Investor Lawyers Blog

Massachusetts Files Lawsuit Against Fannie Mae, Freddie Mac, and FHFA

Published on: June 2, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Massachusetts Attorney General Martha Coakley is suing Freddie Mae, and the Federal Housing Finance Agency because she says that they are not working with the nonprofits willing to repurchase bank-owned homes and then sell them back to their prior owners. Coakley is claiming violations of the state’s foreclosure prevention law.

Under certain Massachusetts programs, nonprofits can now buy homes that belong to the bank at market value and then sell them to previous owners that qualify for financing at a new price that is lower than market value. The Massachusetts AG believes that the FHFA, Freddie, and Fannie are getting “in the way” of these sales.

Coakley has pointed to the regulator’s policies, including one that won’t allow the two home mortgage companies to accept a price under the outstanding loan amount when houses are resold. Coakley says this is preventing families from getting their houses back. Meantime, FHFA has said that its policies protect taxpayers.

SEC Charges Chicago Charter School Operator in $3.75M Bond Offering Fraud

Published on: June 2, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission is charging United Neighborhood Organization of Chicago and UNO Charter School Network Inc. with bilking investors in a $37.5 million bond fraud offering. The SEC contends that the charter school operator made statements that were materially misleading about transactions where there was a conflict of interest.

The bond fraud offering involves school construction. According to the SEC, UNO did not disclose that it had a multi-million-dollar with a windows company that belonged to the brother of one of its senior officers. Investors also were not told that the conflict might impact the repayment of the bonds.

UNO had entered into grant agreements with the Illinois Department of Commerce and Economic Opportunity to construct three schools. Each agreement had provisions mandating that UNO certify that there were no conflicts. Breach of this provision could lead to grant payment suspension and recovery of money paid to UNO already.

More Older Investors Are Getting Rid of Advisers and Managing Their Own Funds Online

Published on: May 31, 2014 | by Shepherd Smith Edwards & Kantas, LLP

According to InvestmentNews, nearly half of investors in their fifties are now self-directed when it comes to their investments. This means that their main provider for investment advice is either a discount brokerage or a robo-adviser. 40% of investors in the 60 and over age group also are calling themselves self-directed.

The reasons for why older investors are gravitating toward the Internet to manage their own investments vary. For some, it can be a cost saver, compared to paying human advisers their numerous fees. There is also now a greater mistrust of financial representatives in the wake of the 2008 economic crisis. Also, getting everything handled online and without having to go out and meet with an actual adviser for advice or updates is proving very convenient for some.

InvestmentNews offers up as one example a 76-year-old investor, Lois Mayerson. She and her now 81-year-old husband fired their traditional advisers two decades ago. She said they started managing their own money because their financial advisers were losing the funds faster than the couple could deposit the cash into their accounts. Another investor, 58-year-old Joseph Giuliano, works with Betterment, an online financial adviser. Giuliano says that he and his wife have about $500,000 in a Betterment account. He believes that the only reason to have an adviser is when making bigger picture plans about taxes, college spending, insurance, and estate planning.

Bank Fraud Cases: Wells Fargo to Pay $62.5M Settlement Over Class Action Lawsuit & City of Los Angeles, CA Sues JPMorgan Over Discriminatory Lending Practices

Published on: May 31, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Wells Fargo Settles Securities Lending Case for $62.5M

Wells Fargo & Co. (WFC) will pay $62.5 million to settle a class action securities fraud case. A group of retirement funds claim that the bank committed fraud and breached its fiduciary duty in its securities lending program. Now, a district court judge must preliminarily approve the agreement.

Wells Fargo promoted its securities lending program to large institutional investors, including insurance companies, pension funds, and foundations. The bank would lend the clients’ securities to third-party brokerage firms. For lending the securities, the bank was given cash collateral. It then invested the funds, sharing returns with the clients. The program was marketed as a means for institutional investors to make additional funds to cover the cost of having Wells Fargo maintain their investment portfolios.

Wells Fargo Must Face Los Angeles’s Lawsuit Over Predatory Loans

Published on: May 30, 2014 | by Shepherd Smith Edwards & Kantas, LLP

U.S. District Judge Otis Wright II says that a lawsuit by the city of Los Angeles, which seeks to hold Wells Fargo & Co. (WFC) liable for foreclosures that occurred when the U.S. housing market collapsed, may proceed. Although Wright did not rule on the merits of the city’s claims, he said that L.A.’s allegations that the bank used “predatory loans” to target minority lenders were legally sufficient at this point.

The California city has filed separate cases against Wells Fargo, Bank of America Corp. (BAC) and Citigroup Inc. (C) accusing the mortgage lenders of engaging in discriminatory practices going as far back as at least 2004. L.A. says that the banks placed minority borrowers in loans that were out of their budget, raising the number of foreclosures in the city’s neighborhoods.

According to the city, local homeowners have lost around $78.8 billion in home value because of foreclosures that occurred between 2008 and 2012. Property tax revenue that was lost because of this was reportedly $481 million. Now, Los Angeles wants to hold the banks liable for the increase in municipal services and the tax revenue that was lost due to the foreclosures.

CTFC Issues Its First Whistleblower Award

Published on: May 30, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The Commodity Futures Trading Commission has given its first whistleblower award in the wake of the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act and its bounty program. The regulator awarded $240,000 to a person who voluntarily gave information that allowed the CFTC to file an enforcement action resulting in sanctions and a judgment of more than $1 million.

Under the Dodd-Frank bounty program, whistleblowers of successful claims may be entitled to 10-30% of what is recovered. Prior to this whistleblower award, the CFTC had denied 25 award claims because: the persons provided the original data prior to Dodd-Frank’s passage; they failed to submit necessary paperwork, they gave over the information because the CFTC asked for it and not voluntarily; or the information they provided did not compel the regulator to open or widen a probe or contribute much to any successful Commission matter.

According to business writer William D. Cohan in his article on Wall Street whistleblowers in FT Magazine, whistleblowing—especially on Wall Street—requires great courage. Many find that traders, bankers and executives who raise questions about securities fraud end up losing their job or find themselves the victim of some other type of retaliation.

Stockbroker Fraud: Morgan Stanley Sues Convicted Ex-Broker, Former-Wells Fargo Broker Pleads Guilty, And Ex-John Thomas Financial Broker Evades Customer Complaints

Published on: May 29, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Morgan Stanley Files Lawsuit Against Ex-Broker Convicted in Kickback Scam

Morgan Stanley (MS) is suing ex-broker Darin DeMizio for legal fees. DeMizio was convicted over his involvement in a kickback scheme. Now, the financial firm wants him to pay back legal expenses because it says that he purposely defrauded the broker-dealer and hid the fraud while working there.

DeMizio was convicted five years ago for his scheme to pay kickbacks of $1.7 million to his brother and dad. He was sentenced to 38 months behind bars and ordered to pay Morgan Stanley $1.2 million in restitution.

SEC Takes Action to Stop Alleged Fraud Involving Transfer Agent

Published on: May 28, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The SEC announced that it is filing fraud charges against IST Shareholder Services, a transfer agent based in Illinois, and its owner Robert G. Pearson. The regulator also obtained an emergency asset freeze in this matter. IST Shareholder Services is registered with the SEC under the name Illinois Stock Transfer Company.

The transfer agent and Pearson are accused of a misappropriation scam that bilked clients of over $1.3 million. The fraud was discovered when the Commission examined the firm. Pearson eventually admitted to the scam during questioning by SEC examiners.

Stock issuers usually use transfer agents to keep track of the entities and individuals that own the bonds and stocks. The agents document changes to securities ownership, keep up the security holder records for issuers, give out dividends and issue/cancel securities certificates. Now, the SEC is claiming that Pearson and his company misused money that belonged to clients and their shareholders to pay for their own business obligations and fund payroll.

SEC Files Charges in Penny Stock Scams

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

The U.S. Securities and Exchange Commission has filed charges in a number of penny stock scams involving microcap companies, promoters, and officers. As of March 22, the regulator had charged 25 companies and 48 individuals in probes that originated out of its regional office in Miami. The agency has been working with the Federal Bureau of Investigation and the U.S. Attorney’s Office for the Southern District of Florida to expose the financial fraud. Many of those charged by the SEC are also contending with criminal charges.

Two of those facing SEC charges are stock promoters Stephen C. Bauer and Kevin McKnight of Boca Raton. They are accused of market manipulation fraud involving Environmental Infrastructure Holdings Corp.’s (EIHC) penny stock. According to the regulator, they made it seem as if there was market interest EIHC to get investors to buy the stock, which artificially raised trading volume and price.

Also named in an SEC complaint is Richard A. Altmare from Boca Raton for market manipulation involving Sunset Brands Inc. (SSBN) stock. In an unrelated penny stock case, the SEC is charging Jeffrey M. Berkowitz, who is from Jupiter, Florida with participating in a market manipulation scheme, this one over Face Up Entertainment Group (FUEG) stock.

SEC Judge Bans Money Manager For Misleading Morningstar and the Public

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

U.S. Securities and Exchange Commission judge Cameron Elliot has banned Max E. Zavanelli, a separate-account money manager from the securities industry. Now, Zavanelli and his firm, ZPR Investment Management Inc., must pay $660,000 for misleading research firm Morningstar Inc. and the public.

ZPR Investment Management, in its filing with securities regulators, names over $200 million in assets from 119 accounts. Its clients include pension plans, high net worth individuals, and charitable organizations.

According to Judge Elliot, Zavanelli misrepresented and left out important information in newspaper ads, newsletters, and reports to Morningstar. Firm performance data is believed to have falsely implied compliance with the Global Investment Performance Standards. These are the standardized, voluntary ethical principals for investment advisers that call for fair representation and full disclosure. It also includes guidance for advertisements that maintain they are in compliance with GIPS.