Investor Lawyers Blog

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.

Federal Reserve Board Establishes Key Rule That Will Let Regulator Identify Systemically Important Nonbank Financial Institutions

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

The Federal Reserve Board has moved closer toward being able to designate certain firms as Systemically Important Nonbank Financial Institutions. Earlier this month it set up a key rule that lets the Financial Stability Oversight Council name these SIFIs. The Federal Reserve would be their consolidated supervisor.

The rule defines when a firm is “predominantly” involved in financial activities. An SIFI would need to have at least $50 billion in overall consolidated assets or have risk exposures that could harm the US financial system should it fail. Among the companies that will likely get the SIFI designation are Prudential Financial Inc., GE Financial, MetLife Inc., and American International Group Inc.

A company will be considered as primarily involved in activities that the Bank Holding Company Act deems “financial in nature,” if at least 85% of its assets or revenues are related to such activities. However, the Fed has decided that involvement in physically settled derivatives transactions would generally not be considered a financial activity. This is to protect companies, such as manufacturers and farmers, that work with derivatives to hedge against supply price modifications.

UBS Loses Appeal to Have FHFA’s $6.4 Billion MBS Fraud Lawsuit Dismissed

Published on: April 18, 2013 | by Shepherd Smith Edwards & Kantas, LLP

The US Court of Appeals for the Second Circuit is denying UBS AG’s (UBSN) bid to dismiss the Federal Housing Finance Agency’s mortgage-backed securities lawsuit accusing the financial firm of misrepresenting the quality of the loans underlying the residential MBS that Freddie Mac and Fannie Mae bought. FHFA is the mortgage financiers’ appointed conservator.

In its appeal, UBS contended that the MBS lawsuit was filed too late under federal law. However, the 2nd circuit, affirming U.S. District Judge Denise Cote’s ruling, determined that the filing period for type of securities case was extended by the Housing and Economic Recovery Act of 2008.

The RMBS lawsuit is one of 17 FHFA cases against large financial institutions over alleged misrepresentations involving over $200 million in mortgage-backed securities. Judge Cote is presiding over 15 of these MBS lawsuits.

Securities Fraud Roundup: 6th Circuit Affirms Ruling Affirms Broker’s Liability Over Reverse Merger, Ex-Stockbroker Pleads Guilty to Insider Trading Over IBM’s SPSS Acquisition, & Father and Son Convicted in $50M Real Estate Fraud

Published on: April 16, 2013 | by Shepherd Smith Edwards & Kantas, LLP

6th Circuit Affirms Ruling Affirming Broker’s Liability Over Reverse Merger

The U.S. Court of Appeals for the Sixth Circuit says that a district court was correct in granting summary judgment to the Securities and Exchange Commission over its claim that broker Aaron Tsai made disclosure and registration violations related to a “reverse merger” involving a shell company. The lower court had ordered Tsai to pay about $352,000 in disgorgement and prejudgment interest while barring him from future violations. Affirming that court’s decision, the appeals court said that the broker’s transactions in unregistered stock were not exempt, pursuant to 1933 Securities Act Rule 144(k).

Tsai was the former president and CEO MAS Acquisition XI Company, which had a reverse merger and sold shares on the OTCBB in 2000. After his initial filing was turned down, he moved shares from five former directors who were initial company shareholders, to 28 other shareholders via previously signed stock powers. Tsai then obtained approval to finish up the reverse merger with Blue Point. The SEC filed civil enforcement naming him and other defendants while alleging Securities Act and Exchange Act violations, including failure to register securities before their sale or offering and failure to reveal that he had beneficial ownership of the securities.