Investor Lawyers Blog

Investors Duped in $150M Investment Scam Offering US Citizenship Prospect To Recoup Funds, Says SEC

Published on: April 25, 2013 | by Shepherd Smith Edwards & Kantas, LLP

The SEC says that investors who were bilked in a $150 million financial scam that offered foreigners a possible path to becoming an American will get back their money from the bogus securities offering. This news comes after the SEC filed civil charges against Anshoo R. Sethi.

Sethi is accused of creating Intercontinental Regional Center Trust of Chicago and A Chicago Convention Center in an alleged scheme to sell over $147M in securities that were supposed to go toward financing the building of a conference center and hotel close to Chicago’s O’Hare airport. Instead, contends the SEC, Sethi and his companies deceived Chinese investors, who were made to believe investing could up their chances of obtaining legal residency in this country via the EB-5 Immigrant Investor Pilot Program, which gives foreign investors a way to obtain this through their involvement in projects in this country that will help preserve or create a certain amount of jobs for our workers. Foreign investors may be able to get a green card if they put in $1 million (or $500,000 if in a “Targeted Employment Area” that has an unemployment rate that is high).

The Commission says that although Sethi and the companies had promised that the over $11M administrative fees paid by investors would revert back to them if their applications for visas didn’t go through, the three of them have already actually spent over 90% of this money. Also, approximately $2.5M purportedly ended up in Sethi’s personal account.

Police Retirement System of St. Louis Also Suing JPMorgan Chase Executives Over “London Whale” Scandal

Published on: April 25, 2013 | by Shepherd Smith Edwards & Kantas, LLP

The Police Retirement System of St. Louis is suing JPMorgan Chase (JPM) CEO Jamie Dimon and several other senior bank officers over the “London Whale” scandal. The pension fund, which owns 39,000 of the investment bank, is one of numerous investors seeking compensation. Dimon and the other JPMorgan executives are accused of disregarding the red flags indicating that the London-based operation was engaged in taking large scale risks that ultimately resulted in close to $6 billion in losses last year.

In its derivatives lawsuit, the Police Retirement System of St. Louis contends that the defendants “eviscerated” the risk controls of JPMorgan’s London unit to up profits. Even after the media reported that one of the bank’s traders in London was making big bets (that trader was eventually dubbed the “London Whale”), Dimon downplayed the news to investors. The pension fund contends that the executives and others breached their duties to shareholders by not stopping the risky trades.

In March, US lawmakers sought to understand the multimillion-dollar trading loss. At a hearing before Congress, they questioned past and current JPMorgan executives about the financial scandal. Their interrogation came a day after the release of a damning 300-page Congressional report that blamed the bank’s lax culture while also criticizing the Office of the Comptroller of the Currency for also failing to follow up on warning signs.

The executives tried to defend themselves, saying their attempts to lower risks were countered by traders that purposely undervalued bets to conceal an increase in losses. Among the executives that gave testimony was ex-JPMorgan chief investment office head Ina Drew, whose group was in the middle of the debacle. She too blamed lower-level traders and others, while contending that she had been given inaccurate information. Drew said she didn’t know that traders were upping their bets.

Withering Questions at Senate Hearing on JPMorgan Loss, New York Times, March 15, 2013

JPMorgan hit with new investor lawsuit over “Whale” losses, Reuters, April 15, 2013

More Blog Posts:
JP Morgan Sued by Dexia in $1.7B MBS Lawsuit, Institutional Investor Securities Blog, February 11, 2013

JPMorgan, Goldman Sachs, Bank of New York Mellon, Charles Schwab Disclose Market-Based NAVs of Money Market Mutual Funds, Stockbroker Fraud Blog, February 7, 2013

Three Cedar Brook Financial Partners Brokers’ Licenses Are Suspended Over Allegedly False & Misleading Statements About Subprime Mortgage-Backed Security IMH Fund and Medical Capital Holdings Inc.

Published on: April 24, 2013 | by Shepherd Smith Edwards & Kantas, LLP

Regulators have suspended the securities licenses of Cedar Brook Financial Partners brokers Howard Slater and Michael Perlmuter and firm executive Azim Nakhooda in the wake of allegations that they issued false statements about Medical Capital Holdings Inc. and the IMH Fund, a subprime mortgage-backed security. The sanctions are part of the settlements they reached with the Financial Industry Regulatory Authority.

According to the SRO, Slater, Perlmuter, and Nakhooda also allegedly modified three customer accounts to show false net worth information. Inflating the account balances on paper made the areas of the clients’ portfolios that were in risky funds drop below Cedar Brook’s guidelines that such investments are not to go up over 20% of a person’s holdings. Inaccurate statements were purportedly made via email.

All three men agreed to settle the FINRA allegations without denying or admitting the allegations. As part of their agreements, Perlmutter will pay a $40,000 fine and serve an eight-month suspension. Slater is suspended for five months and will pay $30,000.

Standard Poors Wants DOJ’s Mortgage Debt Lawsuit Against It Tossed

Published on: April 24, 2013 | by Shepherd Smith Edwards & Kantas, LLP

Standard Poors is asking a judge to dismiss the US Justice Department’s securities lawsuit against it. The government claims that the largest ratings agency defrauded investors when it put out excellent ratings for some poor quality complex mortgage packages, including collateralized debt obligations, residential mortgage-backed securities, and subprime mortgage-backed securities, between 2004 and 2007. The ratings agency, however, claims that the DOJ has no case.

Per the government’s securities complaint, financial institutions lost over $5 billion on 33 CDOs because they trusted S & P’s ratings and invested in the complex debt instruments. The DOJ believes that the credit rater issued its inaccurate ratings on purpose, raising investor demand and prices until the latter crashed, triggering the global economic crisis. It argues that certain ratings were inflated based on conflicts of interest that involved making the banks that packaged the mortgage securities happy as opposed to issuing independent, objective ratings that investors could rely on.

Now, S & P is claiming that the government’s lawsuit overreaches in targeting it and fails to show that the credit rater knew what the more accurate ratings should have been, which it contends would be necessary for there to be grounds for this CDO lawsuit. In a brief submitted to the United States District Court for the Central District of California, in Los Angeles, S & P’s lawyers argue that there is no way that their client, the Treasury, the Federal Reserve, or other market participants could have predicted how severe the financial meltdown would be.

New Hampshire Regulators Accuse Edward Jones of “Questionable Marketing” to Recruit Customers

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

The New Hampshire Bureau of Securities Regulation says Edward Jones & Co. employed “questionable marketing” to bring in customers. Seeking up to $3 million, the brokerage firm is accused of making 20,000 calls to residents that were on NH’s National Do Not Call Registry.

According to regulators, no other broker-dealer has been named in as many complaints about unsolicited phone calls. A spokesperson for Edward Jones, however, disputes this contention.

With over 12,000 financial advisers and approximately 11,400 offices throughout the US-mostly there is just one broker per locale-the brokerage firm tries to work around telemarketing rules by getting brokers to go door-to-door. Training materials talk about how when a potential customer asks to be added to the do-not call list, the broker is supposed to respond by saying he/she respects the former’s decision but that another visit may be likely if something that could be of possible interest to the prospective client arises.

Lehman Brothers Australia Wants Federal Court to Approve $248M Settlement Payment Plan to Creditors

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

The liquidators of Lehman Brothers Australia want the Federal Court there to approve their plan that would allow the bank to pay $248M in securities losses that were sustained by 72 local charities, councils, private investors, and churches. Although the court held Lehman liable, no compensation has been issued because the financial firm went bankrupt.

Per that ruling, the Federal Court found that Lehman’s Australian arm misled customers during the sale of synthetic collateralized debt obligations. The court also said that Lehman Brothers subsidiary Grange Securities was in breach of its fiduciary duty and took part in deceptive and misleading behavior when it put the very complex CDOs in the councils’ portfolio. (Lehman had acquired Grange Securities and Grange Asset Management in early 2007, thereby also taking charge of managing current and past relationships, including the asset management and transactional services for the councils.) The court determined that the council clients’ “commercial naivety” in getting into these complex transactions were to Grange’s advantage.

Via the liquidators’ plan, creditors would get a portion of a $211 million payout. This is much more than the $43 million that Lehman had offered to pay. The payout would include $45 million from American professional indemnity insurers to Lehman, which would then disburse the funds to those it owes.

NBA, NFL Players Among Alleged Promissory Note Fraud Victims of Success Trade Securities, Says FINRA

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

The Financial Industry Regulatory Authority has issued temporary cease-and-desist order against Fuad Ahmed, the president and CEO of Success Trade Securities, Inc., to stop his alleged financial fraud activities. It also put out a complaint against him and the online brokerage firm, charging them with promissory note fraud. The notes were issued by Success Trade, Inc. Ahmed is one of its majority owners. Success Trade Securities runs LowTrades and Just2Trades.

FINRA issued the TCDO over concerns that if it didn’t, investors’ assets and funds would continue to be misused. The SRO contends that the brokerage firm, its financial representatives, and Ahmed sold over $18M in promissory notes to nearly five dozen investors, including ex- and current NBA and NFL Athletes, while omitting or misrepresenting material facts, such as how they were raising $5 million via the selling of the notes or that the sales went over 300% above the original offering.

The majority of notes promised a 12.5-26% yearly interest rate payment monthly over three years. Also, Success Trade Securities and Ahmed allegedly did not disclose both how much the brokerage firm owed investors and that it couldn’t keep paying interest payments unless it brought it new investor money. The SRO believes that note sale proceeds went to unsecured loans to Ahmed, past investor payments, and firm operations.

SEC Commissioner Aguilar Calls For the Abolishment of Mandatory Arbitration Agreements

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

U.S. Securities and Exchange Commission member Luis Aguilar is pressing the government to think about adopting rules that would limit or bar investment advisers and brokers from making customers sign away their right to file a securities fraud case. He made his statements in front of the he North America Securities Administrators Association’s yearly conference.

Aguilar spoke about how it was important to advocate for investor choice. He said that by giving investors the chance to choose how they wish to protect their legal rights and file their legal claims, the government would be enhancing federal securities laws while creating better investor protections.

The 2010 Dodd-Frank Act gives the Commission new powers to strengthen investor protections, including the authority to restrict pre-dispute arbitration agreements, which brokers routinely use. The agreements bar an investor from being able to sue the financial firm should a disagreement arise. Meantime, corporations generally remain in favor of arbitration as a venue for resolution because they believe this is less costly.

OmniVision Technologies Investors’ Securities Lawsuit Can Proceed, Says District Court

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

The U.S. District Court for the Northern District of California says that OmniVision Technologies investors can move forward with their securities fraud lawsuit as to two challenged statements that were made by one of the company’s senior officials. The statements pertain to the smart phone sensor maker’s alleged competition with Sony to provide Apple smart phones with image sensors.

The defendants In re OmniVision Technologies Inc. Securities Litigation are senior company officials. The court says that OmniVision was successful in getting its sensors in Apple’s ’09 and ’10 iPhone products. Yet, although OmniVision was contracted by Apple to not disclose their working relationship, the former allegedly was able to let the markets know.

The plaintiffs argued that such statements caused the market to think that OmniVision was Apple’s only image sensor supplier when actually it was Sony that was its dominant supplier. Rumors eventually surfaced that OmniVision had lost business to its rival. This information, along with less than favorable financial results, are what they believe caused OmniVision’s stock price to go down.

Per the district court, it saw two statements that might be “potentially actionable.” The court said that although the remarks don’t mention Apple, they might be viewed as “false or misleading” if Apple had already chosen Sony as its image sensor provider for the iPhone 4S.

The court also said that the securities lawsuit alleges details about Sony that could suggest that OmniVision was losing ground to Sony. It determined that there were allegations that “at least establish an inference” that sometime during the Class Period Apple was seriously considering going with Sony instead of OmniVision for certain parts it wanted to buy. The court denied the defendants’ motion to dismiss.

In re OmniVision Technologies Inc. Securities Litigation (PDF)

More Blog Posts:
Former Merrill Lynch, Oppenheimer, Deutsche Bank Broker is Ordered by FINRA To Pay Investor $11M Over Alleged Securities Fraud, Stockbroker Fraud Blog, April 19, 2013

RMBS Lawsuit Against Deutsche Bank Can Proceed, Says District Court, Institutional Investor Securities Blog, April 4, 2013 Continue Reading ›

Former Merrill Lynch, Oppenheimer, Deutsche Bank Broker is Ordered by FINRA To Pay Investor $11M Over Alleged Securities Fraud

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

A FINRA arbitration panel is ordering ex-broker Karl Hahn, who previously worked with Bank of America Corp’s (BAC) Merrill Lynch (MER), Oppenheimer & Co. (OPY), and Deutsche Bank AG’s (DB) Deutsche Bank Securities, to pay investor Chase Bailey $11 million because he sustained about $6 million in losses allegedly caused by securities fraud. Bailey contends that Hahn made excessive trades and misrepresented securities related to transactions involving a number of investments, including a variable annuity, approximately $2.3 million in fraudulent real estate financing involving East Coast properties, and covered calls.

In the filmmaker/Internet entrepreneur’s securities arbitration claim, Bailey named the three financial firms where Hahn previously worked. It is during this period that Bailey was allegedly defrauded. (He had moved his funds from one brokerage firm to the other each time Hahn was hired by that employer.) Bailey settled his case with Merrill for $700,000, while claims against Deutsche Bank and Oppenheimer were tossed out.

Per the FINRA arbitration ruling, Bailey is awarded $6.4 million in punitive damages and $4.1 million in compensatory damage. Ordering brokers to pay punitive damages is uncommon.