Investor Lawyers Blog

Stakeholders With $55M Securities Fraud Case Against Government Over AIG Bailout Get Class Action Certification

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

The plaintiffs who are suing the US Government over losses they claim they sustained during its bailout of American International Group (AIG) have been granted class certification. Seeking $55 million, they are contending that the government behaved unconstitutionally when it rescued the company in 2008 during the economic crisis.

In their securities case, investment firm Starr International Co. is claiming that the federal government violated the Fifth Amendment via two transactions that resulted in the delivery of $182 billion in loans backed by US taxpayers and other financial facilities to the beleaguered insurance giant. Starr once was the largest shareholder of AIG, possessing a 12% stake. Judge Thomas C. Wheeler of the U.S. Court of Federal Claims certified two classes related to the two transactions.

One class is comprised of AIG shareholders from September 22, 2008, when a credit agreement granting the government a 79.9% stake in AIG went into effect. The second class is made up of shareholders from the beginning of June 30, 2009 that were not given the chance to vote on a reverse stock split that the government allegedly initiated. The plaintiffs say that both actions were an illegal taking that violated the US Constitution.

District Court Turns Down Dallas Mavericks Owner Mark Cuban’s Summary Judgment Request in Insider Trading Lawsuit by SEC

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

In SEC v. Cuban, the U.S. District Court for the Northern District of Texas has rejected Dallas Mavericks owner Mark Cuban’s request for summary judgment in the Securities and Exchange Commission’s insider trading case against him. This ruling allows the SEC to take the securities claims to a jury.

There have been numerous court rulings already in the regulator’s financial fraud case against Cuban, made on the grounds of an alleged misappropriation theory of insider trading in 2008. The Commission believes that Cuban broke the federal securities laws’ antifraud provisions when he sold stock shares that he owned in Mamma.com after finding out about material non-public information about a PIPE offering that the company was about to make. By getting rid of 600,00 shares, he went on to avoid losing $750,000.

Per the SEC’s Texas securities claims, Cuban fooled Mamma.com when he consented to honor a confidentiality agreement about the information related to PIPE and agreed to not trade on this data but then proceeded to sell his stock without first telling the company that he was going to trade on the information. His action caused him to avoid taking huge losses when Mamma.com’s stock price fell after the PIPE offering was announced to the public.

State of Illinois Settles Securities and Exchange Commission Fraud Charges

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

Without denying or admitting to the charges, the state of Illinois has settled the securities fraud case filed against it by the SEC. The Commission contends that Illinois misled investors about municipal bonds and the way it funds its pension obligations. There will be no fine imposed on the state. Illinois, has, however, implemented numerous remedial actions and put forth corrective disclosures related to the charges over the last few years.

Per the Commission, even as the state offered and sold over $2.2 billion of municipal bonds between 2005 and 2009, it did not tell investors the effect problems with its pension funding schedule might have. Illinois is also accused of not disclosing that it had underfunded its pension obligations, which upped the risk of its overall financial condition.

The regulator’s order contends that Illinois had set up a 50-year pension contribution schedule in the Illinois Pension Funding Act. However, it turns out that the schedule was not sufficient to take care of both a payment amortizing the plans’ actuarial liability, which was unfunded, and the price of benefits accrued during a current year. Also, the statutory plan ended up structurally underfunding the state’s pension duties while backloading most pension contributions into the future. The structure caused stress on both the pension systems and Illinois’s ability to fulfill its competing obligations.

Broker-Dealer, Attorneys, Stock Promoters and others charged in “Pump-and-Dump” Scam Involving Tradeshow Marketing Company and Pacific Blue Energy

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

The Securities and Exchange Commission is charging Canadian stock promoters James Hinton, John Kirk, and Benjamin Kirk, and their associates with employing misleading and false promotions to inflate trading in two microcap companies. As a result, they allegedly made millions of dollars after dumping their shares in a pump-and-dump scheme.

Also charged are California-based lawyers Wade Huettel and Luis Carillo, who allegedly assisted Kirk, Hinton, and Kirk in hiding their ownership stakes in the companies by putting together public filings that were misleading and giving legal opinions that were also intended to lead others astray, and Gibraltar Global Securities, which is a brokerage firm located in the Bahamas. The broker-dealer is accused of issuing misleading statements and fake affidavits that let one of the stock promoters sell shares of the company he was pushing in secret. Meantime, Carrillo Huettel LLP, the law practice of Luis and Carillo, was allegedly given stock sale proceeds disguised as a fake “loan” in secret.

The regulator contends the Luniel de Beer, the president of Tradeshow Marketing Company Ltd. and chairman of Pacific Blue Energy Corporation, was paid over $330,000 in secret kickbacks for his alleged involvement in the pump-and-dump scam. Pacific Blue President Joel Franklin, whom the SEC accused of misleading representations and playing a role in the stock sales being able to happen, has already settled the Commission’s charges against him. As for the others mentioned above (and in the SEC’s securities case), they are charged with violating US anti-fraud rules and laws, as well as US securities laws.

New Hampshire Investment Adviser Focus Capital Wealth Management Accused of Elder Financial Fraud to Pay Exchange Traded Fund Victims $2.4M

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

Focus Capital Wealth Management and its owner Nicholas Rowe are now barred from having a license to serve as either an investment adviser or a broker-dealer in New Hampshire. Rowe and his financial firm are accused of elder financial fraud. Per the settlement with the state, they must pay $2.4 million in client restitution.

The Bureau of Securities Regulation acted against Rowe last year following complaints from clients claiming they’d lost significant amounts of money in risky investments of leveraged exchange-traded funds, which are also known as ETFs. According to the bureau, these investments are not for clients who have a low or medium tolerance for risk. Rowe also allegedly misrepresented his credentials and charged investors unreasonable fees, claiming that these were going to third parties with close Wall Street ties, when, actually, he was keeping part of that money.

Rowe eventually consented to FINRA arbitration over claims filed by a number of his former clients, who alleged civil fraud and negligence. One of the arbitrator’s panels ruled against him for $1.8M in restitution.

Two Oppenheimer Investment Advisers Settle for Over $2.8M SEC Fraud Charges Over Private Equity Fund

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

The SEC is charging Oppenheimer Alternative Investment Management and Oppenheimer Asset Management, which are two Oppenheimer & Co. investment advisers, with misleading customers about the valuation policies and performance of a private equity fund under their management. To settle the allegations, Oppenheimer will pay over $2.8M. It has also resolved the related action that was filed by Massachusetts Attorney General Martha Coakley.

According to the SEC, from 10/09 to 6/10, the two Oppenheimer investment advisers put out marketing collaterals and quarterly reports that were misleading and claimed that Oppenheimer Global Resource Private Equity Fund I L.P.’s holdings in private equity funds had values that were determined according to the estimated values of the underlying manager. In truth, contends the regulator, Oppenheimer’s portfolio manager actually valued the largest investment of the fund, Cartesian Investors-A LLC, at a markup that was considerable to the underlying manager’s estimated value. This discrepancy made it appear as if the fund’s performance was much better, per its internal rate of return. For example, at the conclusion of the quarter ending on June 30, 2009, the markup of the investment upped the internal return rate from 3.8% to 38.3%

Among the alleged misrepresentations made by ex-OAM employees to potential investors were:

Financial Industry Representatives Settle FINRA Cases Over Securities Fraud

Published on: March 12, 2013 | by Shepherd Smith Edwards & Kantas, LLP

These financial representatives have settled the Financial Industry Regulatory turned in their Letter of Acceptance, Waiver, and Consent in the securities cases made against them by the Financial Industry Regulatory Authority. By consenting to the sanctions described and the entry of findings, this does not mean they are denying or admitting to the allegations.

New York Registered Principal Accused of Making Misrepresentations and Missions

Neftali Mercedes must pay $97,000, in addition to interest as restitution to customers. He is accused of intentionally making material omissions and misrepresentations about the risks related to speculative securities and an issuer’s financial state.

Financial Firms Settle with FINRA: ES Financial Services Resolves Solicitation of Non-US Investors Allegations and Lincoln Financial Securities Consents to Entry of Findings Alleging Inadequate Supervision

Published on: March 11, 2013 | by Shepherd Smith Edwards & Kantas, LLP

ES Financial Services Resolves Solicitation of Non-US Investors Allegations

E.S. Financial Services, Inc. has turned in a Letter of Acceptance, Waiver, Consent to the Financial Industry Regulatory Authority over allegations that it acted as a placement agent and solicited specific non-US investors to get involved in a commercial paper program that a foreign-based affiliate was offering. The firm is accused of providing misrepresentations in certain materials, including that like other commercial products, the program was a cash component of the customer’s portfolio, and also, that the investment was a low-risk, conservative proposition.

ES Financial is also accused of not sufficiently describing the risks involved and for close to four years failing to conduct the proper due diligence for the commercial paper program sales. FINRA’s findings note that the financial firm did not adopt, implement, or enforce written due diligence procedures customized for these instruments. Fortunately, investments were paid back in a timely manner and no investor lost funds. However, this does not mean that ES Financial succeeded in conducting a proper investigation into various issues.

US Courts & Securities Roundup: Arbitration Award in Citi’s Favor is Approved & Investors’ Claims Against An Oppenheimer Private Equity Fund Are Dismissed

Published on: March 9, 2013 | by Shepherd Smith Edwards & Kantas, LLP

District Court Approves Citigroup’s Arbitration Award in Securities Case Against the Abu Dhabi Investment Authority

A judge held that a tribunal did not behave in manifest disregard of the law and that its refusal to provide two documents that the Abu Dhabi Investment Authority had asked for did not make the proceedings “fundamentally unfair.” The court confirmed an award issued in Citigroup Inc.’s (C) favor, which found that the ADIA did not succeed in showing that the arbitration panel’s New York choice of law decision and evidentiary rulings warranted that the award be vacated.

The securities case is Abu Dhabi Investment Authority v. Citigroup Inc.

Plaintiffs Can Pursue Narrowed Claims Against Private Equity Firms

Published on: March 9, 2013 | by Shepherd Smith Edwards & Kantas, LLP

According to the U.S. District Court for the District of Massachusetts, plaintiffs should be able to pursue narrowed claims against large private equity firms accused of colluding to keep competition away. In Dahl v. Bain Capital Partners LLC, Judge Edward Harrington noted that although the bulk of the securities lawsuit focused on PE firm’s routine business practices, there was evidence that showed an inference of conspiracy in regards of some of the claims.

Also, Harrington refused to grant an “omnibus” motion for summary judgment requested by several of the defendants, including Bain Capital Partners LLC, Carlyle Group LLC, and Kohlberg Kravis Roberts & Co. LP. JPMorgan Chase and Co.’s (JPM) own motion for summary judgment, however, was granted, on the grounds that evidence did not support that the financial firm had taken part in the alleged “narrowed overarching conspiracy.”

The plaintiffs previously owned shares in different public companies that private equity firms later acquired. They contend that between 2003 and 2007, the defendants were involved in an “overarching” conspiracy to artificially manipulate securities prices in specific transactions. The plaintiffs believe that the private equity firms knew that by working together they could keep the competition down and prevent prices from going up.

Harrington, however, decided to narrow the plaintiffs’ claims, finding that a lot of the lawsuit had to do with practices in the industry that were considered “appropriate” and “established.” He noted that rather than depicting a portrait of an “overreaching conspiracy,” the evidence of transaction appears to demonstrate interactions among defendants that were “ever-rotating and overlapping.”

Dahl v. Bain Capital Partners LLC https://www.securities-fraud-attorneys.com(PDF)

More Blog Posts:
Investment Fraud Lawsuit Against BlackRock Over Exchange-Traded Funds Could Shed More Light on Securities Lending, Institutional Investor Securities Blog, February 18, 2013

Texas Courts Show Preference for Arbitration to Resolve Securities Fraud Claims and Other Business Disputes, Stockbroker Fraud Blog, February 15, 2013