Investor Lawyers Blog

Securities America & Ameriprise Among Independent Broker-Dealers Charged $10.75M by Massachusetts for Non-traded REIT Sales

Published on: September 4, 2013 | by Shepherd Smith Edwards & Kantas, LLP

Massachusetts Secretary of the Commonwealth William Galvin just announced that independent broker-dealers Ameriprise Financial Services (AMP), Securities America Inc., Commonwealth Financial Network, Lincoln Financial Advisors, and Royal Alliance Associates have consented to pay another $10.75 million in restitution over non-traded REITs that were sold to clients between 2005 and now. The added charge comes four months after the five independent brokerage firms consented to pay $6.1 million in restitution and $975,000 in fines. It was investors’ complaints that spurred the regulator’s investigation into the REITs.

Along with LPL Financial (LPLA) consenting to pay $4.8 million in restitution to clients for its sale of non-traded REITs, that’s a total of $21.6 million in restitution and fines of nearly $1.5 million from the six IBDs. In a statement, Galvin acknowledged the popularity of these risky investments. The regulator noted that the state’s probe discovered problems pertaining to firms adhering to their own policies and that this was a widespread matter. He also said that there appeared to be issues related to brokerage firms abiding by the state rule that investors cannot buy REITs that are over 10% of an individual’s liquid net worth.

Our REIT lawyers represent investors that have sustained huge losses because of the negligence of brokerage firms, investment advisors, and their representatives. Contact our securities fraud law firm today. We work with clients throughout the US, as well as investors based abroad with claims against firms based in the country.

FINRA Fines Expected to Drop 41% in 2013

Published on: September 4, 2013 | by Shepherd Smith Edwards & Kantas, LLP

Even though the number of disciplinary actions from the Financial Industry Regulatory Authority has dropped just slightly this year, fines paid to the SRO are expected to be 41% lower from what was assessed in 2012.

In its Disciplinary and Other FINRA Actions report for the first half of 2013, FINRA said there were $23 million of fines—compare that to the same time period last year when the SRO fined brokerage firms and associated individuals $39 million. The total in fines it would assess for 2012 would reach $78 million. This year’s total is estimated to reach $46 million.

One reason for the decline might be that FINRA had already brought its biggest cases related to the market collapse. A decrease in supersize fines of those over $1 million has also occurred during the year’s first six months. However, in July, the SRO reported fining a financial firm $7.5 million while another had to pay investor restitution of $1.5 million. Supersize fines were also imposed on other broker-dealers.

SEC Votes to Amend Broker-Dealer Financial Responsibility Rules

Published on: September 2, 2013 | by Shepherd Smith Edwards & Kantas, LLP

By unanimous decision, the Securities and Exchange Commission has agreed to amendments to the Securities Exchange Act or 1934’s rules regarding customer protection, net capital, notification, and record books for broker-dealers. The regulator is seeking to enhance protections for investors and prevent business practices that are not sound.

Under The Act, broker-dealers have to satisfy certain financial requirements so that customers are protected in the event of the firm’s financial failure. The Act offers safeguards so that customer funds and securities being held by a broker are protected.

The Customer Protections Rule

NCUA Accuses Morgan Stanley Of $556M Mortgage-Backed Securities Fraud

Published on: September 2, 2013 | by Shepherd Smith Edwards & Kantas, LLP

The National Credit Union Administration is suing Morgan Stanley (MS) for mortgage-backed securities fraud. In its MBS lawsuit, the NCUA said that it misrepresented $556 million of the securities that it sold to two credit unions, Western Corporate Federal Credit Union and U.S. Central Federal Credit Union, which are now no longer in operation.

Morgan Stanley is just one of several banks, including Barclays (BCS) and Goldman Sachs (GS) to get hit by securities cases accusing them of strapping such unions with millions of dollars in beleaguered loans. The bank and its affiliates are being blamed for purportedly making misleading statements about the risks involved, as well as about the underwriting standards for originating home loan securities that sold between 2006 and 2007.

According to the regulatory agency’s MBS lawsuit, the originators were systematic about moving away from the underwriting guidelines stated in the offering documents and that the securities were headed toward failure from “inception.” Because of this, contends the complaint, WesCorp and US Central suffered losses in the million dollars as the housing market collapsed and they eventually became insolvent. They both were put into conservatorship and later liquidated.

Securities Headlines: UBS to Pay $4.5M Over Unregistered Assistants, $6M Ponzi Scam Allegedly Funded Reality Show, & Cherry Picking Allegations Lead to SEC Charges

Published on: August 30, 2013 | by Shepherd Smith Edwards & Kantas, LLP

UBS Settles Unregistered Assistant Allegations for $4.5M

UBS AG (UBS) has agreed to pay $4.5 million to settle state regulator allegations that its assistants may not have been licensed in the states where they conducted business. The New Jersey Bureau of Securities, which led the securities case, contends that for about six years, the financial had “client service associations” that lacked the necessary state registrations take orders.

An unknown amount of unsolicited trades were reportedly involved in these transactions between 2004 through 2010 when UBS had about 2,277 sales assistants on staff. The fine will be divided between the 50 States, DC, Virgin Islands, and Puerto Rico. By settling, the Zurich-based bank is not denying or admitting to the allegations. However, in late 2010 it modified its order-entry system so that employee state-registration statuses could be validated.

Securities and Exchange Commission Report: Enforcement Division & OCIE Collaborate, Broker-Registration in Private Funds, Conflict Minerals Regulation, Short Sale Rules, and New Commissioner Confirmations

Published on: August 30, 2013 | by Shepherd Smith Edwards & Kantas, LLP

Lawyers Not Happy About Growing Collaboration Between SEC’s Enforcement and OCIE

A number of lawyers have expressed dismay that the collaboration efforts between the Securities and Exchange Commission’s Office of Compliance Inspections and Examinations and its Enforcement Division are increasing. There is concern that examinations are ending up becoming the start of later investigations. For example, examiner interviews with the employees of registrants can later turn into the basis of enforcement actions, and some attorneys say this brings up issues of due process.

Meantime, SEC officials have acknowledged the growing collaboration between these two divisions.

NY AG’s ARS Lawsuit Against Charles Schwab & Co. is Revived by Appeals Court

Published on: August 29, 2013 | by Shepherd Smith Edwards & Kantas, LLP

A New York Appellate Division’s panel has unanimously agreed to revive the state attorney general’s auction-rate securities lawsuit against Charles Schwab and Co. (SCHW). The 2009 securities case accuses the financial firm of committing fraud in its sale and marketing of the financial instruments. The decision reverses a state judge’s ruling to throw out the complaint.

According to the NY ARS lawsuit, the broker-dealer’s brokers made false representations that the securities were safe and liquid. In a 4-0 decision, the appeals panel said that the state had given enough evidence to merit a trial on two claims submitted per its Martin Act, a 1921 law that gives the attorney general of New York the ability to prosecute fraud without proof of intent. Under the law fraud is defined as acts that involve misleading or fooling the public.

Per the panel’s ruling, the claims are revived only as it pertains Schwab’s alleged misconduct before 9/5/07, which is when the first ARS sold by Schwab failed. The state wants the company to repurchase securities from customers and pay civil penalties and restitution.

JPMorgan Found Liable in Billionaire’s Subprime Mortgage Lawsuit for Over $50M in Damages

Published on: August 28, 2013 | by Shepherd Smith Edwards & Kantas, LLP

In the State Supreme Court in Manhattan, Justice Melvin Schweitzer found JPMorgan Chase (JPM) liable for breach of contract when it put high-risk subprime mortgages in an account held by investor Leonard Blavatnik. Now, the financial firm must pay the Russsian-American billionaire more than $50 million in damages–$42.5 million for the breach and 5% interest from beginning May 2008. However, JPMorgan was not found liable for negligence.

Blavatnik, who Forbes magazine says is the 44th wealthiest person in the world, filed his securities fraud case against JPMorgan in 2009. He contended that the investment bank lost over $100 million on about a $1 billion investment made by CMMF L.L.C., which is a fund that Access Industries, his company, created. He says JPMorgan promised him that the money would be invested conservatively but instead breached a 20% mortgage-backed securities limit when it misclassified securities that were backed by a subprime loans pool—ABS home-equity loans—as asset-backed instead of as MBSs.

Access, Blavatnik’s company, claims that the bank kept holding the securities even though it knew that they were not right for the portfolio. In May 2008, CMMF shut down the account.

Lloyds, Barclays, to Set Aside Hundreds of Millions of Dollars for Allegedly Mis-Selling to Victims

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

Britain’s largest banks expected to set aside hundreds of millions of dollars to compensate customers that were the alleged victims of mis-selling. As of the end of July, the Big Four Banks reportedly had budgeted at least $20.2 billion (the figure was converted from pounds) to pay back clients that were mis-sold insurance policies. Lloyds Banking Group (LLOY) and Barclays (BCS) are among the institutions needing to pay such provisions.

According to the Financial Conduct Authority, in April and May both, banks across Britain paid just over $642.6 million in compensation. This is a significant jump from February, when they paid $625.7 million and in March when the amount as $573.75 million U.S. dollars.

Borrowers bought payment protection insurance (PPI) policies, which were supposed to guarantee that they could pay back loans if they were no longer able to work or became unemployed. That said, the policies were purportedly sold to customers that either would not have been able to avail of the coverage because they were either on benefits or self-employed or people that didn’t want to be covered.

FINRA Enhances Its Arbitrator Vetting Policy

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

The Financial Industry Regulatory Authority is refining its new policy for looking into its arbitrators. The move is seen as even more essential in the wake of a court’s decision to dismiss an arbitration ruling that was decided on in part by someone who was indicted during a case against financial firm Goldman Sachs (GS).

Among the steps to be implemented is the use of Google to run searches on arbitrators right before they are appointed to a FINRA arbitration case. The SRO is also preparing to run annual background checks on its 6,500 arbitrators even after being checked when they applied for the arbitrator position.

The industry-funded watchdog’s actions are coming into effect at the same time as lawmakers are upping the pressure to put a stop to broker-dealers making investors arbitrate disputes-an agreement they consent to when they agree to work with the brokerage firm. This causes customers to forfeit their right to go to court over the disagreement. Meantime, consumer groups have been pressing the SEC to place restrictions on the arbitration agreement practice, and a new bill introduced by US Rep. Keith Ellison (D-MN) would modify the Dodd-Frank Wall Street Reform and Consumer Protection Act so that these mandatory agreements are banned.