Investor Lawyers Blog

Ex-Employer Wants Would-Be Whistleblower’s Appeal Dismissed In Light of the US Supreme Court’s Ruling Over Alien Tort Statute Claims

Published on: May 8, 2013 | by Shepherd Smith Edwards & Kantas, LLP

In light of the US Supreme Court’s decision in Kiobel v. Royal Dutch Shell Petroleum Co., the attorney for GE Energy (USA) wants the Court of Appeals for the Fifth Circuit to dismiss would-be whistleblower Khaled Asadi’s appeal to have his lawsuit, contending that his firing violates the protections provided to him under the 2010 Dodd-Frank Act, reinstated. Asadi filed his complaint against the company last year claiming that his former employer had violated the whistleblower anti-retaliation provisions. The dual Iraqi and US citizen says that he was let go from his job after he told GE Energy’s ombudsman and his supervisor about a hiring situation that could violate the Foreign Corrupt Practices Act.

A district court, however, threw out his case, finding that, per the Supreme Court’s ruling in Morrison v. National Australia Bank Ltd., applying the anti-retaliation provisions to behavior that happened abroad is precluded. Asadi then went to the Fifth Circuit, arguing that Dodd-Frank protects employees that report violations of any rule, law, or regulation that is under SEC jurisdiction. He claims that these protections extend to US citizens who work abroad and report information about securities violations.

Asadi believes that the way Dodd-Frank incorporates the FCPA supports his claim that the whistleblower protections do have “extraterritorial applicability.” He noted that the anti-corruption statute has a “clear statement rule” that is applicable to individuals and companies outside the US.

FINRA Notifies Brokerage Firms About Non-traded REIT Information that Can Mislead Investors

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

The Financial Industry Regulatory Authority is alerting broker-dealers that the way they market certain non-traded real estate investment trusts could be misleading investors. The regulator said its recent reviews of brokerage firm communications with the public about these investments showed “deficiencies.” The SRO has been trying to improve the sales practices related to illiquid REITs and increase their transparency.

Among the identified information shortcomings:
• Inaccurate and misleading statements about the benefits of investing • Failure to adequately explain the risks involved • Describing a real estate security as a “yield,” which can incorrectly suggest that it is a bond
FINRA said it is necessary for brokerage firms to provide “fair and balanced” distribution rates, while explaining that distribution payments are not a given. The regulator observed that some broker-dealers are prone to highlight these payments, which are given to investors as soon as the nontraded REITs are sold, but fails to inform that some distributions are the return of their principal or borrowed money. FINRA reminded broker-dealers that they have to wait until an REIT has paid distributions for six months before it can make claims about the instrument’s yearly return rate.

The SRO noted that data about related or affiliated REITs should be as prominently visible as other information, and past performance information about REITs involving the current investment being promoted cannot be cherry picked.

REITs and Non-traded REITs
REITs invest in commercial real estate, which gives investors a chance to benefit from the increase in property values, and they are publicly traded. Non-traded REITs, which don’t trade on securities exchange, can be tough to sell in secondary markets or illiquid. Investors usually have to pay higher fees for them.

FINRA has been targeting the improper-sale of non-traded REITs for some time now. This latest notification to brokerage firms doesn’t mention how many broker-dealers it looked at (or which ones) to reach its conclusions.

Our REIT lawyers represent investors throughout the US. For over two decades, Shepherd Smith Edwards and Kantas, LTD LLP has helped thousands of investors recoup their investment losses by going through arbitration via FINRA, NYSE, NASD, and AAA, as well as through the state and federal courts.

FINRA Provides Guidance on Communications With the Public Concerning Unlisted Real Estate Investment Programs, FINRA.org (PDF)

More Blog Posts:
Majority of Non-Traded REITs Underperform Compared to Benchmarks, Reports New Study, Stockbroker Fraud Blog, August 25, 2012
Private REITs: The Need for Tougher Oversight?, Institutional Investor Securities Blog, June 28, 2011
Apple REIT Arbitration: FINRA Rules Against David Lerner Associates in First of Hundreds of Cases, Stockbroker Fraud Blog, May 26, 2012 Continue Reading ›

Investor Files Securities Case Against Fidelity Over Float Income Investments Involving 401(K)s

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

Investor Korine Brown is seeking class action status on behalf of those that also participated in General Motors Inc.’s Personal Savings Plan for hourly employees in her securities case against Fidelity Investments Institutional Operations Co. Inc. and Fidelity Management and Research Co. She is alleging breach of fiduciary duty. This is just the latest investment fraud case over Fidelity’s handling of money that came from planned assets, as well as against other 401k providers.

As of the end of 2011, the plan Brown has been a participant in contained about $46 billion in assets for over 100,000 account holders. The plaintiff claims that Fidelity Research breached its duty when it invested float income into Fidelity funds found in the plan menu.

Float income is money generated from redemptions, contributions, and transfers of planned assets when they are briefly put in in interest bearing accounts. Brown believes that Fidelity Investments Institutional Operations breached its duty when it used the float income, which she says is a plan asset, to take care of operating costs. She claims that Fidelity didn’t let participants and the fiduciaries tasked with administrating the plan know about how the float income was being used.

Congress Regulates the Securities Regulators

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

At a hearing in the US House of Representatives about putting the Jumpstart Our Business Startups Act into effect, Rep. Patrick McHenry (R-N.C.) expressed worry that the Securities and Exchange Commission has lost the power to enforce the private offerings general solicitation ban because the rulemaking for the statutory deadline has come and gone. Per the JOBS Act’s Title II, the SEC could write rules to lift the ban for offerings that take place under Rule 144A and Regulation D Rule 506.

The SEC, which put out a proposal, has yet to make a final rule. SEC Chairman Elisse Walter defended the agency’s actions, noting that a comment period is normal. The Commission has been criticized by Republicans and industry members, who contend that its decision to vote on a proposal instead of interim final rules is a way of kowtowing to investor groups. Walter maintains that she has always favored notice and comment rulemaking to put a provision into effect (per the Administrative Procedure Act).

Meantime, Rep. Maxine Waters (D-Calif.), a ranking member of the House Financial Services Committee, once again introduced a bill that would use industry user fees to fund the SEC’s investment adviser examinations. HR 1627 would make advisers under the Commission’s oversight pay fees to cover the “funding gap” in the oversight program. A similar bill that she previously had presented did not move forward, in part because it was competing with former Committee Chairman Spencer Bachus (R-Ala.)’s legislation to place investment advisers under the oversight of a regulator. That bill, too, did not progress.

State Courts Securities Litigation: Va. County Can Sue Over Bond Offering Advice, Plaintiff’s Breach Claim Against Brother to Go to Jury, & Ruling Affirms that Investment Bank’s Offer to Buy Minority Shares Triggered Company’s First Refusal Rights

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

Fluvanna County, VA Can Sue Over Bond Offering Advice, Says Supreme Court of Virginia

Virginia’s highest court has reinstated a securities fraud lawsuit filed by Fluvanna County, Virginia Board of Supervisors against Davenport & Co. The county claims that the investment concern gave it faulty bond offering advice about the building of a new high school.

The Board said that it depended on this investment advice when deciding to put out standalone bonds that caused it to incur $18 million in excess payments. It then sued Davenport in circuit court, making numerous contentions, including breach of fiduciary duty, gross negligence, and Virginia securities law violations. That court ‘sustained the demurrer with prejudice’ and would not let the board make amendments to pleadings. It said that the separation of powers doctrine won’t let the court resolve the securities case because then it would have to look into the Board’s motives. The latter then appealed.

SEC Accuses Victorville, CA, Underwriter, and Others of Municipal Bond Fraud

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

The SEC has filed securities fraud charges against the city of Victorville, CA, one of the city’s officials, the Southern California Logistics Airport Authority, and Kinsell, Newcomb & DeDios, which underwrote the bonds. The SEC claims that they bilked investors by inflating valuations of property that secured a 2008 municipal bond offering.

According to the regulator, city official Keith C. Metzler and KND owner Jeffrey Kinsell and VP Janees L. Williams are to blame for misleading and false statements put out in the Airport Authority’s bond offering in April 2008. The SEC is also accusing KND of misusing over $2.7 million in bond proceeds to stay in business.

The Commission says that the Airport Authority took on a number of redevelopment projects and financed them by putting out tax increment bonds, and by April 2008 it had to issue even more bonds to refinance a portion of the debt incurred to keep going with these endeavors.

Controversial Democratic Appointee Pushes SEC for Less Talk About Investor and Securities Market Protections and More Action

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

According to Securities and Exchange Commissioner Luis Aguilar, the growing number of registered investment advisers, the increasing complexity of the financial instruments they use, and the recent trends in securities examinations show that there is a need for the regulator to up the vigorousness of its investment adviser examinations and enforcement activities. He noted that even as the SEC is working to give the regulated community best practices and guidance to enhance compliance, it also intends to increase its scrutiny of advisers, including more exams (especially for private fund advisers). Alternative investment managers will also get more attention.

Aguilar pointed out that with the number SEC registered investment advisers having gone up about 50% to over 10,000 last year, the value of the assets that they manage also increasing from about $22 trillion in 2002 to approximately $44 trillion in 2011, as well as a rise in the number of complex financial instruments that advisers use, there are more chances for “mischief” to happen. Hence, there is the need for more robust enforcement.

Also, as our securities fraud law firm mentioned in a previous blog post, the SEC commissioner wants there to be an end to mandatory arbitration agreements. Per the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, the SEC now can prohibit or limit pre-dispute arbitration agreements, which have become standard fare for brokerage firms. Aguilar is concerned that they are also becoming routine for investment advisory firms. He wants the government to ponder the possibility of adopting rules that would stop or limit broker-dealers and investment advisers from mandating that customers sign clauses in their agreements with one another that prevents them from filing securities fraud lawsuits and instead only resolve their disputes via arbitration.

FINRA Plan May Dramatically Change The Way Brokerage Firms Report On Nontraded REITS & Other Illiquid Investments on Client Statements

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

The Financial Industry Regulatory Authority’s board of governors has a plan that could radically modify the way brokerage firms report illiquid investments’ value on the account statements of clients. The SRO, which wants to give investors more transparency in regards to the actual value of such investments, has been trying to modify its rules about REITs and private placement valuations on client statements for well over a year.

Earlier this month, in changes it is proposing to Rule 2340, the FINRA board presented two reporting alternatives for brokerage firms. With the first option, a brokerage firm wouldn’t need to have the per-share estimated value of an REIT or a private placement that is unlisted included in customers’ account statements. The second choice lets a brokerage firm chose from three options:

• A valuation done by an external service at least one time every three years.

Just Because Supreme Court’s Rulings in Amgen and Halliburton Give Defendants Less Tools to Beat Weak Class Certifications But Doesn’t Mean Plaintiffs Can Rest Easy

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

The US Supreme Court’s ruling earlier this year in Amgen, Inc. v. Connecticut Retirement Plans and Trust Funds (and also in Erica P. John Fund, Inc. v. Halliburton Co.) decreases the tools that defendants of federal securities fraud lawsuits have to win against the class certification of weak claims. In Amgen, the Court found that plaintiffs don’t have to prove an alleged misrepresentation’s materiality to certify a class under the fraud-on-the-market theory, while in Halliburton, the Court held that plaintiffs don’t have to prove loss causation to garner class certification.

That said, although the Court’s rulings in recent years often have been considered “pro-plaintiff,” it actually has given securities defendants help in getting rid of the weaker securities fraud cases early on. For example, Bell Atlantic Corp. v. Twombly and Ashcroft v. Iqbal mandate for plaintiffs to demonstrate that their interpretation of specific facts are plausible and beyond merely possible. Also, even with Amgen and Halliburton decreasing the chances of class certification being defeated on the grounds of loss causation or materiality, these issues can still be addressed in motions for partial summary judgment early on. Such a motion might even be submitted simultaneously as one opposing certification.

Our securities fraud law firm represents institutional and individual investors throughout the US. We believe that filing your own securities case increases your chances of recovering as much of your lost investment back. Over the years, Shepherd Smith Edwards and Kantas, LTD LLP has helped thousands of investors recoup their losses.

MF Global Holdings Bankruptcy Trustee Files Lawsuit Against Ex-CEO Corzine and Other Former Executives

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

According to bankruptcy trustee Louis Freeh, former MF Global Holdings (MFGLQ) CEO Jon Corzine and other former executives did not act in good faith when they were in charge of the company. The ex-FBI director is suing them in bankruptcy court for gross negligence and breach of fiduciary duty. (Corzine is also a former Goldman Sachs (GS) CEO and he previously served as a US Senator and the Governor of New Jersey). Also named as defendants are the firm’s ex-COO Bradley I. Abelow and ex-CFO Henri J. Steenkam. MF Global’s collapse left customers wondering where about $1.6 billion dollars of their funds had gone missing.

Per Freeh’s lawsuit, after becoming CEO, Corzine and the other executives “dramatically changed” MF Global’s business plan but failed to update certain systems, including poor controls that made it impossible for the company to figure out liquidity levels. Corzine then allegedly made the company place large bets on bonds put out by countries in Europe. Freeh believes that the executives knew the risks involved but ignored them.

The case comes after Freeh submitted a report about Corzine and other executives. The former FBI director had said he was going to hold off and try resolving the securities claims via mediation, but even with this process still ongoing, Freeh believes that moving ahead with the lawsuit is in creditors’ best interest.