Investor Lawyers Blog

Bank America to Pay $7.65M to SEC Over $4B Capital Error

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

Bank of America Corp. (BAC) will pay a $7.75 million penalty to settle U.S. Securities and Exchange Commission charges alleging violations of civil securities laws involving record keeping and internal controls. The case is over the $4 billion capital error that the bank disclosed earlier in the year.

In April, Bank of America said that it had been miscalculating certain capital levels since 2009. By the end of last year the error was over $4.3 billion. The violations took place after the firm took on a huge portfolio that included structured notes when it acquired Merrill Lynch.

The SEC says that when Bank of America acquired Merrill Lynch it permissibly recorded the notes it inherited at a discount to par. Bank of America then should have realized losses on the notes while they matured and deducted them for purposes of figuring out and reporting regulatory capital.

Virginia Files $1.15B Securities Lawsuit Against Citigroup, Credit Suisse, JPMorgan Chase, and Other Big Banks

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

The state of Virginia is suing 13 of the biggest banks in the U.S. for $1.15 billion. The state’s Attorney General Mark R. Herring claims that they misled the Virginia Retirement System about the quality of bonds in residential mortgages. The retirement fund bought the mortgage bonds between 2004 and 2010.

The defendants include Citigroup (C), JPMorgan Chase (JPM), Credit Suisse AG (CS), Bank of America Corp. (BAC), Goldman Sachs Group Inc. (GS), Morgan Stanley (MS), Deutsche Bank (DB), RBS Securities (RBS), HSBC Holdings Inc. (HSBC), Barclays Group (BARC), Countrywide Securities, Merrill Lynch, Pierce, Fenner & Smith Inc., and WAMU Capital (WAMUQ). According to Herring, nearly 40% of the 785,000 mortgages backing the 220 securities that the retirement fund bought were misrepresented as at lower risk of default than they actually were. When the Virginia Retirement System ended up having to sell the securities, it lost $383 million.

The mortgage bond fraud claims are based on allegations from Integra REC, which is a financial modeling firm and the identified whistleblower in this fraud case. Herring’s office wants each bank to pay $5,000 or greater per violation. As a whistleblower, Integra could get 15-25% of any recovery for its whistleblower claims.

Resource Horizons Group’s Future Hangs in Balance Following $4M FINRA Arbitration Award

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

Resource Horizons Group, a regional brokerage firm and investment adviser, may no longer be able to stay in business after a $4 million Financial Industry Regulatory Authority arbitration award was issued against it. The self-regulatory organization blames the firm for almost $3.5 million in investor losses after Robert Gist, one of the firm’s brokers, allegedly took the money. Part of the award is $1 million in punitive damages.

Last year, Gist consented to pay $5.4 million to settle SEC charges claiming that he converted about that much from at least 32 customers for his own use over a ten-year period. He went through Gist, Kennedy & Associates, Inc., which was an unregistered entity with no connection to Resource Horizons, in that financial scam.

Resource Horizons hired Gist in 2001. Even before that there already were a number of customers disputes and other disclosures on his record. Both the SEC and FINRA have now barred Gist from the securities industry.

SEC Investigates Pimco Exchange-Traded Fund for Artificial Inflation

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

The Securities and Exchange Commission is looking at whether Pacific Investment Management Co, artificially upped the returns of a fund that targeted smaller investors. At issue is the way the $3.6B Pimco Total Return ETF (BOND) purchased investments at a discount but depended on higher valuations for the investments when the fund worked out its holdings’ value soon after. This type of move could make it appear as if the fund made rapid gains when it was actually just availing of the variations in how certain investments are valued.

According to The Wall Street Journal, sources familiar with the probe say that SEC investigators have already interviewed firm owner Bill Gross. The regulator could be looking at whether investors ended up with inaccurate data about the performance of the fund. If so, this could be a breach of securities law, even if the wrongdoing wasn’t intentional.

While the probe has been going on for at least a year, it seems to have recently escalated. Other Pimco executives have also been interviewed.

Barclays to Pay $15M SEC Settlement Over Compliance Failures Following Lehman Brothers Acquisition, Pays $61.7M Fine to U.K.’s FCA Over Client Asset Issues

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

Barclays Capital Inc. (BARC) has consented to pay $15 million to the U.S. Securities and Exchange Commission to resolve civil charges claiming that it did not make sure the financial institution was in proper compliance with securities laws and its own rules after acquiring Lehman Brothers’ advisory division. According to the regulator, the firm did not adopt and execute written procedures and policies or keep up the needed records and books to stop certain violations.

For example, says the SEC, Barclays executed over 1,500 principal transactions with advisory client accounts but did not seek the necessary written disclosures and get the requisite customer consent. It also made money and charged fees and commissions that were not consistent with disclosures for 2,785 advisory client accounts, underreported assets under management by $754 million when amending its Form ADV a few years ago, and violated the Advisers Act’s custody provisions.

The violations caused clients to lose about $472,000 and pay more than they should have, while Barclays made additional revenue that was greater than $3.1 million. Barclays has since paid back or credited $3.8 million plus interest to customers who were affected. It also consented to remedial action and will retain a compliance consultant to perform an internal review.

SEC News: Regulator Grants $30M Whistleblower Award and Charges Washington Investment Advisory Firm $600K for Undisclosed Principal Transaction, False Advertising

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

Whistleblower to Get Over $30M Award in SEC Case

In its largest whistleblower award yet, the U.S. Securities and Exchange Commission will pay a bounty of over $30 million to an informant. Seeing that a whistleblower may be entitled to 10-30% of the amount recovered under the Dodd-Frank program, if the quality, unique information the person provided led to an enforcement action resulting in sanctions of over $1 million, a huge sum was obviously recovered.

In this particular case, the whistleblower resides abroad. Andrew Ceresney, SEC Enforcement Division Director, said that the individual brought the agency information about a fraud that otherwise would have been very hard to detect. He stated that whistleblowers anywhere in the world should see this latest award as incentive to report possible violations involving U.S. securities fraud.

T.J. Malone’s Lincolnshire Management Settles with SEC for $2.3M Over Purportedly Improper Allocations That Cost Its Funds

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

Lincolnshire Management has consented to pay $2.3 million to the Securities and Exchange Commission to settle charges alleging improper expense allocations involving two of its funds’ investments in the same company. The New York-based private equity firm, which is run by businessman T.J. Maloney, claims to oversee $1.7 billion.

Lincolnshire acquired PCS Inc. via its debut fund. Several years later it acquired Computer Technology Solutions with the intention of merging the two. However, reports Forbes.com, the first fund ran out of money, so Lincolnshire used its second fund to pay for the acquisition.

Commingling investments can be precarious, especially as each fund had a slightly different investor base. Because of this, the firm created expense allocation policies that were paid directly to it. This meant that each company’s allocation would be determined by the percentage of respective contributions to the total revenue of the overall revenue. However, the policies were never put in writing, which sometimes led to misallocations.

Man to Pay $40.4M for Texas Securities Fraud Involving Bitcoin Ponzi Scam

Published on: September 20, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Trendon T. Shavers, who is accused of operating a Texas Ponzi scam involving a Bitcoin scheme he operated from his residence must pay more than $40.4 million. The SEC filed a securities fraud case against him and his company Bitcoin Savings & Trust last year and sought disgorgement.

According to the regulator, Shavers, a Texas resident, raised more than 700,000 bitcoins while promising investors interest as high as 7% weekly. The allegedly fraudulent activities lasted from November 2011 through August 2012 when the Ponzi scam collapsed.

In a promo that he posted on online, Shavers solicited lenders, offering 1% interest daily for loans involving at least 50 bitcoins. He also published posts touting nearly zero risk, claiming that the business was doing exceptionally well. When his Texas securities scam failed, Shavers showed preference to longtime investors and friends when giving out redemptions.

SEC News: Regulator to Review Rule Change on New Hire Background Checks, Prepares Mutual Fund Regulations, and is Defendant of Oxfam America Lawsuit

Published on: September 20, 2014 | by Shepherd Smith Edwards & Kantas, LLP

FINRA Sends Background Check for New Hires Rule to the SEC

The Financial Industry Regulatory Authority is moving ahead with a rule change that would mandate that broker-dealers do a better job of vetting new hires. The SRO sent a rule to the Securities and Exchange Commission that would obligate brokers to implement written procedures to confirm the accuracy of information provided in an applicant’s U4 form.

Already, firms must review applicants for jobs. However, under the new rule, they would have to look into their public records.

FINRA Bars Ex-Wells Fargo Broker From Industry For Allegedly Bilking Customers, Expels HFP Capital Markets LLC for Securities Fraud

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

The Financial Industry Regulatory Authority has barred a former Wells Fargo (WFC) registered representative from the brokerage industry. According to the self-regulatory organization, Ane S. Plate, who previously worked with Wells Fargo Advisors Financial Network in Florida, allegedly made fifteen unauthorized trades in a joint brokerage account of two customers between October 2013 and April 2014. The transactions resulted in $176,080 of cash proceeds, of which Plate is accused of pocketing $132,358.

The former Wells Fargo broker is also accused of setting up bi-weekly transfers from the brokerage account to a bank account that was in the name of one of her relatives. She then allegedly moved $7,700 to that account between December 2013 and May 2014.

Plate, who was working with Wachovia Securities when Wells Fargo acquired that firm, has since been fired after the latter discovered the purported theft. FINRA’s BrokerCheck reports that the customers that were harmed were fully reimbursed for the amount taken from them.