Investor Lawyers Blog

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.

Bank of America Must Face SEC and Department of Justice RMBS Fraud Lawsuits, Seeks Meeting with US Attorney General

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

In North Carolina, U.S. District Judge Max O. Cogburn Jr. said that Bank of America Corp. (BAC) would have to face government two residential mortgage-backed securities lawsuits. The Securities and Exchange Commission and the Department of Justice contend that the bank misled investors about the quality of loans tied to $850 million in RMBS.

Bank of America wanted the cases dismissed. It argued that the investors, both financial institutions, never sued the bank.

Judge Cogburn, however, found that the SEC’s lawsuit properly laid out that the bank lied about the mortgages’ projected health in its RMBS fraud case. With the DOJ’s case, he gave the department 30 days to revise its securities lawsuit. He found that the Justice Department did not properly state its argument, which was that bank documents included false statements while leaving out key facts.

Boston Investment Firm Accused of $5 Million Real Estate Investment Fraud Targeting Senior Investors

Published on: June 19, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The state of Massachusetts has filed a complaint against Cabot Investment Properties and its principals Timothy J. Kroll and Carlton P. Cabot. Secretary of the Commonwealth William F. Galvin is charging the firm with defrauding mostly elderly investors through fraudulent real estate investment sales.

The administrative complaints contends that Massachusetts residents wanting retirement income invested over $5 million in eight tenancy-in-common investments and misappropriated more than $9 million of the investment proceeds. Cabot Investment Properties had bought 18 business centers, malls, and other real estate properties in the US and structured them as securities.

Galvin claims that the respondents committed fraud when offering and selling the securities and made omissions and misrepresentations about their backgrounds and the consequences involved in securitizing the underlying TIC mortgages into commercial mortgage-backed securities. He contends that they misled investors by providing disclosures that downplayed how much liability was involved.

DOJ Investigates Foreign-Exchange Industry Over Sales Markups

Published on: June 19, 2014 | by Shepherd Smith Edwards & Kantas, LLP

According to Bloomberg News, the U.S. Department of Justice is expanding its probe of the foreign-exchange industry by talking to the salespersons at the biggest banks in the world. They want to know about current sales practices, including how much customers are charged to exchange currency.

Over a dozen ex- and current traders and salespersons that were interviewed said that it is common to charge a hard markup, which factors in a slight margin for the services of a salesperson. Clients who don’t make currency deals too often or just in small quantities often don’t pay much attention to the rate they receive. Now, the DOJ wants to know if banks are committing fraud when they don’t properly disclose this practice to customers.

The Justice Department is just one of over a dozen authorities in the world that are probing the currency Now, banks are also conducting their own investigations in an attempt to negotiate for leniency just in case any disciplinary actions result.

Morgan Stanley Must Pay Connecticut Regulators $5M for Supervisory Violations

Published on: June 18, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Morgan Stanley (MS) must pay banking regulators in Connecticut $5 million over allegations that the broker-dealer did not properly oversee the communications of its brokers. According to The Connecticut Department of banking, there were a number of issues with the firm’s supervisory procedures. The firm is settling without denying or admitting to the securities allegations.

The state regulators say that Morgan Stanley, which has wealth management branch offices in Connecticut, gave them information about their supervisory procedures that either was “obsolete” or nonexistent. Connecticut Securities Division director Eric Wilder also said that the firm had not updated its written supervisory procedures or compliance manuals for a number of years.

Morgan Stanley is accused of depending on an unqualified third-party provider in India to review all email communications. According to Connecticut regulators, the brokerage firm neglected to make sure that whoever was overseeing the India provider had the proper license and was following the Financial Industry Regulatory Authority’s most current procedures. (Wilder said that the minimum criteria that someone in that country needed to fulfill the compliance function was the ability to speak English-Morgan Stanley has specifically denied this allegation.)

Retirees Hurt, Brokers Enriched by $300 Billion 401(k) Rollover Boom

Published on: June 17, 2014 | by Shepherd Smith Edwards & Kantas, LLP

According to Bloomberg.com, as 401(k) rollovers continue to boom, it is the brokers who are profiting while the retirees are sustaining losses. Now, these investors are speaking out.

It was in 2012 that former employees moved $321 billion from 401(K) plans to individual retirement accounts-a 60% rise from the last decade. Now, the IRA is holding about $6.5 million in 401(k)-like accounts.

Even though retirees typically can keep their savings in 401(K) plans, financial firm reps. do reach out to try and persuade them to move their funds to IRAs instead. Internet ads, cold calls, cash incentives, and storefront signs are used to draw retirees in, including the promise of wider investment choices compared to their current plans. In one example of an incentive promised, E*Trade (ETFC) Financial Corp. and Bank of America Corp.’s (BAC) Merrill Lynch offer anyone who rolls over a 401 (K) plan into an IRA up to $600. (However, this can result in additional expenses down the road.)

FINRA Orders Merrill Lynch to Repay $89M in Restitution, $8M Fine for Excessive Mutual Fund Fees for Charities, Retirement Accounts

Published on: June 17, 2014 | by Shepherd Smith Edwards & Kantas, LLP

FINRA says Bank of America (BAC) Merrill Lynch failed to waive mutual fund sales charges for a number of retirement accounts and charities. Now the wirehouse must pay as restitution $89 million and a fine of $8 million. The firm settled without denying or admitting to the findings.

The majority of mutual funds with the firm’s retail platform are supposed waive specific fees for charities and retirement plans that qualify for this consideration. However, Merrill Lynch neglected to ensure that its advisers were correctly implementing these waivers. This impacted 41,000 accounts.

The SRO says that from about ’06 – ’11, firm advisers put tens of thousands of accounts into certain funds, including Class A mutual fund shares, and promised to waive specific sales charges for charities and retirement accounts. It then did not act to ensure that all of the fees were actually waived.