Investor Lawyers Blog

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.)

Ponzi Scams: FINRA Bars Ex-Raymond James Broker Over $3M Ponzi Scam, Expels Success Trade Securities, Inc. for Bilking NFL and NBA Players

Published on: June 27, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority is ordering Success Trade Securities Inc. and its President and CEO Fuad Ahmed to pay 59 investors, mostly current and ex-NBA and NFL players, about $13.7 million in restitution for losses they sustained in a Ponzi scam. Success Trade is now expelled from FINRA membership and Ahmed is also barred.

According to a FINRA hearing panel, between 2/09 through 3/13, the firm and Ahmed sold $19.4 million in bogus promissory notes to investors while omitting or misrepresenting material facts. These facts would have revealed that parent company Success Trade Inc. was in financial trouble.

Ahmed and the firm are also accused of misrepresenting that the funds would go toward costs for marketing and growing the businesses of the parent company. The SRO says that the funds instead went toward went toward unsecured loans to Ahmed for his personal spending and to pay interest payments to note holders.

NY Sues Barclays Over Alleged High Speed Trading Favors in Dark Pool

Published on: June 26, 2014 | by Shepherd Smith Edwards & Kantas, LLP

New York Attorney General Eric Schneiderman has filed a securities fraud lawsuit against Barclays (BARC) Plc. accusing the British bank of lying about giving preference to high-frequency traders. The state contends that Barclays took part in fraudulent activity related to a dark pool. The British-based bank has 20 days to respond to the securities fraud charges.

Financial Industry Regulatory Authority data says that for the first week of June 2014, LX was the number two biggest alternative trading system in the United States. According to the high frequency trading case, LX, which is Barclays’ dark pool, favors computer-driven firms that can weave their way through the market at super fast speeds yet downplays how much these high-frequency traders use the venue.

Schneiderman says that the bank falsely depicted the way it routes the orders of clients and claimed to protect them from high-speed firms, when really the dark pool was run to the advantage of these traders. He claims that Barclays even specifically sought to bring in high-speed traders to LX, giving them preferential treatment over others by providing them with details about the way the dark pool is run.

SEC Stops Fraudulent Bond Offering by Chicago Suburb

Published on: June 25, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The SEC has gotten an emergency court order against the city of Harvey. The order puts an end to a bond offering that the Chicago, Illinois suburb was promoting. Also named in the order is Joseph T. Letke, the city’s controller.

The regulator contends that Harvey and Letke allegedly took part in a securities scam to use proceeds from the bonds for undisclosed, improper uses. The bond offerings were supposed to pay for a new Holiday Inn. Instead, officials purportedly took at least $1.7M of the proceeds to cover operational costs for the city. With the temporary order, Harvey is not allowed to sell or offer any bonds through the middle of July.

Per the SEC complaint, Harvey’s bond offerings from ’08-’11 were limited obligations bonds. The bond offerings had to be used for their intended purpose. Also the money that was raised needed to go toward the construction of the hotel. This is because funds that were supposed to pay back the bonds came from tax revenues that would be impacted by the progress and funding of the project. News reports reveal that the proposed Holiday Inn hotel and conference center have yet to be finished, with the hotel’s facade appearing gutted in certain places.

FINRA Arbitration Panel Orders Stifel Nicolaus to Pay $2.7M to Ex-Head Trader

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

A Financial Industry Arbitration Panel says that Stifel Financial Corp. (SF), the brokerage unit of Stifel Nicolaus, must pay $2.7 million to, Sean Horrigan. Stifel’s ex-head trader claims that the brokerage firm defamed him and withheld his bonus without just cause. Now, the panel is holding the broker-dealer liable.

Horrigan was fired from Stifel in 2012. According to his lawyer, his termination happened several weeks after he overheard a phone call in which a manager insulted his wife to a salesperson. Horrigan’s wife was also employed at Stifel at the time. After the incident, he reacted emotionally. It was after trading hours. The firm then demoted him before letting him go just weeks prior to giving him his bonus for 2011.

Stifel contended that Horrigan was not entitled to get that money because on the day that the bonuses were issued he no longer worked for the firm. His attorney, however, says that unless an industry professional signs a contract mandating that an employee has to be employed on bonus payout day, he/she is still entitled to that money.

SEC Chairman Mary Jo White Wants Reforms Made to Bond Market

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

U.S. Securities and Exchange Commission Chairman Mary Jo White wants significant reforms made to the bond market. Speaking at the Economic Club of New York, White spoke about how trading in these fixed income markets are “highly decentralized.”

She expressed concern that technology was being used in these markets to make this decentralized approach to trading more beneficial for market intermediaries.

According to Reuters, White’s speech is a sign that the SEC is at last making an effort to implement recommendations it made in 2012 about the $3.7 million municipal securities market. The regulator is launching an initiative that would mandate that alternative trading systems and other electronic dealer networks make available to the public their best prices for municipal bonds and corporate bonds. This should give smaller retail investors, and not just certain select parties, pre-trading price data.

Pennsylvania Private Equity Firm Settles SEC Charges Over “Pay to Play” Violations Related to Political Campaign Contributions

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

TL Ventures Inc. has agreed to pay almost $300,000 to settle Securities and Exchange Commission charges. The regulator contends that the Pennsylvania-based private equity firm violated “pay-to-play” rules for advisory fees it continued to get from state pension funds and the city of Philadelphia even after an associate made campaign contributions to the mayoral candidate and the state’s governor.

This is the SEC’s first case under the investment advisers’ pay-to-play rules, which went into effect in 2010. Under the rules, investment adviser are not allowed to provide compensatory services via pooled investment vehicles or to a government client for two years after a firm or one of its associates makes campaign contributions to political candidates or anyone able to impact the retention of advisers to oversee government client assets.

Philadelphia’s mayor gets to appoint three members of the Philadelphia Board of Pensions and Retirement. Pennsylvania’s governor gets to choose six of the state’s retirement system board members.

UBS AG Under Criminal Investigation Over Puerto Rico Bond Fund Sales

Published on: June 21, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Authorities in the United States are reportedly investigating UBS AG (UBSN) for its actions in Puerto Rico. The criminal fraud investigation comes in the wake of allegations that an ex-UBS broker in Puerto Rico told clients to improperly borrow money to purchase local mutual funds that later sank.

The investigation is centered around non-purpose loans that came from UBS Bank USA of Utah. The former UBS broker, Jose Ramirez, organized the loans for clients. The bank has since let him go.

Under internal guidelines, such loans are not allowed to be used for the purchase of securities since those very securities will be the collateral for the loans. Now, however, investors are saying that Ramirez was utilizing these loans to purchase more shares in the bond funds for them. Some are even saying that he gave them paperwork that made it appear as if customers were borrowing from the UBS bank in Puerto Rico and not the one in Utah. More than 100 investors may have been affected.