Investor Lawyers Blog

FINRA Arbitration Panel Awards Ex-Wedbush Securities Broker $4.2M Against the Firm

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

In a case preceding the credit crisis, a Financial Industry Regulatory Authority panel has awarded Michael Farah, an ex-star broker at Wedbush Securities Inc, a $4.2M arbitration award against the brokerage firm. Farah had accused the broker-dealer of making misrepresentations and omissions related to the collateralized-mortgage-obligation investments he recommended to clients, which he contends resulted in him losing not just customers but also yearly income.

He was the firm’s leading producer for a long time, working there from 1995 to 2005. Farah filed his securities claim against Wedbush Securities, formerly known as Wedbush Morgan Securities Inc., in 2005 and then submitted an amended case last year.

Farah sold millions of dollars in CMOs. He claimed that he was told that the securities were bond replacements. However, he contends that the plunging of CMOs price in early 2003 was not in line with what the bond desk had informed him about the securities’ volatility.

UBS Faces Legal Battle Over Failing Puerto Rico Bond Funds with Local Investors

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

As the value of proprietary closed-end bond funds invested created by a UBS AG unit (UBS) in Puerto Rico continue to drop, the financial firm and its 132 financial advisers find themselves facing what is expected to be a protracted legal battle with local investors who want their money back. The value of the Puerto Rico bond funds sank after over $10 billion were sold to investors. UBS is also contending with allegations that a number of its brokers persuaded clients to purchase the bond funds and bonds on a credit line and margin.

The UBS Puerto Rico funds are comprised of 14 close-end funds that were sold through UBS Financial Services Inc. of Puerto Rico’s registered representatives and brokers. As tension over the broader municipal bond market hit the US commonwealth, the net asset value of the funds became eroded, falling from an initial price of $10 to roughly $3 for some of the funds.

Unlike closed-end municipal bond funds domiciled in the US—these are only allowed to have leverage as high as 30% of the assets in the fund—the Puerto Rico bond funds’ leverage can reach as high as 50% of total assets (55%, under certain conditions). Such leverages can only make any losses greater.

$5M Texas-Based Securities Fraud Scam Pursued Foreign Investors Wanting US Residency Via EB-5 Program

Published on: October 1, 2013 | by Shepherd Smith Edwards & Kantas, LLP

The SEC has filed fraud charges against a couple over a Texas securities scam that allegedly targeted foreign investors wanting to become American residents. Bebe and Marco Ramirez and three of their companies-USA Now LLC, Now Co. Loan Services, and USA Now Energy Capital Group LP-are accused of fraudulently raising at least $5 million from customers who were falsely promised that their cash would be invested in EB-5 Immigrant Investor Pilot Program.

Investors in Mexico, Egypt, and Nigeria were reportedly targeted. None of the investors ever received green cards let alone conditional visas from investing with the Ramirez’s and their companies.

The actual program allows foreign investors to receive conditional visas and later green cards if they invest in US economic development projects that help preserve or create a certain number of jobs for our nation’s workers. However, contends the regulator, rather than investing the money into the program, the Ramirezes moved investor funds to other businesses or used the money for their personal spending. Also, at least once, the couple allegedly used new investors’ money to pay existing investors in Ponzi scheme-fashion.

FINRA Accuses John Carris Investments of Pump-and-Dump Scam

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

The Financial Industry Regulatory Authority is charging John Carris Investments LLC with misleading and bilking investors. It seeks a cease and desist order against the financial firm and George Carris, its CEO, to immediately stop soliciting customers to buy Fibrocell Science, Inc. stock without giving them the correct disclosures. The SRO contends that in May 2013, JCI made solicitations to customers without revealing that Carris and another principal of the firm were selling their shares.

In an amended complaint, FINRA accused Carris, JCI, and five other firm principals of committing securities violations and other fraud. The SRO alleges that as JCI played the role of placement agent for FIbrocell, the firm and Carris artificially inflated Fibrocell stock’s price by pre-arranging trading and making Fibrocell stock buys that were not authorized in the accounts of customers.

FINRA contends that JCI and Carris fraudulently sold notes and stock in Invictus Capital, Inc., the firm’s parent company, without disclosing that its financial state was poor. The SRO believes that there was no reason to believe that investors would gain anything economically and Carris and JCI misled investors of Invictus by paying dividends to the latter’s early investors with funds that came from the sales of the company’s securities. Also, FINRA is accusing JCI of putting out false documentation that did not show payments the firm made for Carris’s personal spending and not remitting employee payroll taxes to the US Treasury.

NCUA Sues Morgan Stanley, JPMorgan, UBS, & Other Banks Over $2.7B in Allegedly Fraudulent RMBS Sales to Credit Unions

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

The National Credit Union Administration has filed residential mortgage-backed securities lawsuits against JPMorgan (JPM), Morgan Stanley (MS), UBS (UBS), Royal Bank of Scotland Group (RBS), Barclays (BARC), and Credit Suisse (CS) accusing the financial firms of selling $2.7 billion of these fraudulent securities to the credit unions. The Members United Corporate Federal Credit Union and Southwest Corporate Federal Credit Union paid over $416 million for the RMBS in the case against Morgan Stanley and $1.9 billion from the other defendants. One of the credit unions contends that Wachovia (WB), Goldman Sachs (GS), Ally Securities and Wells Fargo (WFC) also defrauded it.

According to the NCUA’s RMBS fraud lawsuits, the investment banks issued misrepresentations related to the underwriting and sale of the securities. Offering documents allegedly contained false statements or omitted facts that were material. The government regulator is accusing the originators of systematically ignoring underlying guidelines in offering documents, which made the mortgage-backed securities’ risks higher than what was presented.

The MBS fraud lawsuits make claims under state and federal securities laws. Whatever is recovered will go toward the Temporary Corporate Credit Union Stabilization Fund.

Groupon Loses Dismissal Bid Over IPO Securities Fraud Case

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

A district court judge has ordered Groupon Inc. to face a securities lawsuit filed against it accusing the deal-of-the-day coupon company of misleading investors regarding its financial state right before its IPO in 2011. The Illinois-based company had sought to have the securities fraud case brought by investor Michael Carter Cohn, dismissed. Cohn wants his claim to get class action securities status.

The investor claims that Groupon committed securities fraud and used refund accounting that was not allowed to spike revenues in a prospectus related to its initial public offerings, as well as in filings with the Securities and Exchange Commission. According to U.S. District Judge Charles Norgle in Chicago, the claims “present plausible violations.” Norgle also turned down requests by Morgan Stanley (MS) and Goldman Sachs (GS), and Credit Suisse (CS) to throw out the claims against them. These banks arranged the public offering.

On March 30, 2012-not long after opening at $28 in Nasdaq stock exchange trading on November 4, 2011-Groupon reported a “material weakness” in its financial controls, as well as first reported quarterly sales as a company that was now publicly traded were not as high as stated earlier because of high refunds received by merchants. This lowered revenue during 2011’s last quarter to $492 million-that’s a $14.3 million difference. The company’s shares by November 13, 2012 hit $2.63 dollars.

JPMorgan Considers $11B Mortgage-Backed Securities Settlement

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

Now that US Attorney General Eric Holder has turned down JPMorgan Chase’s (JPM) offer to settle criminal and civil charges related a mortgage-backed securities probe, the financial firm is looking at a settlement of possibly $11 billion. The financial figure has gone up as talks have expanded to include additional cases with more regulators.

The MBS investigations are over residential mortgage-backed securities (RMBS) that JPMorgan, Washington Mutual (WAMUQ), and Bear Stearns (BSC) issued between 2005 and 2007. Authorities have been looking into whether JPMorgan, which the other two firms acquired during the financial crisis, misled investors of the quality of the mortgages that were backing the securities. A lot of these RMBS failed as housing prices dropped. JPMorgan says that Washington Mutual and Bear Stearns issued about 70% of these RMBS.

One possible settlement could include $4 billion in relief to consumers and a $7 billion penalty. However, according to sources familiar with the settlement talks, the two sides have not come close to agreeing on the figure and the amount could change.

Massachusetts AG Investigates JPMorgan’s Debt-Collection Practices

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

Massachusetts Attorney General Martha Coakley is looking into JPMorgan Chase & Co.’s (JPM) debt collection practices over how the bank gets payments from borrowers that are delinquent. Coakley’s probe is separate from the one being conducted by a group of 13 states.

According to JPMorgan, the bank stopped suing over credit-card collection two years ago. In May, the state of California filed a credit card debt collection case against the bank for the “unlawful” and “fraudulent” tactics it purportedly employed to go after old debts from 100,000 borrowers. The case is still pending.

JPMorgan has come under fire from regulators about how it collects such debt. Last week, the Office of the Comptroller of the Currency said it had had reached a $60 million settlement deal with the bank over the latter’s use of sworn documents in its lawsuits against borrowers to collect delinquent debt. According to the OCC, JP Morgan and its outside lawyers allegedly submitted documents that were not accurate to court, failed to correctly notarize documents, and made unverified statements about the bank’s accuracy. The regulator told the bank that they must now tell consumers when their debt is sold to a third party, correctly keep up account documents, and make sure that staff and other employees that are party to any litigation get the information that they need. Meantime, the JPMorgan says it will pay $20 million to the Consumer Financial Protection Bureau, which has been probing possible abuses by those in the debt-collection industry and examined JPMorgan’s handling of credit card debt.

Texas Man gets 40-Year Prison Sentence for Phony Annuity Scam That Targeted Elderly Women

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

An Allen, Texas man is sentenced to 40-years behind bars for bilking elderly women out of close to $500,000 in a phone annuity scam. Robert Mangiafico Jr. pleaded guilty to money laundering and theft related in the Texas securities fraud case.

According to prosecutors, Mangiafico persuaded a number of widows to liquidate holdings and securities in brokerage accounts and other assets and he was supposed to use the money to buy annuities for them. Instead, after he had them move the funds to him or to Security Financial Services LLS, which was set up by Thomas Grimshaw of Dallas, the cash went to bank accounts for him and Grimshaw. The two men used the money for personal spending and to scam their investment victims.

Prosecutors say that $655,000 was stolen from four victims, who sustained $458,361 in losses. According to a 2011 indictment, the appropriations were made without the women’s consent because they were of advanced age and their capacity to make rational and informed choices was diminished.

SEC Lifts Ban on General Solicitation

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

Beginning today, September 23, the SEC’s ban on general solicitation is no longer in effect. Those raising funds for corporations can now publish equity offerings on websites for crowdfunding, as well as blog and tweet about them. The move comes in the wake of the Jumpstart Our Business Startups Act, which was passed last year.

That said, even with the lifting of the general solicitation ban, raising funds for companies will likely remain a difficult endeavor. Funds can only be raised from investors that are accredited, and now, the latter will have to show proof that they fulfill the wealth criteria for accreditation by having an income greater than $200K during the last two years or a net worth of $1M (the value one’s primary residence is not included.)

Would-be fundraisers will need to provide extensive disclosure of offerings not just to the Commission, but also to the public, and there will be tight restrictions and the risk of penalty of a yearlong fundraising ban for violations. Also, in order to avail of being able to engage in general solicitation, startups will have to file a Form D with the regulator at least 15 days prior to starting to solicit. An amended Form D will have to be turned in within 30 days after the termination of an offering.