into compliance and its main product line. However, in the last several months, investors have withdrawn billions of dollars from F-squared strategies while several brokerage firms refuse to let advisers put more funds into the strategies.

Ameriprise Financial Settles 401(k) Fiduciary Breach Case for $27.5M

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

Ameriprise Financial Inc. (AMP) will pay $27.5 million to settle a fiduciary breach case filed by its retirement plan participants. The plaintiffs contend that the financial firm cost them millions of dollars in excessive fees. The agreement was reached just weeks before the 401k lawsuits were set to go to trial. Even though Ameriprise is settling, the firm is not denying or admitting to the alleged breaches.

The plan participants filed their case in 2011 against the firm and the committes tasked with supervising Ameriprise’s employee benefits administration and 401(k) investments. The plaintiffs said that the investments in the 401(k) plan included money from the firm’s RiverSource Investments subsidiary and that both companies were paid fee revenues from the plan dollars of employees.

Under the deal, Ameriprise will not have to modify its plan but it will perform a request-for-proposal bidding process for investment consulting services and recordkeeping services, as well as other modifications. Aside from direct expense reimbursements from the plan, the firm cannot get paid for the administrative services it provides to the plan. Ameriprise also must continue to pay a recordkeeper, offer participants the required plan fee disclosures, and consider using separately managed accounts and collective investment trusts.

First New York Securities to Pay $916K to FINRA for Illegal Short Selling

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

The Financial Industry Regulatory Authority has sanctioned First New York Securities LLC for short selling prior to participating in 14 public securities offerings. To settle, the firm, which is not denying or admitting to the charges, will pay a $400,000 fine, disgorgement of $516,000 plus interest, and is barred for six months taking part in secondary or follow-on offerings. It also has consented to an entry of the self-regulatory organization’s findings and will modify its supervisory system to make sure it is in compliance.

According to FINRA, from 9/10 through 4/13, First New York sold securities short within the five days going into the pricing of the public offerings in the securities. It would then buy securities in the offerings—purchasing over 670,000 shares after short selling 187,060 securities shares during those five days. The short sales artificially dropped share prices, which let First New York purchase the stocks at a lower cost. The firm bet against shares of companies that included Kinder Morgan Inc. and BlackRock Inc. (BLK).

Under the Securities Exchange Act of 1934’s Rule 105 of Regulation M, brokers are not allowed to buy securities in secondary offerings when during the restricted period prior to the pricing of the secondary offering the buyer sold short the security that is the offering’s subject. Please contact our securities lawyers to request your free case consultation. SSEK Partners Group represents high net worth individual investors and institutional investors who wish to get their securities fraud losses back.