Investor Lawyers Blog

U.S. Bank National Association Must Pay $18M to Peregrine Customers, Says Court

Published on: February 18, 2015 | by Shepherd Smith Edwards & Kantas, LLP

A district court issued a Consent Order placing a permanent injunction against the U.S. Bank National Association and mandating that the bank return $18 million to customers of Peregrine Financial Group, Inc. customers.

US Bank has offices in Iowa where Peregrine, a non-bank, nonclearing FCM (Futures Commission Merchant), and its owner Russell Wasendorf were based. Peregrine was also The bank was the depository for the non-bank and it held an account for customer-segregated funds that Wasendorf accessed when bilking over 24,000 clients. Some $215M was misappropriated.

In July 2012, the Commodity Futures Trading Commission put out a civil action against Peregrine and Wasendorf. The latter has pled guilty to criminal charges and received a 50-year sentence. He also has to pay over $215M in restitution.

US Probing Whether Morgan Stanley Data Breach Was Linked to Fired Financial Adviser

Published on: February 18, 2015 | by Shepherd Smith Edwards & Kantas, LLP

A U.S investigation into the way Morgan Stanley (MS) information became available for sale online is looking at whether hackers targeted financial adviser Galen Marsh after he took information from the bank. Marsh was fired for taking data on up to 350,000 wealth management clients. His lawyer, however, maintains that Marsh did not try to use, sell, or publish the information for personal gain.

Now, federal investigators want to know whether there was a breach to Marsh’s computer after he took the information from Morgan Stanley, especially as there is no evidence that the firm’s own computers were hacked.

It was in December that the broker-dealer discovered that information about some 900 of its customers were published on Pastebin, which is a website. Potential buyers were asked if they would pay for more information and use a virtual currency. Morgan Stanley had the information removed from public view immediately and notified the authorities.

DOJ Investigating UBS Over Losses Related To Firm’s V10 Enhanced FX Carry Strategy

Published on: February 17, 2015 | by Shepherd Smith Edwards & Kantas, LLP

UBS Group AG (UBS) is under scrutiny over losses related to its V10 Enhanced FX Carry Strategy. The complex financial product was sold to fund managers, businesses, and individual investors and touted as a high-yielding foreign-exchange investment that employed computer algorithms to reduce risks during volatile times.

Unfortunately, according to Bloomberg, in 2010 during the start of the debt crisis, the index to which the notes were tied lost 26% over two years. Now, sources tell Bloomberg, the U.S. Department of Justice is looking at whether traders shortchanged investors by charging them too much for executing the currency trades for the strategy.

The V10 Enhanced FX Carry Strategy created sales commissions while offering an opportunity to profit from these sales and purchases of underlying currencies. Investors bought notes tied to the V10 index, which is calculated by ranking currencies from the Group of 10 nations daily according to one-month interest rates. UBS would then bet on the three highest-yielding currencies advancing and the three lowest declining. During a rise in volatility over a predetermined level, positions would be switched. Now, investigators with the DOJ are looking at instant messages, talking to traders, and examining documents issued to customers to figure out whether UBS represented how much profit it was taking on the trades.

EU Fines ICAP $17M for Helping Traders Manipulate Yen Libor

Published on: February 17, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The European Commission says that ICAP Plc has been ordered to pay a $17.2 million fine for helping traders manipulate benchmark interest rates linked to the Japanese yen. The word’s largest broker of transactions between banks is accused of spreading misleading data to lenders that set the yen Libor’s interbank lending rate, as well as helping traders communicate so they could collude with one another.

According to the Commission, the information was disguised as “predictions or expectations” but was actually geared toward influencing panel banks that were not involved in the infringements to turn in rates aligned with intended manipulations. The EU said ICAP facilitated six yen Libor cartels between ’07-’10 and attempted to get lenders to send rates that were similar to the panel. The broker also allegedly used other contacts to facilitate communication between an RBS trader and one from Citigroup (C). ICAP said it would appeal the fine and claims that the EU has shown no evidence that the broker engaged in violations of laws related to competition.

Authorities are looking into how bankers and derivatives traders worked together to make sure benchmarks were to their benefit, which could have affected over $300 trillion of financial products, loans, and contracts tied to the rate. While RP Martin Holdings Ltd., JPMorgan Chase & Co. (JPM), Deutsche Bank (DB), UBS AG (UBS), Royal Bank of Scotland Group Plc (RBS), and Citigroup already paid penalties to settle the EU’s case against them, ICAP refused. It has, however, paid $88 million of fines to United Kingdom and United States regulators to settle charges related to its contacts with traders at UBS.

Jury Says Ex-Envoy Involved in Stanford Ponzi Scam Must Pay $750K

Published on: February 16, 2015 | by Shepherd Smith Edwards & Kantas, LLP

A federal jury has decided that ex-U.S. Ambassador to Ecuador Peter Romero would not be allowed to keep over $758K in expenses, fees, and interest he earned while lending his legal counsel and credibility to Allen Stanford. Instead, he will pay that sum to the court appointed receiver.

Stanford was convicted in 2012 of fraud and money laundering, perpetuating a global multibillion-dollar scam in the process. His Houston-based empire was shut down in 2009 when the U.S. Securities and Exchange Commission accused him of running his $7 billion Stanford Ponzi scam that bilked thousands of investors. The scheme involved the sale of CDs from his bank in Antigua.

Receiver Paul Janvey contends that Romero and certain other consultants did not ask the most basic questions about Stanford’s bogus banking empire. Romero was invited to serve on Stanford’s International Advisory Board after sitting next to him at an inaugural ball for President George W. Bush in 2001.

New Details Accusing HSBC of Aiding Tax Evaders Emerge

Published on: February 16, 2015 | by Shepherd Smith Edwards & Kantas, LLP

New information regarding HSBC Holdings PLC’s (HSBC) history of aiding tax evaders has been released by ex-employee Hervé Falciani to a number of media outlet, as well as the International Consortium of Investigative Journalists. The data alleges that the bank kept secret accounts for a number of wealthy, celebrity, and/or unsavory individuals, including “dictators and arms dealers,” as well as clients that are on U.S. sanctions lists. HSBC also purportedly would advise clients on how to get around paying taxes in their home countries.

Falciani, an HSBC computer analyst who calls himself a whistleblower, has provided what the BBC is calling the largest data leak in the history of banking. He started sending information out in 2008, copying files onto personal storage devices. The information was sent to French Finance Minister Christine Lagarde, who now runs the International Monetary Fund. She notified other governments.

Falciani claims that in 2006,he notified his superiors at HSBC that there were flaws in data storage that could hurt client confidentiality. He said that no one paid attention. Bank officials, however, counter that Falciani issued no such warnings.

SEC Cases: Insider Trading Charges Filed Against Georgia Resident, Mutual Fund Adviser Accused of Improper Asset Handling, & Two-Ex CFOs Agree to Give Back Bonuses Because of Accounting Fraud

Published on: February 14, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Atlanta, GA Man Accused of Making $740,000 for Insider Trading

The Securities and Exchange Commission is filing charges against a Georgia man who is accused of insider trading and making about $740,000 in illicit profits. Charles L. Hill allegedly traded in Radiant Systems stock based on the confidential insider data a friend gave him about an upcoming tender offer to purchase the company. The friend was a friend of a Radiant Systems executive.

In 2011, Hill bought about 100,000 shares valued at close to $2.2 million on the final day of trading prior to the public announcement of the acquisition. That was his first time buying stock of Radiant Systems, and before that it had been years since he’d purchased equity securities.

Securities Fraud Cases: NY Hedge Fund Manager Bilks Investors of Over $800K, Maize Fund Scam Leads to Restitution, Madoff Ponzi Scheme Victims Get $355M, and Kentucky Scheme Ends with Probation, Compensation

Published on: February 13, 2015 | by Shepherd Smith Edwards & Kantas, LLP

SEC Says New York Hedge Fund Manager Stole From Investors

The U.S. Securities and Exchange Commission says that Moazzam Malik, a purported hedge fund manager in NYC, stole money from investors. Malik allegedly falsely claimed to be running a hedge fund holding about $100 million in assets under management. He is accused of touting high returns.

Malik raised over $840,000, but his fund, which didn’t make actual investments, never held over $90,177 in assets. Instead, he kept taking out money and spending the funds. He refused to give investors back their money, even pretending to be a fund employee and sending out an e-mail saying that he had passed away. Mailk purportedly kept soliciting investors even as he received redemption requests.

SEC Commissioners Oppose Regulator’s Leniency Toward Oppenheimer, Despite Violations

Published on: February 12, 2015 | by Shepherd Smith Edwards & Kantas, LLP

SEC Commissioners Luis Aguilar and Kara Stein, both Democrats, say that they were among those that voted to grant Oppenheimer & Co. (OPY) special benefits even after the brokerage firm committed rules violations. It was just last month that the broker-dealer consented to pay a $20 million penalty while admitting to failures and resolving charges related to its failure to detect money laundering.

In that case, also settle with the Financial Crimes Enforcement Network, the firm did not properly identify and report suspicious penny stock trades, even though numerous Oppenheimer customers reportedly were involved in such activities. The broker-dealer admitted that it failed to establish a suitable anti-money laundering program and did not perform proper due diligence on a foreign correspondent account.

Yet, the regulator overturned the automatic disqualification that should have come with the violation. That happened when SEC Chairman Mary Jo White and the other two members (both Republicans) outvoted the Democratic member. Now, Oppenheimer is allowed to continue selling hedge funds to rich individuals. As part of the condition for the leniency, the broker-dealer will retain a law firm and consultant to make sure that its procedures and policies fall in compliance.

Bank of America Used Subsidiary to Finance Trades, Helped Hedge Funds, Others, Avoid Taxes

Published on: February 11, 2015 | by Shepherd Smith Edwards & Kantas, LLP

According to The Wall Street Journal, internal documents show that Bank of America Corp. (BAC) used its Bank of America National Association, a subsidiary backed by the U.S. government, to finance controversial trades that allowed certain clients to get around paying taxes. A bank spokesperson said that the practice, which involved transactions by its investment banking arm in Europe, was phased out last year.

However, as far back as at least 2011 senior Bank of America investment bank officials in England purportedly began pressing at staff to avail of the lower funding costs of the U.S. unit, which doesn’t pay as much as business units for borrowing money. The purpose was to bring in more hedge fund clients, including those involved in dividend arbitrage tax trades. With that strategy, sophisticated investors are able to avoid or lower their withholding taxes on stock dividends.

There have been questions as to whether using an entity that holds federally insured deposits to pay for high-risk investment banking trades is appropriate. One employee even filed a whistleblower submission to the SEC about the banking subsidiary’s involvement.