Investor Lawyers Blog

Securities Case Over Insuring The $160M in Disgorgement Paid to the SEC Goes Back to Trial Court

Published on: July 6, 2013 | by Shepherd Smith Edwards & Kantas, LLP

New York’s highest court has revived a declaratory judgment action against D & Liability insurers after finding that the Securities and Exchange Commission order mandating that Bear Stearns (BSC) pay $160M in disgorgement failed to establish in a conclusive manner that payment could not be insured. The securities lawsuit is J.P. Morgan Securities, Inc., et al. v. Vigilant Insurance Company, et al.

Claiming that Bear Stearns engaged in market timing mutual fund trades and illegal late trading and for certain clients over a four-year period, the SEC wanted $720M in sanctions from the firm. The financial firm, however, argued that the activities only caused it to make $16.9M in revenues. A settlement was reached ordering Bear Stearns to pay $160M in disgorgement and $90M in penalties, with the firm not having to deny or admit to the Commission’s claims.

A declaratory action followed with a plaintiff in the New York Supreme Court seeking to have D & O insurers pay for $150M of the $160M disgorgement. Citing New York law, the insurers argued that the case should be dismissed, noting that under state law disgorgement is not insurable. A lower court turned down these contentions, denying the motion.

Mandatory Securities Arbitration vs. Court? The Debate Rages Past the Quarter-Century Mark

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

Should investors have the option to resolve their securities claims not just in arbitration but also in court? Recently, Senator Al Franken (D-Minn) voiced his opinion that offering investors both options would be fairer. His comment came weeks after SEC Commissioner Luis Aguilar publicly spoke out against mandatory arbitration, noting that letting investors choose between the court system or Financial Industry Regulatory Authority arbitration would give them better protections. Right now, investors have to agree to resolve any disputes that arise with a brokerage firm or investment adviser through arbitration rather than litigation before their working relationship can go forward.

However, as Claimant Investors’ Attorney William Shepherd noted, the debate of whether to go to the court or arbitration is a debate that has going on for some time now: “This dispute began in 1987 when the U.S. Supreme Court first decided that, because arbitration had become ‘fair,’ investors could no longer choose court if an arbitration agreement had been signed.”

Is it fair to let investors choose between having their claims heard in arbitration or by the judicial system? We definitely need a legal process that lets investors get redress efficiently and with the least amount of struggle.

District Judge Not Inclined to Toss $5B Securities Fraud Case Against Standard & Poor’s

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

A U.S. district judge in California has put out a tentative decision in the $5B fraud lawsuit against Standard & Poor’s indicating that he will likely reject a motion to dismiss the civil case against the credit rating agency. Judge David Carter said he needs more time to come up with his final ruling, which is expected on July 15, but for now, he is turning down S & P’s request to toss out the case outright.

Federal prosecutors sued S & P contending that the credit rater chose not to alert investors that the housing market was failing in ‘06 and inflated high-risk mortgage investments’ ratings. The Obama Administration said the ratings agency did not act fast enough to put downgrade a large number of subprime-backed securities despite realizing that home prices were dropping and borrowers were finding it hard to pay back loans. Instead, collateralized debt obligations and mortgage-backed securities continued to receive elevated ratings from the top credit rating agencies, allowing banks to sell trillions of these investments.

Contending that the credit rater committed fraud by making false claims that its ratings were objective, the US Department of Justice wants S & P to pay $5 billion in penalties, The government believes that between 9/04 and 10/07, S & P delayed updating both its ratings criteria and analytical models, which means the requirements were weaker than what analysts say should have been necessary to ensure their accuracy. During this time, S & P credit rated about $1.2 trillion in structured products related to $2.8 trillion worth of mortgage securities and charged up to $750 per rated deal. The government says that this means that S & P saw the investment banks that put out the securities as its primary customers.

Texas Securities Fraud?: Death of Private Wealth Manager with Invesco Ltd. Reveals that Millions of Dollars May Be Missing

Published on: July 3, 2013 | by Shepherd Smith Edwards & Kantas, LLP

The passing of S. Mark Powell, who runs Invesco Ltd.’s (IVZ) Atlantic Trust Private Wealth Management, has exposed the vulnerabilities of some of the wealthiest members of Texas’s investment community. Powell was found dead in May, and, since then, investors have been stepping forward to say they lent him millions of dollars, some of which seem to have disappeared.

A spokesperson for Invesco issued a statement after Powell’s passing saying that the company now knows about “unusual transactions” that the fund manager seems to have been involved in outside his work with the fund management company, and it has notified the authorities of the possible Texas securities fraud. However, Invesco says that it has no reason to think that its clients’ accounts were impacted.

The Wall Street Journal says that a number of wealthy Texas investors have said that they know of dozens of others like them that had entrusted Powell to invest their money. Powell reportedly offered different kinds of private ventures while offering large guaranteed returns. One downside of investing in such ventures is that they can come with some significant risks. Investors in Dallas, Austin, Houston, and other Texas cities may be affected. Please contact our Texas securities lawyers at Shepherd Smith Edwards and Kantas, LTD, LLP to request your free case evaluation.

Financial Firms in the Headlines: UBS Charges Financial Planning Fees, MF Global Customers Seek to Cap Ex-Leaders’ Legal Defense Expenses, Ex-Thompson REIT CFO is Suspended

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

UBS Wealth Management Customers Now Paying a Fee for Financial Plans

UBS (UBS) Wealth Management Americas is now charging a fee for the financial plans that advisers are customizing for the firm’s clients. According to the head of the wealth management advisor group head Jason Chandler, this new policy wasn’t implemented to up firm revenues, although it has. Rather, it was set up to increase the level of commitment clients have to their plan, which he say is what happens when they have to pay money for one.

To date this year, the company has made $3 million in financial plan fees, up from $1.4 million from last year. The average fee amount is $4,100. Advisers who design the financial plans are getting 50% of the fee that they charge, while 15% of the fees earned from the plans end up in expense accounts for them.

Sonoma County Files Securities Lawsuit Over Libor Banking Debacle

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

Sonoma County, CA is suing Citigroup (C), JPMorgan (JPM), Bank of America (BAC), UBS (UBS), Barclays (BCS), and a number of other former and current LIBOR members over the infamous international-rate fixing scandal that it claims caused it to suffer substantial financial losses. The County’s securities lawsuit contends that the defendants made billions of dollars when they understated and overstated borrowing costs and artificially established interest rates.

Sonoma County is one of the latest municipalities in California to sue over what it claims was rate manipulation that led to lower interest payments on investments linked to the London Interbank Offered Rate. Also seeking financial recovery over the LIBOR banking scandal are the Regents of the University of California, San Mateo County, San Diego Association of Governments, East Bay Municipal Utility District, City of Richmond, City of Riverside, San Diego County, and others.

The County of Sonoma is alleging several causes of action, including unjust enrichment, fraud, and antitrust law violations involving transactions that occurred between 2007 and 2010, a timeframe during which Barclays already admitted to engaging in interest manipulation. The county invested $96 million in Libor-type investments in 2007 and $61 million in 2008. Jonathan Kadlec, the Assistant Treasurer at Sonoma County, says that an investigation is ongoing to determine how much of a financial hit was sustained. Kadlec supervises an investment pool that is valued at about $1.5 billion for the county. He said that LIBOR-type investments, which involve floating securities with interests that are index-based, make up a small portion of the pool.

FINRA Delays Audit Trail Plan, Proposes Arbitration Rule Changes, Asks for Firm’s Social Media Use Data, Warns About Cybersecurity Breaches

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

FINRA Wants Broker-Firms to Provide More Data About Social Media Use

The Financial Industry Regulatory Authority has sent target examination letters to broker dealer members regarding their use of social media. The SRO warned that electronic and written communication may be subject to spot checks and it wants to know how the firms are using social media, what platforms they employ, and the names of the people that post on these sites. FINRA is also interested in each firm’s written supervisory procedures about this type of online communication that were in effect between February 4 and May 4, as well as what steps were taken to make sure that compliance was in effect.

SEC Seeks Comments on Proposed FINRA Arbitration Changes

Lawmakers Address Securities Bills Regarding Audit Rotation Requirements, Dodd-Frank, M & A Business Broker Registration, & Senior Fraud

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

New Bill Pushes to Modify Registration of Certain Brokers Involved in Mergers & Acquisitions

A newly introduced bill in the US House of Representatives is seeking simplified registration with the Securities and Exchange Commission for brokers that facilitate acquisition and mergers for private companies with yearly earnings below $25 million and annual gross revenues of under $250 million. Currently, these brokers have to register as broker-dealers with the SEC and seek FINRA membership, but many of them don’t know about these requirements. The bill would exempt these broker-dealers from

Having to become a FINRA member, which means they would not be subject to regulation under the SRO. HR 2274 would amend 1934 Securities Exchange Acts Section 15(b). It seeks to lower regulator expenses of sellers and buyers of privately held companies that are smaller and need professional business brokerage services.

SEC Focuses More Attention On Accounting Fraud, Variable Annuities, & Market-Maker Risk

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

Securities and Exchange Commission Chairman Mary Jo White says that the agency will direct more resources toward going after financial fraud and accounting fraud. She was, however, clear to point out that this did not mean that a new accounting and financial fraud unit would be created, despite calls for one by some industry members. White spoke at the CFO Network 2013, where she also announced that the Commission was modifying its “neither admit, nor deny” settlement practice. This is an announcement that our stockbroker fraud law firm addresses in a different blog post.

The Commission is currently assessing its Enforcement Division’s specialized units, and this review is expected to result in certain size refinements and mandates, as well as the establishment of maybe one or more new units. Enforcement Division co-director George Canellos, however, said that the same reason why such a unit wasn’t set up three years ago when five specialized units (focusing on market abuse, asset management, the Foreign Corrupt Practices Act, public pensions, and municipal securities) were established still holds.

The SEC said then that nearly every regional office has attorneys and experienced accountants they believed are able to handle such cases. That said, the Commission will give over more resources to surveillance and become even more proactive about identifying where there are risks in accounting issues. This will include the Division of Economic and Risk Analysis’s development of an “Accounting Quality Model” that would let the SEC identify financial statement outliers. There also will be more partnering between the Enforcement Division’s Office of the Chief Accountant and the Division of Corporation Finance to come up with more accounting leads.

SEC Tells Financial Firms That Settling Without Denying or Admitting to Wrongdoing is No Longer Allowed in Certain Securities Cases

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

Securities and Exchange Commission Chairman Mary Jo White recently announced that defendants in certain securities cases would no longer be allowed to accompany an agreement to settle with the statement that they are doing so but without admitting or denying wrongdoing. Speaking to a columnist with The New York Times, White said that in certain instances, admissions are necessary for there to be public accountability. However, White also did say that most SEC cases still would be settled under the “nether admit nor deny standard,” which provides the accused incentive to settle while compensation to victims sooner.

The new policy was announced to SEC enforcement staff last week in a memo from George Canellos and Andrew Ceresney, the regulator’s enforcement division co-leaders. They went on to say that in cases that warrant such an admission, if the accused were to refuse then a securities lawsuit might be the next step.

Securities cases that require admissions of wrongdoing will have to satisfy certain criteria, such as intentional misconduct that was egregious, wrongdoing that hurt a lot of investors or put them at risk of serious financial harm, or unlawful obstruction of the Commission’s investigation.

“This policy change is long overdue,” said SSEK Founder and Stockbroker Fraud Lawyer William Shepherd. “Over the past decade, the SEC has accommodated the targets it has been investigating far too often. Only rarely is there the requirement of admission of wrongdoing, and almost never for large financial firms and their management. When one is caught with a hand in the cookie jar, it’s time to say ‘I did it and I’m sorry, rather than “I neither admit nor deny it was my hand.”

The change policy comes in the wake of complaints that the SEC has been to lax with its enforcement, especially when it came to pursuing securities fraud cases against large financial institutions involved in the economic crisis, such as JPMorgan Chase (JPM), Bank of America (BAC) and Citigroup (C), which all settled cases against them without denying or admitting guilt. Having to admit wrongdoing potentially could hurt financial firms because plaintiffs in private securities cases and class action fraud litigation may then cite the acknowledgement of culpability, thereby strengthening their claims. This could force banks to have to pay out millions of dollars than if they hadn’t admitted to doing anything wrong.

S.E.C. Has a Message for Firms Not Used to Admitting Guilt, Stockbroker Fraud Law Firm, NY Times, June 22, 2013

Securities and Exchange Commission

More Blog Posts:
Controversial Democratic Appointee Pushes SEC for Less Talk About Investor and Securities Market Protections and More Action, Stockbroker Fraud Blog, April 28, 2013