Investor Lawyers Blog

SEC Investor Advisory Members to Deal with Crowdfunding, Fiduciary Standard, and Pay Ratio Disclosures

Published on: January 7, 2013 | by Shepherd Smith Edwards & Kantas, LLP

According to the Securities and Exchange Commission Investor Advisory Committee, its subcommittees are try to come up with possible recommendations about crowdfunding, a uniform fiduciary standard, and pay ratio disclosures. Also during the first quarter of this year, the SEC is expected to seek economic data that is supposed to help it decide whether it should establish a uniform fiduciary standard for investment advisers and broker-dealers that gives investment advice to retail investors.

Under Section 911 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the committee has to “advise and consult” with the Commission on its investor protection initiatives and rulemaking priorities. While the SEC is not required to act on the recommendations, it must “promptly” evaluate them and disclose whether it will take related action. The committee’s first set of recommendations, to make the general solicitation ban under the Jumpstart Our Business Startups Act less stringent, was issued last year.

At the SEC Investor Advisory Committee’s January 18 meeting, subcommittee chairpersons talked about current and ongoing efforts. Investor as Purchaser subcommittee chairman Barbara Roper said that her group and the Investor Education subcommittee are working together to figure out where in a possible crowdfunding regime investors may be facing possible risks. Also, the group is trying to figure out where investor education might be most needed.

SEC Roundup: Massachusetts Investment Adviser Gets $1.78M Judgment and Allianz to Pay $12.3M to Settle Foreign Corrupt Practices Act Lawsuit

Published on: January 5, 2013 | by Shepherd Smith Edwards & Kantas, LLP

Massachusetts Investment Adviser Gets $1.78M Judgment

In a final judgment, the U.S. District Court for the District of Massachusetts says that EagleEye Asset Management LLC and its principal Jeffrey A. Liskov must pay a $1.78M judgment for using a foreign currency exchange trading scam to defraud clients. The Securities and Exchange Commission contends that Liskov fraudulently got several of his investment advisory clients to liquidate securities investments and place the money in forex trading. While EagleEye and Liskov made about $300,000 in performance fees, their clients allegedly lost $4M.

Liskov is accused of perpetuating the investment adviser fraud by issuing material misrepresentations about forex investments, their risks, and his track record. Also per the SEC’s complaint, Liskov more than once took old forms that advisory clients had signed and changed the dates, asset transfer amounts, and other information, and, without their knowledge, opened forex trading accounts.

Pension Plans’ Shareholder Derivative Claims Against UBS is Reinstated by 1st Circuit Appeals Court

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

The U.S. Court of Appeals for the First Circuit has reinstated the shareholder derivative claims filed by two Puerto Rican pension funds against UBS Financial Services Inc. (UBS) Judge Kermit Lepez said that following de novo review—a district court had dismissed the case on the grounds that a failure to properly plead demand futility was subject to such an examination—it seemed to him that the plaintiffs’ allegations sufficiently show reasonable doubt about six fund directors’ ability to assess the former’s demand to bring this action with the independence and disinterest mandated by Puerto Rican law.

The two pension funds are the owners of shares in closed-end funds that made investments, which were not successful, through UBS entities. Their investment adviser and fund administrator is UBS Trust, which is a UBS Financial affiliate.

According to the court, UBS Financial, which has been Puerto Rico’s Employee Retirement System (ERS) financial adviser for more than five years, underwrote $2.9B of ERS-issued bonds. Meantime, the UBS Trust bought approximately $1.5B of the ERS bonds and then sold them to funds. At issue is about $757M in bonds that the two Puerto Rican funds purchased.

Morgan Stanley Must Pay Ex-Manager $1M

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

A Financial Industry Regulatory Authority arbitration panel says that Morgan Stanley (MS) Smith Barney has to pay Gregory Carl Torretta $1 million. The financial firm’s ex-manager claims that he was forced to unfairly resign.

Torretta had sought $8 million to $9 million for what he claims were wrongful termination and the breach of his employment contract. Torretta contends that Morgan Stanley had accused him of criticizing the performance of a branch manager, whom he was about to fire, and that he was going to take that person with him to another firm. The allegations surfaced after the branch manager, who was unhappy with the oversight, wrote Torretta implying that the latter had talked about leaving the brokerage firm and suggested that he also leave with him. The branch manager cc’ed Torretta’s boss on the email.

Torretta says that the firm then told him he could either resign or be fired, so he resigned. He is now employed with Ameriprise Financial Services Inc. (AMP). The branch manager was letter let go.

SEC To Enhance Company Filings Scrutiny with Broader Corporate Review Process

Published on: January 2, 2013 | by Shepherd Smith Edwards & Kantas, LLP

BNA reports that sources say that the Securities and Exchange Commission will likely widen its corporate filing review process to improve how it scrutinizes financial statements that are publicly filed by registered companies, as well as other documents. The program, referred to as “continuous review,” was set up a few years ago to focus on financial institutions that received Troubled Asset Relief Program support from the government. This focus is likely to grow to include large financial service firms.

The SEC started its process of continuous reviews on a number of companies in the Corporation Finance Division’s Assistant Director Office No. 12 (AD 12). Nine banks that had obtained over $120B in taxpayer funds through the Capital Purchase Program, which is a TARP program, were analyzed. Unlike the regular review process, which examines a company’s Form 10K filings every three years, this program looks at all documents and filings on a continuous basis.

Sarbanes-Oxley Act

Ex-Hedge Fund Portfolio Managers Convicted in $72M Insider Trading Scams

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

A jury has convicted Anthony Chiasson and Todd Newman, two ex-hedge fund portfolio managers, of securities fraud and conspiracy charges related to the parts they played in insider trading scams that caused them to illegally profit about $72M. Newman was previously with Diamondback Capital Management, LLC while Chiasson was with Level Global Investors, LP.

According to United States Attorney for the Southern District of New York Preet Bharara, the defendants made trades using insider information about NVIDIA Corporation (NVDA) and Dell Inc. (DELL). Research analysts at different investment firms gave them the material, nonpublic information.

Chiasson was found guilty of five counts of securities fraud. On just the two technology companies’ stocks, he had made Level Global $68.5 million. Newman, who made his fund approximately $3.8 million, was convicted of four securities fraud counts. Both men could spend years behind bars.

The massive insider trading operation ran from 2007 to 2009. Level Global, a $4 billion hedge fund, underwent liquidation 2011 following a 2010 FBI raid. Diamondback told its clients in December that it too was shutting down shop following similar raids.

Meantime, the research analysts accused of giving Chiasson and Newman the information have also pled guilty to related criminal charges: Jon Horvath, previously with Sigma Capital Management; Jesse Tortora, also previously with Diamondback and who had worked under Newman; Danny Kuo, formerly with Trust Company; Sandeep Goyal, formerly with Neuberger Berman; Spyridon Adondakis, who had worked at under Chiasson at Level Global. Tortora, Goyal and Adondakis were cooperating witnesses that testified in this latest criminal trial.

Operation Perfect Hedge
The investigation and prosecution of these men are part of Operation Perfect Hedge, which is the name given to the FBI’s systematic efforts to target insider trading involving hedge funds. Since October 2009, Bharara’s office has charged 79 people with insider trading-71 of them have either been convicted or they entered guilty pleas.

More Blog Posts:
$78M Insider Trading Scam: “Operation Perfect Hedge” Leads to Criminal Charges for Seven Financial Industry Professionals, Stockbroker Fraud Blog, January 18, 2012
Texas Securities Fraud: SEC Charges Life Partners Holdings Inc. in Life Settlement Scam, Stockbroker Fraud Blog, January 4, 2012 Continue Reading ›

Clearing House Association Wants Greater Protections for Clearing Members

Published on: December 31, 2012 | by Shepherd Smith Edwards & Kantas, LLP

This month, the Clearing House Association put out a paper with nine new recommendations about an emerging plan for the central clearing of derivatives. It was in April that the International Organization of Securities Commissions and the Bank for International Settlement’s Committee on Payment and Settlement Systems issued final standards geared toward making clearing, payment, and settlement systems more able to withstand financial defaults and shocks.

The Clearing House Association is warning about what it perceives as unrealistic and poorly defined expectations for Clearing Members and how this might end up creating additional problems. This issue involves indicators that there is friction between experts, international regulators, and standard-setters on how to utilize central counterparties to ease financial contracts’ traffic through global markets. The bank-owned association said that although it considered the CPSS-IOSCO standards a key beginning in tackling the issues associated with financial market infrastructures, under the new standards, we may be left with the problem of clearing member firms that provide important support to central counterparties ending up with too much of the burden. The Clearing House Association wants to make sure that liability for clearing members is ascertainable and limited. It is calling on central counterparties to make sure that the proper governance structures and liquidity demands and liquidity management protocols on clearing members are assessed in the wake of conflicting, new demands, such as:

• Liability for clearing members that is manageable, limited, and can be ascertained.
• Proper “skin in the game” for central counterparties.
• Margin requirements to protect clearing members that aren’t defaulting from those that are.
• Realistic expectations for clearing members when liquidity demands are made by central counterparties.
• Coordinating liquidity demands placed on clearing members to prevent them from getting overwhelmed with intraday margin calls.
• Restrictions on the how and when central counterparties can modify practice standards or rules during a crisis.
• Greater transparency on central counterparties so that clearing Members can monitor risk.
• The ability to isolate loss liabilities within central counterparties so that contagion doesn’t occur.

The Clearing House Association says that the recommendations are intended to offer general principals as new rules are made known.

Our institutional investment fraud lawyers represent clients throughout the US. Contact our securities fraud law firm today.

Clearing House Association

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Stockbroker Fraud Headlines: Wells Fargo Banker Charged Over $11M Insider Trading, Morgan Stanley to Resolve Facebook IPO Action for $5M, & SEC Accuses Canadian Broker of Inadequate Day Trader Supervision

Published on: December 28, 2012 | by Shepherd Smith Edwards & Kantas, LLP

Wells Fargo Banker and 8 Others Accused of Alleged $8M Insider Trading Scam

The U.S. Attorney for the Western District of North Carolina is charging Wells Fargo (WFC) investment banker John Femenia and eight alleged co-conspirators with involvement in an alleged $11 million insider trading scam. Femenia is accused of stealing confidential data from his employer and its clients about acquisitions and mergers that were pending. He then either directly or via others tipped his co-conspirators, receiving kickbacks in return.

According to the N.C. government, the insider trading scam resulted in $11M in profits. While six of the co-conspirators opted to plead guilty to conspiracy to commit insider trading, Femenia and the other two have been indicted on multiple charges of conspiracy and insider trading. The same defendants, and another person, are also named in the SEC lawsuit over the scheme.

SEC Intends to Examine 25% of Investment Advisers That Had To Register, Per Dodd-Frank Act, by End of 2014

Published on: December 26, 2012 | by Shepherd Smith Edwards & Kantas, LLP

According to SEC Office of Compliance Inspections and Examinations Director Carlo di Florio, by December 31, 2014, the Commission plans to have examined 25% of the investment advisers that had to register with it after the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 issued its mandate. This will be done via “presence exams” at these investment firms.

The exams will concentrate on the issues of marketing, valuation, conflicts of interest, portfolio management, and asset verification. Also, the agency’s enforcement division will focus on private fiduciary duties.

According to di Florio, based on “preliminary observations” from initial presence exams it appears that even though a lot of longtime private investment firms have done a good job in constructing compliance risk management and control programs that work, OCIE examiners still noticed that there were numerous issues when they conducted initial exams, such as deficiencies related to conflicts of interest mismanagement. One example of this is the inflation of certain fees to conceal losses. Also, examiners found that some expenses, such as property rent and salaries, were inappropriately charged to funds instead of to the fund manager.

CFTC Roundup: Japan Securities Clearing Corp. Gets Relief Despite Not Registering as a Derivatives Clearing Organization & the Final Oral Communications Records Rule is Approved, as is Interim Final Rules for Major Swap Participants and Swap Dealers

Published on: December 26, 2012 | by Shepherd Smith Edwards & Kantas, LLP

No Enforcement Action Against Japan Securities Clearing Corp. Despite Failure to Register as a Derivatives Clearing Organization

The Commodity Futures Trading Commission Division of Clearing and Risk has decided not to recommend that an enforcement action be taken against Japan Securities Clearing Corp. for not registering as a derivatives clearing organization. Enforcement action also won’t be recommended against the corporation’s clearing participants for not clearing yen-dominated interested rate swaps through a registered DCO.

The Commission had recently finalized its clearing requirement determination, which mandates that market participants clear certain CDS classes based on European and North American corporate entities and certain interest rate swaps classes. Under the relief, JSCC will be able to clear credit default swaps (“iTraxx Japan index and yen-denominated interest rate swaps that reference the Tokyo Interbank Offered Rate or LIBOR”, said the CFTC), as long as it doesn’t accept (and none of its qualified clearing participants offer) swaps for clearing for a US customer.