Investor Lawyers Blog

Regulatory Reform: Delay or Destruction?

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

10 Democrats in the US Senate are calling on the Obama Administration to delay a proposal by the Department of Labor involving retirement plan-related investment advice until after the SEC makes a decision over whether to put out its own proposal about retail investment advice. The Commission is looking at whether it should propose a rule that would up the standard for brokers who give this type of advice. The lawmakers are worried that the two rules might conflict and obligate investment advisers and brokers to satisfy two standards.

Meantime, the Labor Department is getting ready to once more propose a rule that would broaden what “fiduciary” means for anyone that gives investment advice about retirement plans. Its previous proposal in 2010 met with resistance from the industry and some members of Congress. Even now there are also Republican lawmakers that want the DOL to wait until after the SEC makes a decision.

Commission Chairman Mary Jo White says she would like the agency to make this decision as “as quickly as we can.” Also, earlier this month she said it would be “premature” to talk about whether the regulator will change or withdraw a recent proposal to amend Regulation D to improve requirement for companies wanting a more relaxed general solicitation arena.

Financial Firms In The Spotlight: Raymond James Gives RIA’s Access to Alternative Investments, Citigroup’s $730M Bondholder Settlement is Approved, JPMorgan Deals with China-Related Hirings Inquiry, & Merrill Lynch’s Future as an Entity is Uncertain

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

Affiliated RIAs of Raymond James to Get Access to Firm’s Alternative Investments

The Raymond James Alternative Investment Group will give its affiliated registered investment advisers access to hedge funds, private real estate, managed futures, private equity, and alternative mutual funds beginning next month. The move is part of Raymond James’ (RJF) attempt to strengthen its RIA platform.

Already, it has added more support services for investment advisers in the areas of marketing, practice marketing, and succession planning. The financial firm also brought in four regional directors for recruiting and existing practices while cutting equity ticket charges and waving certain individual retirement account fees.

Ex-JPMorgan Traders Get Criminal Charges Over the Allegedly Fraudulently Inflating Investments’ Value to Hide Massive Trading Losses

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

Earlier this month our securities law firm reported that the US Department of Justice was planning to bring criminal charges against Julien Grout and Javier Martin-Artajo, two ex-JPMorgan Chase & Co. (JPM) trading specialties. The charges, including conspiracy, wire fraud, falsification of books and records, and falsification of SEC records, now have been filed. The government contends that they conspired to conceal huge trading losses and made false statements to regulators.

According to U.S. Attorney Preet Bharara, the men purposely lied about the “fair value of billions of dollars in assets” on the firm’s books to conceal massive losses that continued to grow each month. He says that the trading losses would eventually total over $6 billion and involved credit default swaps and other synthetic derivative products.

The portfolio had tripled in worth to about $157 billion in net national positions between 2011 and 2012, and JPMorgan made about $2 billion in profits from 2006 through 2012. But when traders began to take large derivative positions, there were big financial losses and the portfolio began to lose money—over $185 million between January and February of 2012 alone.

US DOJ To Bring Charges Against Those Accountable for 2008 Financial Crisis

Published on: August 22, 2013 | by Shepherd Smith Edwards & Kantas, LLP

According to The Wall Street Journal, US Attorney General Eric Holder wants Wall Street to know that the Justice Department is getting ready to bring criminal and civil securities fraud charges against those accountable for the financial crisis of 2008. Cases against a number of large financial firms are likely. During his interview with the WSJ, Holder said that “No individual, no company is above the law.”

Holder has been criticized, along with the Obama Administration, of not doing enough to file criminal charges against financial firm executives over the 2008 meltdown. However, recent disclosures indicate that the US government is going after new prosecutions of possible wrongdoing involving mortgage-backed securities.

After that industry’s fast growth led to the housing bubble, which then burst, resulting in a credit crisis, financial institutions were left with securities that dropped in value. DOJ officials also say that prosecutors continue to be involved in probes involving RMBS.

FINRA NEWS: Goldman Sachs Appeals Vacating of Securities Award, Non-Customers of Brokerage Firm Can’t Compel Arbitration, & Three Governors Named To FINRA Board

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

Goldman Sachs Wants Third Circuit To Look at Vacated Arbitration Award

Goldman Sachs (GS) wants the U.S. Court of Appeals for the Third Circuit to look at a decision by a lower court to vacate a FINRA securities award issued by a panel member that included arbitrator Demetrio Timban, who was indicted on criminal matters and suspended. The securities case is Goldman Sachs & Co. v. Athena Venture Partners LP and involves an investor accusing the firm of making misrepresentations. The U.S. District Court for the Eastern District of Pennsylvania remanded the award, which favored the financial firm.

The district court said FINRA didn’t give the parties three arbitrators who were qualified and said the respondent’s rights were prejudiced. Judge J. Curtis Joyner said that therefore, a “final and definite award” was not issued. Following the scandal involving Timban, FINRA said it now would perform yearly background checks of arbitrators and other reviews before they are given a case.

Attorney Generals Want Securities Cases Against Standard Poor’s To Go Back to State Courts

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

The attorneys general of Washington, Arizona, South Carolina, Arkansas, Pennsylvania, Colorado, North Carolina, Delaware, Missouri, Idaho, Maine, Mississippi, Indiana, Tennessee, and Iowa want their securities cases against Standard & Poor’s Rating Services and its parent company The McGraw-Hill Companies Inc. sent back to their state courts. They contend that the cases don’t have federal jurisdiction.

The AGs submitted their consolidated brief in the U.S. District Court for the Southern District of New York. They say that the states’ respective complaints are exclusively state law action causes and the credit rating agency can’t use affirmative defenses to put together federal jurisdiction.

It was the U.S. Judicial Panel on Multidistrict Litigation that moved the 15 state securities lawsuits against Standard & Poor’s to New York’s federal court. Panel chairman Judge Kathryn Vratil, who presides over the U.S. District Court for the District of Kansas, said that they had determined that the “actions involve common question of fact” and centralizing them would be more convenient and expedient for everyone involved. One common “question of fact” was over whether the credit rater “intentionally misrepresented” that its structured finance securities analysis was unbiased, autonomous, and not impacted by its business ties with securities issuers.

LPL Financial Places Independent Reps Under Supervision

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

LPL Financial Inc. (LPLA) is no longer allowing independent representatives to supervise themselves and will impose a fee increase on some 2,200 one-person shops. These changes are among the firm’s steps to restructure oversight and compliance. With over 13,000 registered investment advisers and financial representatives, LPL is the biggest independent-contractor brokerage firm.

The reps that opt to have LPL Financial home office supervise them will pay a fee hike of $4,800 in 2015. Reps with one-adviser shops can also choose to have an existing office of supervisory jurisdiction (OSJ) that is qualified to supervise them, which cost them another 5% on production. They would pay 4% – 30% of gross fees and commissions. Those that pay the most would get more service.

These changes come right before the Financial Industry Regulatory Authority will enact its consolidated supervision rule 3110 that will mandate that firms provide an on-site supervisory structure for single-person OSJs that would employ designated senior principals. Generally, industry regulators have been wary of these solo OSJs because of insufficient oversight over the investment product recommendations that representatives make to clients. LPL spokesperson Betsy Weinberger says these modifications are the latest in the broker-dealer’s efforts to enact better compliance oversight and ensure company success and growth.

Harbinger Capital and Hedge Fund Adviser Philip Falcone To Settle SEC Fraud Charges by Paying Over $18M and Admitting Wrongdoing

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

The SEC says that Philip A. Falcone and his Harbinger Capital Partners will pay over $18 million and admit wrongdoing related to its securities fraud case alleging the improper use of $113 million in fund assets to cover the hedge fund advisor’s personal taxes. The Commission also is accusing them of secretly placing a preference over specific customer redemption requests at cost to other investors and performing an improper “short squeeze” involving bonds that were put out by a Canadian manufacturer.

Not only are Harbinger and Falcone admitting wrongdoing but also they are acknowledging that they committed numerous acts of misconduct that hurt investors and got in the way of the securities market’s proper functioning.

Admissions by Falcone and Harbinger, as set out by papers submitted to the court:

AIG Shuts Down Customers’ Bank Accounts in the Wake of Dodd-Frank Limits

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

American International Group (AIG) will give its banking unit back their money and close out their accounts. The move is because the Dodd-Frank Wall Street Reform and Consumer Protection Act has imposed limits on insurers that have units that take deposits.

In a letter to clients, the insurance giant said that retail deposit accounts would stop being serviced as of September 30 and AIG Bank will become a “trust-only organization.” Interest will be included in the fund returns.

AIG is streamlining its focus before rules limiting proprietary trading and investments by insurance companies in banking units in hedge funds or private equity go into effect. Already, Allstate Corp., Hartford Financial Services Group Inc., MetLife Inc. (MET) have stepped back from banking or sold deposits because of greater regulator oversight.

New York Subpoenas 22 Digital-Currency Companies and Investors Over Bitcoin

Published on: August 17, 2013 | by Shepherd Smith Edwards & Kantas, LLP

The New York State Department of Financial Services has subpoenaed a number of investors and digital-currency companies to better understand the Bitcoin (XBT) arena. Letters were sent to key players requesting information about consumer protections, money laundering controls, pitch books, source funding and investments strategies. Among the subpoenaed are Bitcoin exchanges and processors, major investors, and others, including ZipZap, Google Ventures, Winklevoss Capital Management, and Tribeca Venture Partners.

NYSDFS superintendent Benjamin Lawsky says that the financial regulator believes it is essential that there be proper regulatory standards for virtual currencies that will benefit the industry in the long run. The department wants to unearth illegal activities and ensure that the money of Bitcoin companies customers’ are safe. (Consumers have reportedly been complaining about the speed that virtual currency transactions are being processed.) When there is no other primary regulator NYSFDFS is allowed to establish regulation.

It is important to note that just because a subpoenaed was issued does not mean that any criminal activity occurred.