Investor Lawyers Blog

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.

SEC Goes After Alleged Ponzi Scammers

Published on: November 15, 2013 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission is pursuing securities fraud charges against Wendy Ko and Yin Nan Wang and certain entities over their alleged involvement in a Ponzi-like scam. The regulator is asking for an asset freeze against Velocity Investment Group, its managed funds, and Rockwell Realty Management, Inc. These entities are controlled by Wang and Ko.

The SEC claims that the two of them offered and sold over $150 million securities as unsecured promissory notes through Velocity and its unregistered investment funds. The offerings promised a substantial investment return rate. That said, to fulfill these interest obligations the funds needed to make returns higher than the market average.

Wang purportedly ordered that an accountant be given financial information that included material overstatements of fund receivables. He also is accused of publishing false financial data on a website.

Hedge Funds Are Moving in on Municipal Debt, Including Puerto Rico Debt

Published on: November 15, 2013 | by Shepherd Smith Edwards & Kantas, LLP

According to The Wall Street Journal, hedge funds are starting to bet big on municipal debt by demanding high interest rates in exchange for financing local governments, purchasing troubled municipalities’ debt at cheap prices, and attempting to profit on the growing volatility (in the wake of so many small investors trying to get out because of the threat of defaults). These funds typically invest trillions of dollars for pension plans, rich investors, and college endowments. Now, they are investing in numerous muni bond opportunities, including Puerto Rico debt, Stanford University bond, the sewer debt from Jefferson County, Alabama, and others.

Currently, hedge funds are holding billions of dollars in troubled muni debt. The municipal bond market includes debt put out by charities, colleges, airports, and other entities. (Also, Detroit, Michigan’s current debt problems, which forced the city into bankruptcy, caused prices in the municipal bond market to go down to levels that appealed to hedge funds.)

Hedge fund managers believe their efforts will allow for more frequent trading, greater government disclosures, and transparent bond pricing and that this will only benefit municipal bond investors. That said, hedge fund investors can be problematic for municipalities because not only do they want greater interest rates than did individual investors, but also they are less hesitant to ask for financial discipline and better disclosure.

Securities Whistleblower Roundup: Retaliation Lawsuit Against Thompson Reuters Gets Go Ahead & SEC Issues Its Sixth Bounty Award

Published on: November 14, 2013 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. District Court for the Southern District of New York has rejected Thomson Reuters (Markets) LLC’s motion to have a whistleblower retaliation case dismissed. Instead, Judge Shira A. Scheindlin agreed with the Securities and Exchange Commission’s rule that a whistleblower doesn’t have to tell the regulator to be able to qualify for Dodd-Frank Wall Street Reform and Consumer Protection Act. The judge, however, did throw out the plaintiff’s claim for punitive damages, which he says Dodd-Frank doesn’t allow.

The plaintiff, Mark Rosenblum, is an ex-redistribution specialist who was allegedly let go from his job after he suggested that changing up the distribution time for certain consumer survey data to certain customers was tantamount to insider trading. Rather than telling the SEC he reported his worries internally and to the FBI.

Rosenblum believes he was fired because of what he reported and he says this is unlawful. Thomson Reuters tried to get the lawsuit tossed out claiming that because Rosenblum didn’t tell the SEC and the company, he therefore wasn’t protected under Dodd-Frank. Thomson Reuters cited the Fifth Circuit’s ruling in Asadi v. GE Energy USA, LLC that determined that Dodd-Frank only gives whistleblower protection to those who notify the SEC. That said, the appeals court also admitted that its interpretation wasn’t in line with the SEC or of other courts .