Investor Lawyers Blog

FINRA Bars Ex-LPL Broker Over Nontraded REIT Sales

Published on: December 27, 2013 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority has barred ex-LPL Financial (LPLA) representative Gary Chakman over securities industry rule violations related to the sale of non-traded real estate investment trusts. Chackman was registered with the brokerage firm from 2001 until 2012. LPL then ended his registration with the firm for purportedly violating its procedures and policies related to alternative investment sales.

According to the SRO, Chackman “recommended and effected” transactions that were unsuitable in several LPL customer accounts. He did this by overconcentrating clients’ assets in illiquid securities, including REITs. Chackman is also accused of falsifying LPL documents to avoid firm supervision and making the broker-dealer’s records and books inaccurate because he turned in purchase forms misrepresenting clients’ liquid net worth.

FINRA’s settlement letter says that when Chackman submitted falsified documents, this allowed him to increase how much of customers’ accounts could be concentrated in REITs and other investments even though these amounts went over LPL’s allowed allocation limits. The alleged overconcentration took place between January 2009 and February 2012.

FINRA Considers System That Would ‘Red Flag’ Customer Accounts at Brokerage Firms

Published on: December 27, 2013 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority is looking at a system that would let the SRO run analytics on the customers accounts at brokerage firms that would allow it to identify “red flags” involving business and sales misconduct involving branches, firms, and registered representatives. The agency is now seeking comments for its proposal for the Comprehensive Automatic Risk Data System (CARDS).

Upon implementation of CARDS, clearing firms and self-clearing firms would regularly turn in, in standardized, automated format, specific data about customer accounts and the customers accounts of each member account that they clear for. This would allow FINRA to conduct analytics so it can identify excessive commissions, churning, markups, pump and dump scamps, and mutual fund switches. The information would also be used to examine broker-dealers.

FINRA says it wants to be able to find the risks and red flags earlier. According to a notice from the SRO, the agency says that this type of automated reporting would get rid of some of the one-off reporting that brokerage firms now have to engage in. This would also let FINRA compare broker-dealers and identify trends and patterns in the industry.

Broker to the Stars” Broker Bambi Holzer is Barred from Securities Industry by FINRA

Published on: December 26, 2013 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority is barring broker Bambi Holzer from the securities industry. Holzer is known for representing rich and famous Beverly Hills clients and many others.

Last week, Holzer who has been suspended by FINRA since September, settled with the SRO over the broker fraud charges. The regulator had sued her for allegedly lying to Wedbush Morgan Securities Inc., which is another former brokerage firm, about the net worth of a number of clients when she sold private placement offerings-Provident Royalties preferred shares-that ended up being part of a $485M Ponzi scheme. She is also accused of not reporting a pending regulatory action on her employment history.

Previously, Holzer and UBS PaineWebber Inc., which was another firm she was with, paid at least $11.4M to settle dozens of securities claims by investors accusing her of misrepresenting variable annuities by telling them they came with guaranteed returns. Holzer’s BrokerCheck report is 115 pages long.

Deutsche Bank to Pay $1.9B to FHFA Over Mortgage-Backed Securities Sold to Freddie Mac and Fannie Mae

Published on: December 26, 2013 | by Shepherd Smith Edwards & Kantas, LLP

Deutsche Bank (DB) will pay the Federal Housing Finance Agency $1.9 billion to settle securities claims that it misled Freddie Mac and Fannie Mae about the quality of loans bundled with mortgage-backed securities. Of the settlement, Fannie will get $300 million and Freddie will get $1.6 billion. However, this MBS settlement does not resolve a separate lawsuit filed by the two government-sponsored enterprises against Deutsche Bank and other firms over losses from the alleged manipulation interest rate.

FHFA claims that prior to the financial crisis, a number of financial institutions misled the two mortgage companies about borrowers’ creditworthiness. It wants to get back the $196 million Freddie and Fannie paid to buy what were supposed to be private label MBS.

The regulator says that losses sustained by Freddie and Fannie were from MBS that came from financial institutions selling flawed securities due to home loans in the bonds being more high risk than what the banks said they were. Although Freddie and Fannie didn’t make the loans directly they bought the mortgages from banks and sold them as securities to investors and provided guarantees. When the housing market exploded the two of them bought securities that were privately issued as investments. They also became two of the biggest bond investors. Unfortunately, when the economic crisis eventually hit in 2008, Freddie and Fannie suffered huge mortgage losses. The US Treasury had to lend them over $150 billion just so they could keep running.

Deutsche Bank, Royal Bank of Scotland Settle & Others for More than $2.3B with European Union Over Interbank Offered Rates

Published on: December 24, 2013 | by Shepherd Smith Edwards & Kantas, LLP

Deutsche Bank (DB) has announced that as part of a collective settlement, it will pay $992,329,000 to settle investigations involving interbank offered rates, including probes into the trading of Euro interest rate derivatives and interest rate derivatives for the Yen.

Also paying fines as part of the collective settlement are Royal Bank of Scotland Group Plc (RBS) which will pay $535,173,000 and Society General SA (SLE), which will pay $610,454,000, and three others. In total, the financial firms will pay a record $2.3 billion.

The fines are for manipulating the Euribor and the Yen London interbank offered rate. EU Competition Commissioner Joaquin Almunia said that regulators would continue to look into other cases linked to currency trading and Libor. Also related to these probes, Citigroup (C) has been fined $95,811,100, while JPMorgan (JPM) is paying $108M. Because of Citigroup’s cooperation into this matter, it avoided paying an additional $74.6 million. The two firms reportedly admitted that they were part of the Yen Libor financial derivatives cartel.

Ex-SAC Capital Manager Steinberg is Convicted of Securities Fraud & Insider Trading

Published on: December 23, 2013 | by Shepherd Smith Edwards & Kantas, LLP

A federal jury has convicted former SAC Capital portfolio manager Michael Steinberg for insider trading, conspiracy, and securities fraud. Prosecutors contend that he traded on confidential information that he received from another employee.

Steinberg is one of eight employees at the hedge fund’s Sigma Capital Management division charged with insider trading and the first to go to trial. Six of the others pleaded guilty, including SAC analyst Jon Horvath, who prosecutors said is the one that gave Steinberg the nonpublic information. Horvath, who turned witness for the prosecution, has admitted to exchanging illegal tips with people at different firms. He said that Steinberg pressured him to provide “proprietary” information about technology stocks.

Steinberg is accused of making a number of trades, including ones before Dell’s earnings report in August 2008 went out. He reportedly netted $1 million in trades from this after he started shorting the computer company’s stock following a tip that Dell’s gross margins would fall short of Wall Street’s expectations. Similar tips that Steinberg received about Nvidia reportedly netted the hedge fund over $400,000.

FDIC Sued by JPMorgan Chase in $1B Securities Case Involving Washington Mutual Purchase & Mortgage-Backed Securities

Published on: December 23, 2013 | by Shepherd Smith Edwards & Kantas, LLP

JPMorgan Chase (JPM) is suing the Federal Deposit Insurance Corp. for over $1 billion dollars related to the bank’s purchase of Washington Mutual (WMIH). The financial firm said that the FDIC did not honor its duties per the purchase agreement.

When Washington Mutual suffered the biggest bank failure in our nation’s history during the financial crisis in 2008, FDIC became its receiver and brokered the sale of assets. JPMorgan, which made the purchase for $1.9 billion, says that the FDIC promised to protect or indemnify the bank from liabilities. Regulators had encouraged the firm to buy Washington Mutual hoping this would help bring back stability to the banking system.

Since then, however, contends JPMorgan, the FDIC has refused to acknowledge mortgage-backed securities claims by investors and the government against the firm. The bank says that the cases should have been made against the receivership instead. (In its lawsuit, JPMorgan says there are enough assets in the receivership to cover a settlement with mortgage companies Freddie Mac (FMCC) and Fannie Mae (FNMA) and other claims, such as a slip and fall personal injury case involving a Washington Mutual branch.) Meantime, the FDIC maintains that JPMorgan is the one who should be accountable for any liabilities from its acquisition of Washington Mutual.

New Jersey Files Securities Lawsuit Against Credit Suisse Over $10B in MBS Sales

Published on: December 20, 2013 | by Shepherd Smith Edwards & Kantas, LLP

The New Jersey Attorney General John Hoffman is suing a Credit Suisse Group AG (CS) for securities fraud. The state’s regulator contends that the bank misrepresented the risks on over $10B in home loan-backed securities.

According to the mortgage-backed securities lawsuit, Credit Suisse is accused of failing to disclose that loan originators it employed had records of delinquencies and defaults and that some had even been suspended from working with the bank. The state’s attorney general claims that even though Credit Suisse’s traders were unwilling to hold the securities on the books of the bank, the latter was selling them to customers. Also, alleges the complaint, the despite receiving tens of millions of dollars in reimbursement from loan originators for the faulty loans, Credit Suisse did not give the money to the trusts that owned the loans.

A representative for Credit Suisse says the mortgage securities case is meritless. The bank is facing a similar lawsuit filed against it by New York’s attorney general.

The JOBS Act: SEC Proposes Raising Small Stock Deal Limits

Published on: December 20, 2013 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission wants to up by 10 times how much money companies can raise via a simplified public offering. Under their proposal, firms could raise up to $50 million, instead of just $5 million, while giving investors less disclosures than what public companies are obligated to provide. The measure, which has just been issued for public comment, is the Jumpstart Our Business Startups Act’s last big requirement.

The JOBS Act was established to assist small business in going public and raising capital. Currently, it lets the SEC preempt states from overseeing Regulation A offerings if only “qualified” buyers are allowed to purchase the the deals or if they are offered via a stock exchange. However, the SEC has to approve the offerings and companies employing the exemption have to get approval by regulators in each state where shares were sold. It is this review by the states of Regulation A deals that reportedly have been a biggest hassle because each state has its own standards for whether to approve offers.

It was Congress and the 2012 Jumpstart Our Business Startups Act that mandated revisions to the Commission’s Regulation A so that investors will want to get behind smaller companies. According to a Government Accountability Office report, in 2011, the number of businesses trying to raise money under the current rule dropped to 19—way down from the 116 businesses that did in 1997. Some said that the requirements were too strict for how much money they were allowed to raise.

Ex-NFL Running Back Ricky Williams Files $6M Texas Securities Fraud Case Against His Financial Adviser

Published on: December 18, 2013 | by Shepherd Smith Edwards & Kantas, LLP

Ricky Williams, the ex-NFL and University of Texas running back, is suing Peggy Fulford and King Management Group & Associates for securities fraud. He says that he and his wife were bilked of $6 million. Now, Williams wants an injunction, a restraining order, and damages for breach of contract, theft, and breach of fiduciary duty.

Williams claims that Fulford has been in control of most of his approximately $11 million fortune since 2007 when he and his wife went into an oral agreement with the financial adviser and King Management to have them manage their assets. He says that Fulford told them she had graduated from both Harvard Law School and Harvard Business Law School and that she was licensed to practice law in Texas. Williams is now saying that no record exists of Fulford attending either graduate program or having been admitted to the State Bar of Texas. Fulford lived in Houston between 2011 and 2013 before moving out of state.

Williams says that he and Fulford established a joint checking account at SunTrustBank and that without his knowing or consent she obtained and used a debit card linked to the account. It wasn’t until last year when the IRS called him to ask about his 2010 tax return that Williams discovered that Fulford had removed $6 million from his account via debts, wire transfers, cash withdrawals, and checks and that the money was used for mortgage payments, retail purchases, credit card bills, other debts, transfers to other accounts, and other purposes. She also purportedly pretended to be his wife when she spoke to the government agency.