Investor Lawyers Blog

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.

401K Fees in the Spotlight, With $62M Lockheed Settlement & Edison Class Action Case Before the Supreme Court

Published on: February 24, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Lockheed Martin Corp. has agreed to pay $62 million to settle a lawsuit accusing its employee 401(k) retirement plan of charging excessive fees to participants. As part of the settlement, the defense company will take part in monthly assessments of its plan, offer participants low-cost funds, and get bids from at least three outside companies that know how to deal with administrative matters involving big company retirement plans.

There are 100,000 participants and $27 billion of assets in Lockheed’s retirement plan. The civil case accused the company of not acting wisely when managing the retirement savings of employees, charging high fund fees, keeping a significant quantity of participants’ savings in low-yield funds, and paying record-keeping fees that were excessive.

Lockheed denied the allegations. Even though it is settling, the company is not admitting wrongdoing.

Gray Financial Group Sues the SEC for Using Administrative Law Judges

Published on: February 23, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Gray Financial Group Inc. is suing the Securities Exchange Commission over the agency’s use of its own administrative law judges instead of federal ones when trying enforcement cases. The lawsuit contends that the regulator’s administrative proceedings are a violation of the U.S. Constitution because the SEC judges are distanced from presidential supervision by at least two layers of tenure protection. The investment firm wants to block the Commission’s administrative action against it.

The regulator is probing whether the firm violated Georgia law when it invested in alternative investment for public pension funds in 2012. The plaintiff’s complaint said that the SEC sent out a Wells notice in 2014 noting that it found that Gray Financial did violate specific federal securities laws. It also said that even though there was no proof of related investment losses, the agency had started a confidential probe into the company.

The investment firm said that even though no formal charges were ever made, the nature of the probe was made public, which, it claims, compelled certain clients to terminate their business relationships with Gray Financial. This led to a decline in firm revenue.

SEC Cases: Brothers-In-Law Charged in Louisiana Insider Trading Scam, NY-Based Broker-Dealer Accused of CDO Liquidation-Related Fraud, & Colorado Ponzi Scam is Halted

Published on: February 20, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission is charging former VP of The Shaw Group’s construction operations Scott Zeringue and his brother-in-law Jesse Roberts III with insider trading. Zeringue has already agreed to settle the regulator’s charges by consenting to pay disgorgement of ill-gotten gains plus a penalty.

The SEC says that the insider trading took place in 2012 when Zeringue, while working at The Shaw Group, became privy to confidential data about the company’s upcoming acquisition by Chicago Bridge & Iron Company. Prior to the announcement of the deal, he bought 125 shares of Shaw stock and asked Roberts to buy for him, too. Roberts went on to tip others and they collectively made close to $1 million in illicit profits.

Meantime, parallel criminal charges have been filed against Roberts. Zeringue has already pleaded guilty to the criminal charges against him.

SEC Examines Whether Banks Are Complying With Capital Rules

Published on: February 20, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission is looking at efforts by banks to comply with capital rules. The regulator is searching for improper activities involving the way these financial institutions value complicated assets, as well as transactions used to transfer risks to other entities.

Following the financial crisis, when governments were compelled to rescue banks, regulators have increased how much capital lenders must hold in relation to assets. It has been the job of publicly traded banks to conform to new regulations. However, these new pressures may be compelling some to engage in certain behaviors, such as inaccurate valuations of the holdings of traders to improve profits.

Since the 2008 economic crisis, banks have upped capital requirements by keeping earnings and putting out shares. They’ve also reduced assets according to the rules that weight assets by risks. According to Bloomberg data, the five biggest Wall Street banks have gotten rid of over $200 billion—nearly 25% of risk-weighted assets linked to trading books in the eighteen months through September 2014. Banks have also modified models, lowered trading positions, and incorporated new rules.