Investor Lawyers Blog

Many Financial Fraud Victims Don’t See It Coming, Says Survey

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

According to people who took a survey a report called the Financial Fraud and Fraud Susceptibility in the United States, while most people have been targeted by financial scammers, nearly half of them don’t see it coming. Almost 24,000 adults in the 40 and over age group participated.

Among the survey results:

• Over 80% of respondents had been approached about taking part in what was potentially financial scam.

Morgan Keegan to Pay $60,000 Fine Over Inadequate Supervision Over SBA Pools and Sales

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

Morgan Keegan & Co. has agreed to pay the Financial Industry Regulatory Authority $60,000 over allegations that its Small Business Administration Desk bought small business loans guaranteed by the gov’t from regional banks in this country and then pooled together the loans with qualities that were similar, securitizing them into SBA pools and then selling them to institutional clients.

When the demand for these pools started to go down, the inventory at the Desk went up a lot and stayed over Morgan Keegan’s allowable levels so that they seemed lower than what was actual and therefore in compliance with what was allowed. As a result, the head trader went into fake pool trades totaling about $82 million.

Per FINRA’s findings, because of the fake trades, Morgan Keegan thought its SBA loan levels went down down by $75 million. Also, aside from allegedly making the false trades happen, the trader moved forward the dates of settlement on a repeated basis, continuing to move the date ahead whenever a settlement date was approaching. This gave him more time so he could sell the SBA pools, leading to the generation of correct and cancel tickets for trades that went on for several months. The head trader later admitted his wrongdoing and Morgan Keegan fired him.

The SRO found that Morgan Keegan’s supervisory system and written supervisory procedures (WSP) for government loans were not adequate enough that they were able to prevent the fictitious trading that the head trader engaged in. FINRA also said that the firm lacked a way to monitor SBA loans that were more than four months old, as well as aged SMA pools, nor did it have a system for comparing and confirming ex-clearing transactions or one to assess transactions that were modified or cancelled to determine if they were reasonable.

FINRA says that Morgan Keegan did not properly address the SBA Desk inventory positions’ marking because the firm’s WSPs mandated that SBA pools get marked monthly, rather than daily. The WSPs did not properly prevent the head trader from approving his own transactions without a supervisor overseeing his actions.

Even as it submitted its Letter of Acceptance, Waiver, and Consent to FINRA, accepting the fine and ensure and consenting to the sanctions described, Morgan Keegan did not deny or admit to any wrongdoing.

Financial Industry Regulatory Authority

More Blog Posts:
Previous Dissent by Arbitrator is Not Reason to Vacate Award Morgan Keegan Was Ordered to Pay Investors, Says District Court, Stockbroker Fraud Blog, April 8, 2013

Court Upholds Ex-NBA Star Horace Grant’s $1.46M FINRA Arbitration Award from Morgan Keegan & Co. Over Mortgage-Backed Bond Losses, Stockbroker Fraud Blog, October 30, 2012

Morgan Keegan Must Buy Back Auction-Rate Securities and Pay $110,500, Says District Judge, Institutional Investor Securities Blog, February 12, 2013

NEXT Financial Group Gets $250,000 FINRA Fine Over E-Mail Violations

Published on: September 6, 2013 | by Shepherd Smith Edwards & Kantas, LLP

NEXT Financial Group, Inc. will pay a $250,000 fine and perform an audit to identify all non-company email accounts that were used by the firm’s registered persons to conduct communications that were securities-related. It will also identify whether the accounts were captured by its servers, reviewed during regular email surveillance, and retained according to federal securities laws and FINRA rules. NEXT Financial will then present a written statement to the SRO describing the audit results and any corrective action to make sure that emails are captured, retained, and reviewed in the future.

FINRA says that for four years, two of NEXT Financial’s registered representatives ran an outside business activity that was approved and, during certain times, they outside business email addresses to communicate with customers about out securities-related matters. The SRO says that firm’s written supervisory procedures let registered persons communicate with NEXT Financial customers via the non-firm email accounts as long as the external domain names were firm-hosted and approved and could be captured and reviewed on the company’s server.

However, says the SRO, during a yearly branch audit, NEXT Financial found that registered representatives’ outside emails were not being maintained or captured on the server and, as a result, no review was taking place. FINRA contends that even after discovering this, NEXT financial did not take corrective action.

NEXT Financial consented to the sanctions described by FINRA, as well as to the entry of findings but did not deny or admit to them.

FINRA E-mail Enforcement Actions
According to InvestmentNews, FINRA has been stepping up its e-mail enforcement actions as of late, with the number of e-mail related violations rising. The SRO imposed $6.5 million in fines over this matter last year—an 81% rise from the year prior—over 632 email cases.

FINRA and the Securities and Exchange Commission mandate that brokerage firms set up systems and written procedures to catch and hold all e-mail communications with members of the public for three years. The firms also must pre-approve or regularly examine at least some e-mail samplings sent to customers by brokers. Unfortunately, proper retention and review of emails is proving to be a struggle for some brokerage firms.

Finra going all out to control e-mail, InvestmentNews, May 26, 2013

FINRA

More Blog Posts:
LPL Financial Ordered to Pay $7.5M FINRA Fine Over E-Mail Failures, Institutional Investor Securities Blog, May 22, 2013

Next Financial Ordered to Pay One Million Dollars for Supervisory Deficiencies that Led to Texas Securities Fraud, Stockbroker Fraud Blog, August 4, 2009

FINRA NEWS: Goldman Sachs Appeals Vacating of Securities Award, Non-Customers of Brokerage Firm Can’t Compel Arbitration, & Three Governors Named To FINRA Board, Stockbroker Fraud Blog, August 21, 2013

Securities America & Ameriprise Among Independent Broker-Dealers Charged $10.75M by Massachusetts for Non-traded REIT Sales

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

Massachusetts Secretary of the Commonwealth William Galvin just announced that independent broker-dealers Ameriprise Financial Services (AMP), Securities America Inc., Commonwealth Financial Network, Lincoln Financial Advisors, and Royal Alliance Associates have consented to pay another $10.75 million in restitution over non-traded REITs that were sold to clients between 2005 and now. The added charge comes four months after the five independent brokerage firms consented to pay $6.1 million in restitution and $975,000 in fines. It was investors’ complaints that spurred the regulator’s investigation into the REITs.

Along with LPL Financial (LPLA) consenting to pay $4.8 million in restitution to clients for its sale of non-traded REITs, that’s a total of $21.6 million in restitution and fines of nearly $1.5 million from the six IBDs. In a statement, Galvin acknowledged the popularity of these risky investments. The regulator noted that the state’s probe discovered problems pertaining to firms adhering to their own policies and that this was a widespread matter. He also said that there appeared to be issues related to brokerage firms abiding by the state rule that investors cannot buy REITs that are over 10% of an individual’s liquid net worth.

Our REIT lawyers represent investors that have sustained huge losses because of the negligence of brokerage firms, investment advisors, and their representatives. Contact our securities fraud law firm today. We work with clients throughout the US, as well as investors based abroad with claims against firms based in the country.

FINRA Fines Expected to Drop 41% in 2013

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

Even though the number of disciplinary actions from the Financial Industry Regulatory Authority has dropped just slightly this year, fines paid to the SRO are expected to be 41% lower from what was assessed in 2012.

In its Disciplinary and Other FINRA Actions report for the first half of 2013, FINRA said there were $23 million of fines—compare that to the same time period last year when the SRO fined brokerage firms and associated individuals $39 million. The total in fines it would assess for 2012 would reach $78 million. This year’s total is estimated to reach $46 million.

One reason for the decline might be that FINRA had already brought its biggest cases related to the market collapse. A decrease in supersize fines of those over $1 million has also occurred during the year’s first six months. However, in July, the SRO reported fining a financial firm $7.5 million while another had to pay investor restitution of $1.5 million. Supersize fines were also imposed on other broker-dealers.

SEC Votes to Amend Broker-Dealer Financial Responsibility Rules

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

By unanimous decision, the Securities and Exchange Commission has agreed to amendments to the Securities Exchange Act or 1934’s rules regarding customer protection, net capital, notification, and record books for broker-dealers. The regulator is seeking to enhance protections for investors and prevent business practices that are not sound.

Under The Act, broker-dealers have to satisfy certain financial requirements so that customers are protected in the event of the firm’s financial failure. The Act offers safeguards so that customer funds and securities being held by a broker are protected.

The Customer Protections Rule

NCUA Accuses Morgan Stanley Of $556M Mortgage-Backed Securities Fraud

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

The National Credit Union Administration is suing Morgan Stanley (MS) for mortgage-backed securities fraud. In its MBS lawsuit, the NCUA said that it misrepresented $556 million of the securities that it sold to two credit unions, Western Corporate Federal Credit Union and U.S. Central Federal Credit Union, which are now no longer in operation.

Morgan Stanley is just one of several banks, including Barclays (BCS) and Goldman Sachs (GS) to get hit by securities cases accusing them of strapping such unions with millions of dollars in beleaguered loans. The bank and its affiliates are being blamed for purportedly making misleading statements about the risks involved, as well as about the underwriting standards for originating home loan securities that sold between 2006 and 2007.

According to the regulatory agency’s MBS lawsuit, the originators were systematic about moving away from the underwriting guidelines stated in the offering documents and that the securities were headed toward failure from “inception.” Because of this, contends the complaint, WesCorp and US Central suffered losses in the million dollars as the housing market collapsed and they eventually became insolvent. They both were put into conservatorship and later liquidated.

Securities Headlines: UBS to Pay $4.5M Over Unregistered Assistants, $6M Ponzi Scam Allegedly Funded Reality Show, & Cherry Picking Allegations Lead to SEC Charges

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

UBS Settles Unregistered Assistant Allegations for $4.5M

UBS AG (UBS) has agreed to pay $4.5 million to settle state regulator allegations that its assistants may not have been licensed in the states where they conducted business. The New Jersey Bureau of Securities, which led the securities case, contends that for about six years, the financial had “client service associations” that lacked the necessary state registrations take orders.

An unknown amount of unsolicited trades were reportedly involved in these transactions between 2004 through 2010 when UBS had about 2,277 sales assistants on staff. The fine will be divided between the 50 States, DC, Virgin Islands, and Puerto Rico. By settling, the Zurich-based bank is not denying or admitting to the allegations. However, in late 2010 it modified its order-entry system so that employee state-registration statuses could be validated.

Securities and Exchange Commission Report: Enforcement Division & OCIE Collaborate, Broker-Registration in Private Funds, Conflict Minerals Regulation, Short Sale Rules, and New Commissioner Confirmations

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

Lawyers Not Happy About Growing Collaboration Between SEC’s Enforcement and OCIE

A number of lawyers have expressed dismay that the collaboration efforts between the Securities and Exchange Commission’s Office of Compliance Inspections and Examinations and its Enforcement Division are increasing. There is concern that examinations are ending up becoming the start of later investigations. For example, examiner interviews with the employees of registrants can later turn into the basis of enforcement actions, and some attorneys say this brings up issues of due process.

Meantime, SEC officials have acknowledged the growing collaboration between these two divisions.

NY AG’s ARS Lawsuit Against Charles Schwab & Co. is Revived by Appeals Court

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

A New York Appellate Division’s panel has unanimously agreed to revive the state attorney general’s auction-rate securities lawsuit against Charles Schwab and Co. (SCHW). The 2009 securities case accuses the financial firm of committing fraud in its sale and marketing of the financial instruments. The decision reverses a state judge’s ruling to throw out the complaint.

According to the NY ARS lawsuit, the broker-dealer’s brokers made false representations that the securities were safe and liquid. In a 4-0 decision, the appeals panel said that the state had given enough evidence to merit a trial on two claims submitted per its Martin Act, a 1921 law that gives the attorney general of New York the ability to prosecute fraud without proof of intent. Under the law fraud is defined as acts that involve misleading or fooling the public.

Per the panel’s ruling, the claims are revived only as it pertains Schwab’s alleged misconduct before 9/5/07, which is when the first ARS sold by Schwab failed. The state wants the company to repurchase securities from customers and pay civil penalties and restitution.