Investor Lawyers Blog

FINRA Orders Securities America and Triad Advisers to Pay $1.2M Over Reporting Violations

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

The Financial Industry Regulatory Authority is fining Securities America and Triad Advisors $625,000 and $650,000, respectively, for not properly supervising the way consolidated reporting systems were used. Triad must also pay $375,00 in restitution. Even though they are settling, the two firms are not denying or admitting to wrongdoing.

The self-regulatory organization said this inadequate supervision led to statements containing inaccurate valuations that were sent to customers. The two firms are also accused of disobeying securities laws by not keeping appropriate consolidated reports.

A consolidated report is a document that includes information about the bulk of a customer’s financial holdings. The report is a supplement to official account statements.

Will Castlight Health IPO Prove Too Costly for Investors?

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

Castlight Health (CLST) saw its share price soar from $16/share to close to $40/share on the first day of its IPO last week. Despite bringing in just $13 million in revenue yearly thus far, its market cap still managed to hit $3 billion. Now some are wondering if this is an indicator that the IPO market may be approaching bubble territory. (Morgan Stanley (MS), Goldman Sachs (GS), and other top underwriters had priced the shares at $16, just over the raised and expected range of $13 to $15 per share)

Motley Fool analyst Ron Gross observed on Friday’s Investor Beat that this is the ninth IPO to double during its first trading day in the last nine months. Previous to that only five IPOs had done the same in the last 12 years. So yes, he says this is bubble area. Gross expressed concern that investors might be getting into stocks with super high valuations in light of the momentum yet later find that they are framing themselves for failure because they didn’t purchase the stocks at the right price.

However, reports USA Today, Castlight EO Giovanni Cilella is saying that the company sold its shares at the right time and financing is being done to keep up with customer demands. The company makes software to help employers and companies control the costs of healthcare.

Variable Annuities Scam Sought to Profit From Terminally Ill Patients’ Deaths, Says SEC

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

The Securities and Exchange Commission has filed charges against brokers Michael A. Horowitz and Moshe Marc Cohen, investment adviser BDL Manager LLC, and four others for their involvement in a variable annuities scam. The financial fraud purportedly aimed to make money from the deaths of terminally sick patients living under hospice care and in nursing homes.

Variable annuities are supposed to act as long-term investment vehicles to offer income upon retirement. One common feature is that a beneficiary of an annuity, usually a child or spouse, is paid a death benefit if the annuitant passes away. There is also usually a bonus credit that the issuer of the annuity adds to the value of the contract according to a specific percentage of purchase payments.

The SEC Enforcement Division claims that Horowitz set up a scam to exploit the benefits offered in annuities. Working with the help of others, he used the information of terminally ill patients in Southern California and Chicago, Illinois and sold variable annuity contracts, along with the bonus credit and benefit, to rich investors.

1 in 5 Seniors Fall Prey to Financial Fraud

Published on: March 14, 2014 | by Shepherd Smith Edwards & Kantas, LLP

According to the Investor Protection Trust, out of every five senior citizens over age 65, one of them will fall victim to a financial scheme in 2012. The Federal Trade Commission says that citizens over age 60 made up the largest group of people to report elder financial fraud to the Federal Trade Commission in 2013-that’s 27% of those who made such reports. That figure was just 22% in 2011.

At Shepherd Smith Edwards and Kantas, LTD LLP, please contact our senior investor fraud lawyers today if you feel that your losses may be a result of financial fraud or some other elder exploitation case. We work with elderly investors to get their money back.

The reason for the increase in elderly victims can in part be attributed to people living longer lives and the baby boom generation getting older. The Street reports that according to a survey conducted by the Metropolitan Life Foundation in 2010, elder financial abuse victims lost a minimum of $2.9 billion in 2010, which was a 12% increase from the number of senior financial fraud victims in 2008. Aside from negligent financial representatives, other fraudsters can include caregivers, relatives, immediate family, and strangers.

Ex-Goldman Trader Tourre Must Pay $825M in Securities Fraud Involving CDO Abacus 2007-AC1

Published on: March 14, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Following a jury finding ex-former Goldman Sachs Group (GS) trader Fabrice Tourre liable for bilking investors in a synthetic collateralized debt obligation that failed, U.S. District Judge Katherine Forrest ordered him to pay over $825,000. Tourre is one of the few persons to be held accountable for wrongdoing related to the financial crisis. In addition to $650,000 in civil fines, Tourre must surrender $185,463 in bonuses plus to interest in the Securities and Exchange Commission’s case against him.

The regulator accused Tourre of misleading ACA Capital Holdings Inc., which helped to select assets in the Abacus 2007-AC1, and investors by concealing the fact that Paulson & Co., a hedge fund, helped package the CDO. Tourre led them to believe that Paulson would be an equity investor, instead of a party that would go on to bet against subprime mortgages. Paulson shorted Abacus, earning about $1 billion. This is about the same amount that investors lost.

Judge Forrest noted that for the transaction to succeed, the fraud against ACA had to happen. She said that if ACA had not been the agent for portfolio selection, Goldman wouldn’t have been able to persuade others to get involved in the transaction’s equity. It was last year that the jury found Tourre liable on several charges involving Abacus.

Jefferies LLC Settles SEC Charges for $25 Million

Published on: March 12, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Broker-dealer and investment bank Jefferies LLC (JEF) has consented to pay $25 million to settle Securities and Exchange Commission charges that it did not properly supervise traders at its mortgage-backed securities desk. These same staffers purportedly lied to investors about pricing.

The regulator contends that Jefferies did not give its supervisors what they needed to properly oversee trading activity on the MBS desk and that these managers neglected to find out what bond traders were telling customers about pricing information in terms of what the bank paid for certain securities. This inaccurate information was misleading to investors, who were not made aware of exactly how much the firm profited from in the trading.

While Jefferies’ policy makes supervisors look at electronic conversations of salespeople and traders so any misleading or false information given to customers would be detected, the SEC says that the policy was not effected in a manner that price misrepresentations were identified. The supervisory failures are said to have taken place between 2009 and 2011.

SEC Investigates Whether Currency Traders Distorted ETF and Options Prices, Manipulated Currency Markets

Published on: March 12, 2014 | by Shepherd Smith Edwards & Kantas, LLP

InvestmentNews is reporting that according to sources in the know, the Securities and Exchange Commission is trying to figure out whether currency traders at the biggest banks fixed benchmark foreign-exchange rates and distorted the process for exchange-traded funds and options. The regulator, which oversees the options and ETFs involved with the rates, joins the ongoing US and European regulatory investigations into possible currency market manipulation. Also probing the matter is the Commodity Futures Trading Commission, the Federal Reserve, the US Justice Department, New York’s lead banking regulator, and the Office of the Comptroller of the Currency.

European and US authorities have talked to at least 12 banks as they look into allegations reported by Bloomberg News last year accusing dealers of saying they shared data about client orders to manipulate currency benchmark spot rates. Options and other derivatives comprise over 50% of the $5.3 trillion/day foreign exchange market, with the remaining consisting of spot transactions.

In London today, with the Bank of England’s governor, Mark J. Carney talked to lawmakers about concerns that banking officials might have known about and tolerated currency market manipulation. Independent directors are currently conducting a review. Carney testified in front of the Treasury Select Committee.

SEC Stops Pyramid Scam That Targeted Investors Via Twitter, Facebook, Skype, and YouTube

Published on: March 11, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission has put out an emergency enforcement action to stop a pyramid scam that has already taken $300,000 from about 150 investors in the US. The scheme involves bogus companies pretending to be an international investment firm. Customers were solicited via Twitter, Skype, Facebook, and YouTube.

Now, the SEC has gotten a federal court order freezing the holding the funds that purportedly were stolen from investors by MWF Financial and Fleet Mutual Wealth Limited, known together as Mutual Wealth. The regulator claims that the company used social networking and its website to target investors, making false promises of returns of 2 to 3% a week if they opened accounts with the firm.

According to the Commission, Mutual Wealth made its fraudulent pitches via social media. Misrepresentations were published on the company’s Facebook page, including data about income yields of up to 8% weekly and HFT portfolios with ROI of a maximum of 25%/annum. Mutual Wealth purportedly touted its use of a high-frequency trading strategy that lets capital be put into securities for just minutes at a time. The company offered a commission or referral fee if investors became “accredited” and brought in new investors.

Credit Suisse Officials Accused of Telling Staff to Ignore Due Diligence Standards, Accept Questionable Loans Involving

Published on: March 11, 2014 | by Shepherd Smith Edwards & Kantas, LLP

According to documents filed by Credit Suisse (CS) in Massachusetts state court, reports The New York Times, top officials at the financial firm encouraged subordinates to ignore due diligence standards and approve questionable loans that ended up packaged into mortgage investments. Also included in the papers are finding that there were internal audits showing that activities at the mortgage unit got progressively worse in 2004 and the firm knew it could end up being exposed to higher risks as a result. The documents are part of a mortgage securities case in which Credit Suisse is a defendant.

In this mortgage securities lawsuit, brought nearly four years ago, Cambridge Place Investment Management is seeking $1.8 billion in damages on about 200 mortgage securities that it purchased from over a dozen banks leading up to the economic crisis. The asset management company has settled with most of the banks, with Credit Suisse among the few exceptions.

Issuing a statement, a spokesperson for Credit Suisse said that the firm felt confident that the evidence in its totality would demonstrate that its due diligence practices were dependable and healthy. However, the documents, once confidential, are causing some to wonder why the bank decided to combat rather than settle the different mortgage securities cases filed against it, including those submitted by the New York attorney general and the Federal Housing Finance Agency.

Muni Bond Investors Pay Twice More In Commissions than When Investing in Corporate Bonds, Reports The Journal

Published on: March 10, 2014 | by Shepherd Smith Edwards & Kantas, LLP

According to a study for The Wall Street Journal, investors in municipal bonds are paying trading commissions that are around twice as high as those for corporate bonds. Individuals continue to be the largest participants in the muni bond industry, currently valued at $3.7 trillion, because these bonds are considered pretty safe and have interest payments that are not taxed.

The municipal bond industry offers funding to cities, states, school districts, and hospitals. While regulators have largely overlooked municipal debt in the last two decades, lately they are scrutinizing these securities more closely. That said, unlike corporate bond and stock brokers, who are obligated to reveal market price and provide “best execution” on trades to individuals to make sure they get the best prices, brokers in the muni bond industry aren’t held to the same duties, making it easier for them to buy bonds at low prices and sell them at high ones.

This can leave many investors vulnerable to fees and pricing that they should be protected from. For example, The Journal cites an example of one Massachusetts man who sold bonds promising a 5% yearly interest from his home state in two lots at $100K each in July 2013. The next day, he sold the same amount of bonds to investor at $1060/bond—making about $112,000. Municipal Securities Rulemaking Board records show that for that month, brokers in Massachusetts sold $1 million in state bonds to investors with a 3% average markup than what they actually paid—that’s a $30,000 profit.