Investor Lawyers Blog

FINRA Claims Wedbush Securities Engaged in Supervisory and Anti-Money Laundering Violations

Published on: August 26, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority has filed a disciplinary complaint against Wedbush Securities Inc. that accuses the firm of violations related to anti-money laundering and systemic supervision. The self-regulatory organization says that from January 2008 through August 2013, Wedbush did not put enough of its resources towards supervisory systems, risk-management controls, and procedures. At the time, the firm was one of the largest market access providers, making millions of dollars from the business.

Because of purported violations, contends FINRA, market-access customers, including non-registered participants, were able to permeate U.S. exchanges and make thousands of trades that could have been manipulative and may have even involved spoofing and manipulative layering. The agency says that even though it was Wedbush’s duty to look out for suspect and possibility manipulative trades, the firm depended mostly on its market access customers to self-report such trading, as well as self-monitor.

FINRA contends that even though Wedbush received notice about the risks involved in its market access business, the firm ‘s supervisory procedures and risk management controls were not reasonably designed to deal with these factors. Wedbush even established incentives for compensation to be based on the value of market customer access trading. FINRA says that Wedbush should have set up, kept up, and enforced satisfactory AML policies and procedures, and it purportedly failed to report suspect transactions.

Bank of America to Pay $16.65 Billion to Settle DOJ Mortgage Probe

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

Bank of America (BAC) and the U.S. Department of Justice have arrived at a $16.65 billion mortgage settlement. Under the agreement, the lender will pay $9.65 billion to the DOJ, the SEC, other government agencies, and six states. The remaining $7 billion will be paid in the form of aid to struggling consumers. This is the largest settlement between the U.S. and just one company. It resolves claims not just against Bank of America, but also against its current and past subsidiaries, including Merrill Lynch and Countrywide Financial Corporation.

The numerous probes now resolved involve the packaging, sale, marketing, structuring, and issuance of collateralized debt obligations and residential mortgage-backed securities, as well as mortgage loan origination and underwriting practices. As part of the settlement, the bank issued a statement of facts acknowledging that it did not disclose key information to investors about the quality of billions of dollars of RMBS that it sold to them. When the securities failed, investors, including financial institutions that were federally insured, lost billions of dollars. Bank of America acknowledges that it originated mortgage loans that were high-risk and made misrepresentations about the loans to the Federal Housing Administration, Freddie Mac, and Fannie Mae.

Merrill Lynch and Countrywide made a lot of the loans at issue before Bank of America purchased both entities in 2008. However, the government also had a problem with Bank of America’s own mortgage securities, as well as the latter’s attempts to circumvent internal underwriting standards by revising the financial data of applicants.

Securities Regulations News: SEC Looks to Delay Principal Trading Rules, FINRA Adds More Time to REIT Price Changes and 2nd Circuit Says Dodd-Frank’s Whistleblower Protections Don’t Apply Overseas

Published on: August 22, 2014 | by Shepherd Smith Edwards & Kantas, LLP

SEC Wants To Extend Temporary Rule Letting Dually-Registered Advisers Get Principal Trading Consent

For the third time in four years, The Securities and Exchange Commission wants to extend a temporary rule that makes it easier for investment advisers that are also registered as brokers to sell from the proprietary accounts of their firms. The regulator issued for comment its proposal that would move the interim’s rule expiration date to the end of 2016 instead of the end of 2014.

Under the temporary rule, dually registered advisers can either get verbal consent for principal trades on a transaction basis or give written prospective disclosure and authorization, in addition to yearly reports to the clients. With principal trades, a brokerage firm uses its own securities in the transaction.

Lehman Brothers’ Unsecured Creditors to Get $4.6B Payout

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

Pension funds, former employees, investment firms, and banks with unsecured claims against Lehman Brothers Holdings are finally getting an initial payout of $4.6 billion. That’s about 71% of the unsecured claims against the broker-dealer to be recovered. These creditors of the firm have waited years to get their money back, ever since investment bank went into bankruptcy in 2008 with $613 billion in liabilities.

Lehman’s collapse helped instigate the global financial crisis and it was Barclays (BARC) that bought the brokerage business. It’s trustee, James W. Giddens has already paid back brokerage customers the over $10 billion they were owed.

In total, the Lehman parent company and its units have paid $57.1 billion to unsecured creditors. The majority of creditors are expected to get back up to 35 cents on the dollar.

SEC Examines Municipal Advisers and Alternative Mutual Funds, Reviews “Wrap-Fee” Accounts

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

The Securities and Exchange Commission introduced a two-year plan to examine municipal advisers who assist localities and states to raise money in the $3.7 trillion municipal bond market. During this period, regulators plan to look at a significant chunk of the approximately 1,000 SEC-registered municipal advisers.

These advisers are usually small firms with one or two employees. They are not affiliated with banks. Municipal advisers are retained to time, price, and market muni-bond transactions.

The SEC has been clamping down on municipalities for not updating investors about their financial health. The regulator wants the U.S. Congress to give it more authority in the market. Right now, muni issuers are exempt from disclosure requirements that corporations have to make when selling securities. Now the agency wants to know whether municipal advisers are meeting their fiduciary duty and placing clients’ interests before their own.

FINRA Investor Alert Warns About Scams Touting Ebola Cure and Other Viral Disease Stock Schemes

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

The Financial Industry Regulatory Authority has put out an investor alert warning against buying stocks in companies claiming to combat viral diseases. The self-regulatory organization says it knows of several possible schemes involving stock promotions employing tactics such as pump-and-dump scams to inflate share prices. The scammers will then sell their shares at a profit while leaving investors with shares that have lost their value.

Intensified news coverage of the recent Ebola and Middle East Respiratory Syndrome outbreak will likely have attracted the attention of stock scammers wanting to take advantage of people’s fears. To avoid falling victim to a viral disease stock scam, FINRA is offering several tips, including:

• Be wary of promotional materials, correspondence, and press releases from senders you don’t know. Watch out for communications that say little about the risks involved while only touting the positives. Getting a barrage of information about the same stock opportunities can also be a red flag.

Securities Lawsuit Against BlackRock Accuses Firm of Charging Excessive Sub-Advisor Fees

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

BlackRock Inc. (BLK) wants a judge to dismiss a securities lawsuit accusing the money manager of charging exorbitant fees and breaching its fiduciary duties. Lawyers for the firm argued that the claims have no merit in the U.S. District Court in Trenton, New Jersey.

The investor plaintiffs, including a Florida investment adviser who won the lottery, contend that BlackRock’s subsidiaries collected excessive fees for services provided to Equity Dividend Fund (MDDVX), worth almost $30 billion, and their Global Allocation Fund, (MDLOX), worth close to $59 billion. They say that they lost millions of dollars because of excessive fees.

However, reports InvestmentNews, according to one of the lawyers representing BlackRock, the complaint does not properly acknowledge the fund’s size or allege facts adequate enough to plausibly demonstrate that the fees are unreasonable, especially considering the services that were provided.

SEC Files Charges in $4.5M Houston-Based Pump-and-Dump Scam

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

The SEC has filed charges against Chimera Energy, a Houston-based penny stock scam, and four individuals for their purported involvement in a pump-and-dump scam that made over $4.5 million in illicit proceeds. Investors were led to believe that the company was creating technology that would allow for oil-and-gas production that was environmentally friendly.

The regulator claims that Andrew I. Farmer set up Chimera Energy and secretly got control of all the shares issued in an IPO. He then set up a promotional campaign to hype the stock, touting technology that would extract shale oil without fracking.

In the alleged Texas securities fraud, Chimera Energy claimed that an entity named China Inland gave it an exclusive license to develop and commercialize the non-hydraulic extraction technologies. The SEC says that China Inland is not a real company and that Chimera Energy had no such technology or even a license.

SEC Charges Linkbrokers Derivatives in $18M Securities Fraud

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

The U.S. Securities and Exchange Commission is charging Linkbrokers Derivatives LLC with involvement in an $18 million fraud scam . The New York-based firm, which is no longer a broker-dealer, is settling the charges by paying $14 million.

According to the regulator, brokers at Linkbrokers secretly manipulated the costs of securities trades that it processed. They promised low commission fees and then charged fees that were 1,000% more than what they misrepresented they would be.

Over 36,000 transactions were involved in the securities fraud, which took place between 2005 and 2009. The SEC has already charged a number of brokers at Linkbrokers’ cash equities desk over this matter.

UBS Wealth, OppenheimerFunds Take Financial Hit From Puerto Rico Muni Bonds

Published on: August 15, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Even though UBS Wealth Management Americas (UBS) has been generating record revenue, the financial firm saw its profits drop upon reporting that had it put aside $44 million for litigation costs primarily related to Puerto Rico bond fraud cases. UBS’s second quarter earnings of $238 million are 3% lower than last year.

Already, UBS clients have filed hundreds of arbitration cases and a number of securities class action lawsuits contending that the brokerage firm put investors’ money in highly leveraged and unsuitable Puerto Rico municipal bond funds that dropped in value last year. These funds begun to lose value again recently.

OppenheimerFunds Inc. (OPY), which is the biggest mutual fund to hold Puerto Rico debt, has also taken a financial hit. Bloomberg reports that in the past year, the firm has seen a loss of close to a third of its funds’ assets. For example, the Oppenheimer Rochester Maryland Municipal Fund (ORMDX) directed approximately 35% of its holdings to the islands as of the end of June. As of August 4, its assets had dropped to $64.9 million. At this time last year, the fund had $96.1 million in assets.