Investor Lawyers Blog

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.

SEC and DOJ Sue Bank of America Over Alleged $850M RMBS Fraud

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

Bank of America (BAC) and two subsidiaries are now facing SEC charges for allegedly bilking investors in an residential mortgage-backed securities offering that led to close to $70M in losses and about $50 million in anticipated losses in the future. The US Department of Justice also has filed its securities lawsuit over the same allegations.

In its securities lawsuit, submitted in U.S. District Court for the Western District of North Carolina, the Securities and Exchange Commission contends that the bank, Bank of America Mortgage Securities (BOAMS) and Banc of America Securities LLC, which is now known as Merrill Lynch, Pierce, Fenner & Smith, conducted the RMBS offering, referred to as the the BOAMS 2008-A and valued at $855 million, in 2008. The securities was sold and offered as “prime securitization suitable for the majority of conservative RMBS investors.

However, according to the regulator, Bank of America misled investors about the risks and the mortgages’ underwriting quality while misrepresenting that the mortgage loans backing the RMBS were underwritten in a manner that conformed with the bank’s guidelines. In truth, claims the SEC, the loans included income statements that were not supported, appraisals that were not eligible, owner occupancy-related misrepresentations, and evidence that mortgage fraud was involved. Also, says the regulator, the ratio for original-combined-loan-to-value and debt-to-income was not calculated properly on a regular basis and, even though materially inaccurate, it was provided to the public.

Two Investors’ Securities Fraud Lawsuit Against SEC Over Stanford Ponzi Scam is Dismissed

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

A federal judge has dismissed the securities fraud lawsuit filed by two investors against the Securities and Exchange Commission for failing to report that Allen Stanford was running a $7.2 billion Ponzi scam. According to U.S. District Judge Robert Scola, a Federal Tort Claims Act exemption that does not allow claims from deceit or misrepresentation shields the SEC from such a claim.

The plaintiffs are George Glantz and Carlos Zelaya. They contend that they collectively lost $1.6 million because of Stanford and they wanted class action securities status for investors that the latter bilked.

They argued that following four exams between 1997 and 2004 the regulator considered Stanford’s business a fraud yet did not notify the Securities Investor Protection Corp., which provides compensation to those victimized by brokerages that fail. The SEC did not sue Stanford until 2009. While Scola previously had allowed this securities fraud case against the Commission to move forward, finding that the regulator breached its duty to report Stanford’s wrongdoing, now, he says that the FTCA exemption does not give him jurisdiction over this.

Bank of America, JPMorgan Chase Among Banks Sued by Danish Pension Funds in Credit Default Swaps Lawsuit

Published on: August 15, 2013 | by Shepherd Smith Edwards & Kantas, LLP

In U.S. District Court for the Northern District of Illinois, Danish pension funds (and their investment manager) Unipension Fondsmaeglerselskab, MP Pension-Pensionskassen for Magistre & Psykologer, Arkitekternes Pensionskasse, and Pensionskassen for Jordbrugsakademikere & Dyrlaeger are suing 12 banks accusing them of conspiring to take charge of access and pricing in the credit derivatives markets. They are claiming antitrust violations while contending that the defendants acted unreasonably to hold back competitors in the credit default swaps market.

The funds believe that the harm suffered by investors as a result was “tens of billions of dollars” worth. They want monetary damages and injunctive relief.

According to the Danish pension funds’ credit default swaps case, the defendants inflated profits by taking control of intellectual property rights in the CDS market, blocking would-be exchanges’ entry, and limiting client access to credit-default-swaps prices, and

Professional Athletes, Celebrities Often Targeted for Securities Fraud

Published on: August 14, 2013 | by Shepherd Smith Edwards & Kantas, LLP

The Shepherd Smith Kantas & Edwards law firm has represented many athletes and other celebrities who lost millions because of improper handling of their investments. While overspending and poor investing are two common causes for these losses, the rich and famous also make easy targets for securities fraud, which is when our securities law firm steps in.

One reason for this is that many professional athletes and other people that have become famous are not prepared or well informed about how to manage their new wealth. This can make them easy prey for irresponsible or purposely negligent financial advisers.

“We listen to complaints daily about the mishandling of investors accounts,” said Shepherd Smith Edwards and Kantas founder and securities fraud lawyer William Shepherd. “Yet, it is surprising even to me that financial firms and advisors would engage in financial wrongdoing that harms high-profile investors. Many ‘financial sociopaths’ have zero thought about others and, apparently, little concern for their own negative notoriety.”