Investor Lawyers Blog

$3.8M Colorado Securities Scam Defrauded Over 40 Elderly Seniors

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

The Securities and Exchange Commission is charging Gary C. Snisky with defrauding over 40 senior investors in a $3.8 million Colorado securities scheme. The regulator contends that Snisky, who describes himself as an institutional trader, used insurance agents to sell interests in Arete LLC, which was supposedly more profitable and safer than annuities. He is accused of targeting mainly retired annuity holders, many of whom live in in the state.

According to the SEC, investors were told that their money would go toward buying government-backed agency bonds at discount rates and that the bonds would be used in overnight banking sweeps. Instead, Snisky misappropriated about $2.8 million of investor money to pay for his mortgage and pay sales folk their commissions.

Snisky is accused of bringing in experienced insurance salespersons who could source their existing client base of annuity holders and get them to invest in Arete. He described Arete as an “annuity plus” investment that investors could take principal from and earn interest without penalty (even after a decade) while still benefitting from guaranteed annual returns of up to 7%. The SEC says that the purported institutional trader stressed that the investments were safe and claimed he could get agency bonds backed by the government at a reduced rate and without paying fees for middlemen. He also allegedly drafted documents that salespeople used as offering materials to attract investors, showed the staff fake investor account statements to make it appear as if there were actual earnings, and organized seminars where he met with salespeople and investors.

CommonWealth REIT Shareholders Gets New Vote on Whether to Oust Its Board

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

In the dispute between investors and CommonWealth REIT (CWH) over whether to oust its board, an arbitration panel said that attempts by shareholder to remove trustees were not valid but that a new vote could go forward. Related Cos. and Corvex Management LP, both CommonWealth shareholders, have been trying to get the board of trustees removed because they believe there was mismanagement and conflicts of interest.

They blamed this in part on CommonWealth President Adam Portnoy and his dad (and company founder) Barry owning external management firm REIT Management and Research LLC. The two of them are also on REIT’s board.

Corvex and Related claim that they were able to get support from holders that owned over 70% of the shares to get the trustees taken out. However, CommonWealth not only denies the conflict of interest claims but also contends that per its bylaws the vote was not valid.

Puerto Rico Paid Wall Street Securities Firms $1.4B in $61B of Bond Sales

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

As most investors in Puerto Rican bonds are aware, the territory is billions of dollars of debt and the ratings on many of the bonds the Commonwealth has issued have recently fallen. As a result the value of many Puerto Rican municipal bonds has plummeted over the last few months. Still, even with falling ratings and prices and a looming crisis for the Puerto Rican government, Wall Street firms continue to help the territory borrow money.

Reportedly, Puerto Rico and its public agencies have sold $61 billion of bonds in 87 deals since 2006. With these deals the island paid these US securities firms, their attorneys, and others approximately $1.4 billion. Also, the financial firms were able to charge higher underwriting fees for Puerto Rican municipalities than what they imposed on US cities and states when they were in trouble.

According to the Wall Street Journal the territory has paid approximately $764 million in fees to underwriters, credit raters, attorneys, and insurers in the last seven years while backstopping a lot of the bonds. Citigroup (C) and UBS (UBS) received over half this money for underwriting. And just this August, Morgan Stanley (MS) was a lead underwriter when Puerto Rico’s electric power authority sold $673 million in bonds.

FINRA Bars Broker Accused of Selling Over $18M in Fraudulent Promissory Notes to NBA, NFL Athletes, & Others

Published on: November 21, 2013 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority has banned ex-Success Trade Securities Inc. broker Jinesh “Hodge” Brahmbhatt from the industry. The broker is accused of selling over $18 million in fraudulent promissory notes to 58 investors, which included many National Football League and National Basketball Association athletes. Brahmbhatt’s registered investment adviser firm is Jade Private Wealth Management LLC.

In its letter of acceptance, waiver and consent, FINRA cites Brahmbhatt for failing to show up and testify at a disciplinary hearing about his former employer and its CEO Fuad Ahmed. The SRO is accusing the firm and its chief executive of fraudulent promissory notes sales and filed its complaint in April.

FINRA said that the notes, put out by parent company Success Trade, were sold with the promise of yearly 12% to 26% interest rates. Sale proceeds purportedly went to personal unsecured loans to Ahmad, paid for firm operations, and paid off past investors. FINRA has alleged that Success Trade tried to get note holders to either get stock in the company or roll over notes that were maturing at higher rates.

Municipal Bond News : SEC Offers Small Entity Compliance Guide, MSRB Puts Out Video on Issuance Process, CFTC Offers SEF Regulatory Guidance, & Lawmakers Consider SIPC Reforms

Published on: November 21, 2013 | by Shepherd Smith Edwards & Kantas, LLP

SEC Issues Small Entity Compliance Guide

The Securities and Exchange Commission has put out a small entity compliance guide that explains the new forms and rules involved with the municipal advisers registration regime. Issued in September, the rules and forms implement the Dodd-Frank Act’s Section 975, which mandates that municipal advisers register with the regulator.

Permanent registration dates start the first of next year through October 31, 2014. If an adviser joins up after this time, it will have to apply to register under the permanent regime before engaging in any activities.

RBS Securities Inc. Settles SEC’s Subprime RMBS Lawsuit for $150M

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

RBS Securities Inc., which is a Royal Bank of Scotland PLC. Subsidiary (RBS), has agreed to pay $150 million to settle Securities and Exchange Commission allegations that it misled investors in a $2.2 billion subprime residential mortgage-backed security offering in 2007. The money will be used to pay back investors who were harmed.

The SEC claims the RBS said that the loans backing the offering “generally” satisfied underwriting guidelines even though close to 30% of them actually were so far off from meeting them that they should not have been part of the offering. As lead underwriters, RBS (then known as Greenwich Capital Markets,) had only (and briefly) looked at a small percentage of the loans while receiving $4.4 million as the transaction’s lead underwriter.

SEC Division Enforcement co-director George Cannellos said that inadequate due diligence by RBS was involved. The Commissions also says that because RBS was in a hurry to meet a deadline established by the seller, the firm misled investors about not just the quality of the loans but also regarding their chances for repayment.

US Senator Elizabeth Wants Obama Administration to Break Up Our Biggest Banks

Published on: November 19, 2013 | by Shepherd Smith Edwards & Kantas, LLP

At a recent event hosted by the Americans for Financial Reform (AFR) and the Roosevelt Institute, US Senator Elizabeth Warren (D-Mass) called on the Obama Administration to break up Wall Street’s biggest banks. She also chastised regulators for not dealing with financial institutions that cannot fail because they are just “too big.” This means that because they are so integral to the economy, if the banks are ever in financial trouble, the US government would inevitably have to step in like it did during the 2008 economic crisis so that the entire financial system doesn’t fall apart.

During her speech, Warren spoke about the Dodd-Frank Wall Street Reform and Consumer Protection Act, observing that three years after its enactment it the hasn’t solved this “too big to fail” dilemma. She pointed out that clearly not much has changed between then and now, observing that the four biggest banks (Citigroup (C), JPMorgan Chase (JPM), Wells Fargo (WFC), and Bank of America (BAC) are 30% bigger than they were five years ago. She also noted that the five largest institutions hold over half of the bank assets in the US.

Warren wants to know when the government was going to start ensuring that large Wall Street institutions can’t take the economy down again while leaving taxpayers to foot the bill. She believes her 21st Century Glass Steagall Act could solve this “too big to fail” problem, while making turning these dismantled, smaller banks into institutions that are no longer too big to run, regulate, pursue, or prosecute.

JPMorgan and the DOJ Finalize Their $13 Billion Settlement

Published on: November 19, 2013 | by Shepherd Smith Edwards & Kantas, LLP

After months of back-and-forth, the US Justice Department and JPMorgan Chase (JPM) have agreed to a $13 billion settlement. The historic deal concludes several of lawsuits and probes over failed mortgage bonds that were issued prior to the economic crisis. It also is the largest combination of damages and fines to be obtained by the federal government in a civil case with just one company. JPMorgan had initially wanted to pay just $3 billion.

The $13 billion deal is the largest crackdown this government had made against Wall Street over questionable mortgage practices. US Attorney General H. Eric Holder and other lead DOJ officials were involved in the settlement talks with JPMorgan CEO Jamie Dimon and other senior officials.

The settlement is over billions of dollars in residential mortgage backed securities involving not just the firm but also its Washington Mutual (WAMUQ) and Bear Stearns (BSC) outfits. The government claims that the RMBS were based on mortgages that were not as solid as what they were advertised to be.

Supreme Court to Hear Texas-Based Halliburton’s Class Action Securities Fraud Case Again

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

The US Supreme Court has agreed to hear Halliburton v. Erica John Fund. In it, the Texas-based multinational corporation is appealing a class action securities lawsuit that tests the fraud-on-the market theory. That doctrine became part of securities law in 1988 after the highest court’s ruling in Basic v. Levinson.

The fraud-on-the-market theory is premised upon the efficient markets hypothesis, which is that the price of a stock is a reflection of all public data. This makes it possible for plaintiff attorneys to set up a class action for all the buyers of a stock without having to first prove in court that these purchasers depended upon untrue information from the company and that this caused their losses.

Instead, the doctrine assumes that a company’s stock price can reflect corporate assertions even if they are misleading. As a result lawyers are able to submit securities fraud classes while blaming corporate executives for certain changes in the market value of a company’s stock.

CFTC Votes to Restrict Commodities Trader’ Position Sizes in the Market

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

In a 3-to-11 vote, the Commodity Futures Trading Commission chose to favor restricting the size of any traders’ footprint in the commodities market. This is the CFTC’s second vote on a proposal over “position limit” rules. A rule that it proposed two years ago was turned down by the United States District Court for the District of Columbia after two Wall Street trade organizations sued claiming that the rule would cause prices to become erratic.

The proposal is related to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The CFTC already has rules to limit market speculation but before they were just applicable during the last days before a futures contract delivery and only to specific agricultural commodities.

Now, the agency’s new rules are proposing to set up limitations that are more broad so that they include derivative contracts for 28 kinds of commodities futures contracts, and not just agricultural contracts but also metal and energy ones and regardless of when the delivery date would be. Exemptions for traders with genuine hedging needs would be allowed, as it will be for firm-held positions involving banks with nearly 50% ownership. To avail of exemptions, trading firms would have to prove that they are not in control of an affiliate. Aside from that, just non-consolidated firms will get exemptions.