Investor Lawyers Blog

Man Convicted in $46M Michigan Ponzi Scam

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

David McQueen, of Byron Township in Michigan, was found guilty of 15 felony charges, including those involving money laundering, mail fraud, and failure to file taxes. McQueen is accused of running a $46 million Michigan Ponzi scam that bilked over 800 victims. Many of them gave him their retirement money, cashed in IRAs, and mortgaged their homes so they could invest.

McQueen, a former insurance salesperson, began investing people’s money in Multiple Return Transactions, which promising investors 10% returns. It wasn’t until later that he found out that the MRT was actually a Ponzi scam. However, instead of telling investors in his company, Accelerated Income Group, that MRT was a scam, he told them their funds were secure and growing. He then found new investors and took their money to pay off earlier investors.

According to Assistant U.S. Attorney Matthew Borgula, McQueen paid himself a salary of $100,000 from investor funds. He also gave these customers bogus account statements to make them think that their investments were profitable. The government said that when McQueen discovered that his Michigan Ponzi scam was about to fail, he took 30% of the investors’ money and placed them in highly speculative investment and other scams.

Credit Suisse to Pay $2.6B, Pleads Guilty to DOJ Charges Over U.S. Tax Evasion

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

Credit Suisse (C) will pay $2.6 billion to the federal government and financial regulators in New York after pleading guilty to charges that it illegally helped thousands of American clients avoid paying taxes to the Internal Revenue Service. The U.S. Department of Justice said that for decades through 2009 the Swiss bank ran an illegal cross-border banking business.

This is the first time in years that a financial institution has pleaded guilty to a crime. Among the accusations was that Credit Suisse knew and agreed to help thousands of Americans set up accounts and help them hide their income and assets. Attorney General Eric Holder claims that the bank even got rid of account records, hid transactions, and failed to perform even the most basic steps to make sure clients were in compliance with US tax laws.

The DOJ contends that even after the 2008 US crackdown on Swiss accounts that compelled UBS AG (UBS) and Credit Suisse to become stricter about what services they offer American customers, the latter kept getting in the way of investigators looking into tax evasion allegations. Some Credit Suisse managers even purportedly helped clients transfer their assets to other offshore banks so their assets could stay concealed. Key documents to the DOJ’s probe were either lost or destroyed. Eight ex-Credit Suisse employees have been criminally charged with aiding in the tax evasion.

Insider Trading Roundup: Lawson Software Founders Pay $5.8M to Settle SEC Allegations, Three Sales Managers Face SEC Charges, and Kentucky Mayor Will Turn Over Illicit Profits

Published on: May 16, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Lawson Software Founders Resolve SEC Insider Trading Case

Richard Lawson, his brother William, and John Cerullo have agreed to pay $5.8 million to resolve U.S. Securities and Exchange Commission allegations that they engaged in insider trading prior to the merger between Lawson Software Inc. and two companies: Info Global Solutions and a Golden Gate Capital affiliate. The three men founded the software company.

According to the insider trading case, Richard tipped William and Cerullo that despite media and analyst reports the company was not the focus of a bidding war. This resulted in their selling of 1.8 million in company shares at prices that were inflated because of the speculation. They purportedly made illicit profits of $2 million when they sold the shares.

California Regulators Probe Inland American Real Estate Trust REIT

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

The California Department of Business Oversight is looking into the Inland American Real Estate Trust Inc. This is the largest nontraded real estate investment trust with $9.7 billion in assets. Earlier their year, Inland American announced to shareholders that it would become a self-managed REIT.

Inland American is one of the big REITs that experienced a swift drop in valuation when the real estate market crashed in ’07-’08. While the nontraded REIT is currently not under investigation, state regulators want clarification about the offering price in the recent repurchase of shares of the REIT.

In a letter written last month, the department’s corporation counsel Danielle Stoumbos asked why Inland is selling shares at up to $8.03/share in its distribution reinvestment plan when the share price pursuant to the latest tender offer is just $6.10 to $6.50. The state also wants to know how Inland compensates its manager/internal adviser and whether there might be conflicts of interest.

Prudential’s RMBS Lawsuit Against Bank of America Survives Motion to Dismiss

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

Prudential Insurance Co.’s (PRU) residential mortgage-backed securities lawsuit against Bank of America (BAC) made it through a motion to dismiss with most of the claims made intact. The insurance company is accusing BofA of selling it $2 billion in bogus RMBS.

Prudential contends that based on its own analysis of close to 21,000 of the mortgage loans backing the RMBS certificates, they don’t see a match up with the representations that the bank and Merrill Lynch made about the certificates. Several subsidiaries are also making similar claims against BofA and its Merrill Lynch entities.

Prudential says that Merrill and Lynch and Bank of America abided by underwriting guidelines that established the rules to determine whether to securitize or grant a particular loan. However, the insurer says that while the other two said they would only exempt loans with compensating factors, they granted loan exceptions repeatedly even when these factors didn’t exist. In its securities fraud case, Prudential contends that if exceptions were given when compensating factors were lacking, then that the quality of the collateral behind the certificates was badly compromised.

Jury Says Wyly Brothers From Texas Committed Fraud

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

A jury says that the wealthy Texas billionaire brothers Charles and Samuel Wyly committed fraud by setting up a secret scam using offshores trusts and making $550M in illegal trading profits. The Texas securities ruling of liability is based on claims brought by the U.S. Securities and Exchange Commission.

The civil trial occurred following years of probes and litigation by the SEC and others. While the Wylys (Charles died in a 2011 car crash) admitted to setting up trusts on the Isle of Man for tax benefits, asset protection, and estate planning, they have denied wrongdoing. The brothers maintained that they were under no obligation to disclose the trusts because legally they weren’t the beneficial owners of the securities in them. They said that they relied on an “army of lawyers” to make sure their activities were in compliance with the law.

The SEC said the Wylys set up the trusts to hide trading that took place between 1992 and 2004 in four companies. The brothers were the boards of these four entities.

DOJ’s Fund for Madoff Victims Has Received 51,700 Claims Worth $40B

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

According to Richard C. Breeden, who is overseeing the US Department of Justice’s Madoff Victim Fund, he has received some 51,700 claims worth approximately $40 billion from Ponzi scam victims seeking to recover their losses. That amount is three times more than the claims submitted during the bankruptcy proceedings for Bernard L. Madoff’s firm.

The fund is responsible for giving back $4 billion in forfeited assets to claimants, including those who were indirectly impacted by the Madoff Ponzi scam, such as ” feeder funds,” banks, hedge funds, and other entities that trustee Irving Picard has denied recovery. Picard is only compensating direct investors who were harmed.

Breeden says that the amount of investors seeking recovery are twice as many as previously estimated and their claimed losses are billions of dollars greater than what was documented. Prior to an April 30 deadline, he received over 43,500 claims from those who did not submit to the bankruptcy case. More than 36,000 claims were from those who said they haven’t gotten any of their losses back.

US Wants BNP Paribas to Pay Over $3.5B and Plead Guilty to Criminal Charges

Published on: May 13, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Authorities in the United States want BNP Paribas SA (BNP) to pay over $3.5 billion to settle state and federal probes into the lender’s involvement with countries that are sanctioned, including Iran and Sudan. Prosecutors reportedly would like BNP to plead guilty to criminal charges related to the alleged misconduct. The government’s push for a guilty plea is definitely a shift from previous sanction cases that were usually resolved with a deferred prosecution deal.

The US Justice Department, US Treasury Department, the U.S. Attorney’s office in Manhattan, the New York Department of Financial Services, and the Manhattan District Attorney’s office are the ones who conducted the investigations against BNP Paribas. According to Reuters, last week the bank’s CEO Jean-Laurent Bonnafe and its lawyers met with the New York Department of Financial Services to ask for leniency. A source told the wire service that the state’s banking regulator doesn’t plan to take away BNP Parabas’s license as longa as any deal reached includes certain stiff penalties, such as the temporary suspension of dollar clearing through New York.

US authorities have pursued several foreign banks because they violated sanctions on Iran and other nations. The government believes that these banks did business with entities with ties to these countries, perhaps even stripping information that came from wire transfers so they could get through the US financial system without raising concerns.

Puerto Rico-Based Doral Financial Expected to Default on Over $150M in Muni Bonds

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

Moody’s Investors Service (MCO) and other credit rating agencies are saying that there is a good chance that Doral Financial Corp. (DRL), which is based in Puerto Rico, will default on over $150M muni notes and bonds. Moody’s has downgraded both a note and a bond that was issued by the Puerto Rico Conservation Trust Fund, in which Doral Financial Corp. is the obligor, from Caa3 to C. This is the lowest rating the agency can give before an investment defaults. This prediction comes after regulators determined that receivables from Puerto Rico’s government couldn’t be included in Doral Financial’s Tier 1 capital.

The receivables were $289M out of Doral’s $679M of Tier 1 capital. The regulators’ decision will compel the bank to up its capital or turn in a contingency plan to liquidate, merge, or sell. The plan has to be submitted to the Federal Deposit Insurance Company (“FDIC”).

Moody’s also downgraded senior secured bonds from Doral Properties, a Doral Financial subsidiary, from Caa3 to C, while Fitch Ratings lowered Doral Financial’s issuer default rating from CCC to C (the credit agency’s second lowest possible rating). Standard & Poor downgraded the bank to CC, which is its third lowest rating.

Goldman Sachs Under Investigation Over Hiring Practices, High-Frequency Trading

Published on: May 9, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Goldman Sachs (GS) Group Inc. said it is under scrutiny in probes related to high-frequency trading and whether its hiring practices comply US antibribery laws. This is the first time the firm has publicly disclosed both investigations. The information was made available via Goldman’s quarterly filing with the SEC.

In the bank hiring practices investigation, Credit Suisse Group Ag (CS), Morgan Stanley (MS), UBS AG (UBS), and Citigroup (C) are also under scrutiny. The Securities and Exchange Commission wants to know whether the banks or their staff hired the relatives of well-connected officials in Asia, which could be a violation of the antibribery laws-in particular, the Foreign Corrupt Practices Act, which prevents companies from giving foreign officials items of value in exchange for business. Although it isn’t illegal to hire government officials’ relatives in Asia, hires cannot just be made for the purpose of earning new business.

As for the high-speed trading probe, the US Justice Department, the SEC, New York Attorney General Eric Schneiderman, and the Federal Bureau of Investigation are assessing trades that engage in fast algorithmic trading. Schneiderman wants to know if firms involved in high-speed trading have secret deals with trading venues, such as dark pools and stock exchanges, that lets them trade before other investors.