Investor Lawyers Blog

Advisory Firm Metropolitan West Asset Management LLC Doesn’t Have to Pay Solicitor in Fee Dispute, Rules California Court

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

According to the California Court of Appeal, Metropolitan West Asset Management LLC indeed does not have to pay a solicitor it hired to bring in clients for its business. The ruling affirms the trial court’s summary judgment that favored the advisory firm on the grounds that the plaintiff Bruce Lloyd had failed to comply with the Cash Solicitation rule, which would make paying him unlawful.

Metropolitan West Asset Management is registered under the 1940 Investment Advisers Act and Securities and Exchange Commission rules, which mandate that those that solicit clients for investment advisers who are subject to the Act must make certain disclosures. The Cash Solicitation Rule generally requires for solicitors to give prospective clients two disclosure forms: Part 2 of SEC Form ADV and a second one that asks for information about the solicitor, his/her relationship to the investment advisory form, the compensation amount, and any extra charges that the client has to pay.

The agreement, which was signed between Metro and Lloyd was signed in March 2005, generally did not prove successful. The solicitor later proceeded to sue the investment advisory firm for not continuing to pay him a monthly retainer after 2006 and refusing to pay him a referral fee for bringing in business from Pictet & Cie to Metro, which is a Swiss financial firm.

Investment Opportunities to Get More Advertising Exposure Because of JOBS Act Mandate Lifting Ban on General Solicitation

Published on: January 29, 2013 | by Shepherd Smith Edwards & Kantas, LLP

Now that the Securities and Exchange Commission has been ordered by the US Congress to remove the ban on general solicitation, companies will be able to more easily offer their private offerings to the masses for the first time since the 1930’s. The purpose of this is to assist small businesses and start-ups to raise capital.

The lifting of the ban is part of the wider mandate established under the Jumpstart Our Business Startups Act. Firms will be able to advertise to anyone. However, only “accredited investors” in possession of a certain amount of income ($200,000 or $300,000 if married) or with net worth greater than $1 million (primary residence not included) can buy the private offerings.

While the private equity industry says that this change will liberate firms from limitations that restrict entrepreneurship, advocates are worried that investors will be even more at risk of falling victim to high-pressure sales tactics and fraud. They are calling for the SEC to mandate related protections. Even the North American Securities Administrators Association, which represents state securities regulators, reportedly expects private placement fraud cases to go up once the lifting of the ban actually happens.

US Seeking to File Criminal Charges Against Royal Bank of Scotland Group in Interest-Rate-Rigging Settlement Involving Libor

Published on: January 29, 2013 | by Shepherd Smith Edwards & Kantas, LLP

Authorities in the United States want to reach a settlement with Royal Bank of Scotland Group (RBS.L) that would require that the British bank plead guilty to criminal charges and pay about $790M in penalties to Britain and America over its alleged involvement in last year’s Libor-rigging scandal. RBS would be the third bank to settle over interest-rate-rigging allegations. UBS AG (UBS) and Barclays PLC (BCS) reached settlements last year that together totaled almost $2 billion. They both admitted to committing wrongdoing.

Prosecutors want an RBS unit where some of the alleged rate-rigging occurred to plead guilty to attempting to manipulate the rates. Currently, reports The Wall Street Journal, RBS executives are balking at making such an admission, especially because it could make exposure to securities lawsuits greater. However, ultimately the decision is up to the US Justice Department.

Meantime, at least a dozen other banks around the world are still under investigation for trying to manipulate Libor and Euribor. Bloomberg reports that it has obtained documents that show that for years traders at numerous banks worked with colleagues tasked with establishing the Libor benchmark to rig the price of money. The traders reportedly knew each other from work or from trips involving interdeal brokers. The manipulation of the Libor is believed to have gone on for years.

SEC Whistleblower Office Will Place More Emphasis on Anti-Retaliation Provisions and Publicity This Year

Published on: January 29, 2013 | by Shepherd Smith Edwards & Kantas, LLP

According to Securities and Exchange Commission Office of the Whistleblower Chief Sean McKessy, the unit will take a more aggressive approach to publicizing its activities and figuring out how to better enforce the anti-retaliation provisions of its bounty program. McKessy spoke at the DC Bar organized enforcement conference earlier this month and noted that his views were his own and not necessarily that of the SEC.

McKessy said that despite the Commission’s efforts to offer whistleblower provisions that incentivize internal reporting, some corporations have still not told employees about the bounty program. Per the Dodd-Frank Wall Street Reform and Consumer Protection Act, the SEC can now offer 10-30% of a monetary penalty greater than $1 million that is collected because of “original information” voluntarily offered up by an informant.

Also, per the statute, the SEC has the authority to enforce its anti-retaliation provisions, which protects whistleblowers that provide this information, or commit certain other lawful acts, from retaliatory actions—particularly from employers. McKessy, however, noted that it is too soon to know whether the agency will incorporate an anti-retaliation action to its whistleblower program.

Alleged Houston, Texas Affinity Fraud Scam Targeting Druze and Lebanese Communities Leads to SEC Charges Against Day Trader

Published on: January 28, 2013 | by Shepherd Smith Edwards & Kantas, LLP

The SEC has filed securities charges against day trader Firas Hamdan for allegedly running a Texas securities scheme in the Houston area that defrauded investors from the Druze and Lebanese communities. Hamdan, who used to be the treasurer of the Houston branch of the American Druze Society, is known among members of both groups. He is accused of raising over $6 million from over 30 investors over five years. He allegedly claimed to run a high-frequency trading program that applied a proprietary trading algorithm.

According to the Commission, Hamdan promised investors 30% in yearly returns, while misrepresenting his trading program as being safe, when, in fact, it had suffered $1.5 million in losses. He also allegedly falsified brokerage records to hide huge trading losses and overstate assets.

When profits that were promised to investors didn’t come in, Hamdan is said to have told clients that the money got entangled in the MF Global debacle and the debt crisis in Greece. He also is accused of lying about a nonexistent cash reserve account and a supposed $5 million “key-man” insurance policy that made clients’ investments secure.

US Supreme Court to Hear Appeals of Petitioners Over Stanford Ponzi Lawsuits

Published on: January 25, 2013 | by Shepherd Smith Edwards & Kantas, LLP

Our Texas securities fraud law firm has been bringing you the latest legal news developments in the efforts of defrauded investors to recoup their losses stemming from the $7 billion Stanford Ponzi scam. While the fate of R. Allen Stanford has already been sealed-he is serving 110 years in prison, which is essentially the rest of his life-for many of his victims how and when all of them will recover their losses still remains a big question mark.

On Friday, the US Supreme Court agreed to hear three petitioners’ appeals over the sale of bogus certificates of deposits from Stanford’s Antigua bank. The requests come from insurance brokerage Willis Group Holdings Plc., which has been accused of being involved in the bogus CD sales that Stanford used to defraud his clients, and two law firms that used to represent Stanford himself. They want the court to determine whether or not under the Securities Litigation Uniform Standards Act plaintiffs can assert state-law class action claims against the petitioners.

While a federal judge said in 2011 SLUSA does preempt such state law cases, the U.S. Circuit Court of Appeals for the fifth circuit later went on to revive the securities lawsuits. Now, it will be up to the nation’s highest court to make the final call.

SEC News Roundup: Commission to Present Money Market Mutual Fund Reform Proposal, Achieves Record Number of Insider Trading Settlements During FY 2012

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

Commission to Present Money Funds Reform Proposal

According to SEC Commissioner Daniel Gallagher, staff members are putting together a money market mutual fund reform proposal that will address the problems that occurred in 2008. Another area that will likely be looked at more closely in the proposal would be the floating the net asset value of the funds. Gallagher, who made his comments at a US Chamber of Commerce, said this was important because there are “serious” related issues involving tax, accounting, and operations that need to be tackled.

Meantime, the Financial Stability Oversight Council is looking at three draft money fund reform recommendations that it wants the SEC to deal with, including floating NAVs, a stable NAV that has a capital buffer with a cap of 1% of a fund’s value in addition to delayed redemptions, and a stable NAV along with a 3% capital buffer that could be lowered if applied along with other measures.

JPMorgan CEO Jamie Dimon Blames Regulators for Problems in the Wake of Economic Crisis

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

Speaking at a panel at the World Economic Forum in Davos, Jamie Dimon, the chief executive officer of JPMorgan Chase (JPM), said that one reason many of the issues from the 2008 financial crisis have yet to be fixed is because new regulations have made things more complex. Dimon said that not only is too much being attempted too quickly, but also he believed that regulators have become too overwhelmed by the rules.

Dimon said that rather improving the system, during the last five years there has been a great deal of placing blame and exchanging misinformation. He did, however, praise the Federal Reserve, which he said saved “the system” by coming to the rescue after Lehman Brothers failed.

“It’s unbelievable that Mr. Jamie Diamond would be complaining so loudly about regulations,” said Institutional Investment Fraud Lawyer William Shepherd. “Among other gambling woes, his company just took a $6 billion loss on one of his traders bets! Look where deregulation of the financial markets got us 5 years ago! After the 1929 debacle, laws were passed to regulate these markets. One outlawed banks and securities firms being under the same umbrella. In fact, this is how Morgan Stanley (MS) was formed, as a forced spinoff of JP Morgan Bank. Lawmakers had decided that banks insured by FDIC, thus the taxpayers, should not gamble in the securities markets. Unfortunately, that law was repealed, and less than 10 years later our financial system collapsed again. Congress should have simply reinstituted the ban on such combined firms but has instead voted out far less protection. Stop your wining Jamie!

FINRA News Roudup: FINRA Unveils Telephone Mediation Pilot and Proposes A More Stringent Definition of Public Arbitrator

Published on: January 22, 2013 | by Shepherd Smith Edwards & Kantas, LLP

FINRA Unveils Telephone Mediation Pilot

The Financial Industry Regulatory Authority says it now has a pilot program that allows parties with simplified cases to choose reduced-fee or pro bono phone mediation. Volunteers with arbitration claims involving $50,000 or under are welcome to participate. In cases involving damage claims of $25,000 or under, mediators would work on a pro bono basis. For cases between $25,001 and $50,000, there would be a reduced fee mediation rate of $50/hour. No administrative fees will be charged.

Benefits to this phone mediation pilot include getting rid of in-person mediation preparation and travel costs, as well as more flexibility and convenience. The pilot was launched on January 15.

Mom of Baby Born with Cancer Sues Barclays Capital for $10M for Alleged Wrongful Termination

Published on: January 21, 2013 | by Shepherd Smith Edwards & Kantas, LLP

According to ABC News, Rachel Walsh, 32, has filed a $10 million lawsuit against Barclays Capital claiming that they fired her because she had to take a long leave of absence and subsequently terminated her child’s health coverage. Walsh’s child was born with cancer.

She is alleging gender discrimination and breach of contract. Because Walsh waived her right to a trial when she signed her employment agreement with the financial firm, the Financial Industry Regulatory Authority will be arbitrating her case.

Walsh was hired by Barclays to fill the position of global finance assistant vice president. (Prior to that she worked at Merrill Lynch (MER) and Ernst and Young.) During her first year with the financial firm, she was given a bonus, a raise, and a good end-of-year review. She also became pregnant but continued to work until three week prior to her delivery date when her doctor ordered her to bed due to pregnancy complications.