Investor Lawyers Blog

Federal Judge Approves $40M Residential Mortgage-Backed Securities Settlement In Class Action Against Former Lehman Brothers Holdings Executives

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

The U.S. District Court in Manhattan’s Judge Lewis A. Kaplan has approved a $40 million class action settlement in the residential mortgage-backed securities lawsuit against three individuals who used to be affiliated with Lehman Brothers Holdings Inc. (LEHMQ). The plaintiffs are pension and union groups, including Locals 302 and 612 of the International Union of Operating Engineers – Employers Construction Trust Fund, Boilermakers-Blacksmith National Pension Trust, and New Jersey Carpenters Health Fund. The deadline for class members to file their settlement claims is August 20, 2012.

The defendants, Samir Tabet, James J. Sullivan, and Mark L. Zusy, had previously worked for Lehman affiliate Structured Asset Securities Corp. They are accused of filing misleading Offering Documents about the credit quality of mortgage pass-through certificates that were worth billions of dollars. The certificates were issued in 2006 and 2007.

The plaintiffs had submitted their original institutional securities lawsuit prior to Lehman’s filing for bankruptcy in September 2008. This case is one of a number of class action complaints accusing the financial firm and its ex-executives of wrongdoing and negligence.

Per the terms of the RMBS settlement, the Lehman Brothers Estate is responsible for paying $8.3 million. Dow Jones News Services reports that an insurance policy for the financial firm’s ex-directors and former officers will pay the remaining $31.7 million.

When Lehman filed for Chapter 11 bankruptcy, this was considered a major catalyst for the global financial crisis that ensued. The firm, which emerged from bankruptcy protection this March, is now a liquidating company that is expected to spend the next years repaying its investors and creditors that have asserted over $300 billion in claims. Depending on the type of debt owed, a creditor may receive 21 cents/28 cents on the dollar. Also, Lehman is still a defendant in several securities lawsuits related to its bankruptcy and there are other claims against it that need to be resolved.

Last month, Judge Kaplan approved the use of $90 million in insurance to settle another lawsuit against Fuld, ex-finance chief Erin Callan, ex-president Joseph Gregory, former CFO Ian Lowitt, ex-chief risk officer Christopher O’Meara, and several former Lehman directors. The plaintiffs include pension funds, companies, and individuals located abroad. The investors had purchased $30 billion in Lehman debt and equity prior to the firm’s bankruptcy filing and their investments later failed.

Kaplan had initially refused to let the plaintiffs’ insurers pay the $90 million because he wanted to determine whether the securities settlement was a fair one. Now that the federal judge has signed off on it, the plaintiffs will not have to pay for the settlement out of pocket and they are released from the investors’ securities claims.

Judge Approves $40M Settlement with Ex-Lehman Execs, WSJ, June 22, 2012

The Lehman Settlement

Ex-Lehman Executives’ $90 Million Settlement Approved, Bloomberg, May 24, 2012

More Blog Posts:
Ex-Lehman Brothers Holdings Chief Executive Defends Request that Insurance Fund Pay Legal Bills, Stockbroker Fraud Blog, October 19, 2011

Lehman Brothers’ “Structured Products” Investigated by Stockbroker Fraud Law Firm Shepherd Smith Edwards & Kantas LTD LLP, Stockbroker Fraud Blog, September 30, 2008

Investor Groups, Securities Lawyers, and Business Community Comment on the JOBS Act Reg D’s Investor Verification Process

Published on: June 24, 2012 | by Shepherd Smith Edwards & Kantas, LLP

The Jumpstart Our Business Startups Act’s Title II eliminates the general solicitation and general advertising ban for offers and sales of private offerings under 1933 Securities Act Rule 144A and Reg D Rule 506 as long as the offerings’ buyers are accredited investors. Now, five investor groups have written a letter to the Securities and Exchange Commission recommending that when the regulator implements this change, it should “enhance the standards” that issuers have to adhere to when confirming that only accredited investors are buying the offerings. The groups are the Consumer Federation of America, Fund Democracy, AFL-CIO, Consumer Action, and Americans for Financial Reform. They believe that such enhancements are necessary because removing the ban will significantly decrease investor protections even as fraudulent behavior is likely to increase.

Right now, the SEC is in the process of writing rules for the new requirements that come with the statute. It has 90 days from April 5, when the JOBS act was enacted, to implement Title II. While under the statute’s Rule 506, the offerings’ issuers are required to take “reasonable steps” to confirm that buyers are accredited, Rule 144A issuers only have to “reasonably believe” that the buyers are qualified institutional purchasers. In their letter, the investor groups argued that Congress most certainly intended for the Commission to set up more rigorous the standards for identifying accredited investors. They are recommending that at the very least, the SEC substantially increase the Rule 506’s accredited investor standard for individual investors in each of the two most recent years to at least $400,000 in yearly income (up from at least $200,000) or $2.5 million in net worth, with the primary residence’s value subtracted (up from $1 million). They also said that the Commission should mandate that issuers that decide to engage in general solicitation and advertising file Form D in advance, enhance filing and recordkeeping requirements having to do with buyers’ accredited investor status, and think about excluding non-accredited investors from taking part in all Rule 506 offerings.

Offering different perspectives from these investors groups are securities lawyers and business groups. For instance, the National Investment Banking Association is pressing the SEC to make sure that any rule promulgated on the verification process is one that issuers of all sizes can meet. Meantime, the Securities Industry and Financial Markets Association wrote a letter to the SEC in April arguing that the steps that Title II requires shouldn’t create a greater burden than the existing “reasonable belief” standard of Rule 506. The American Bar Association Business Law Section’s Federal Regulation of Securities Committee said in its letter that what are considered reasonable steps should be determined by circumstances, facts, and the accredited investor category that applies. The group believes that the Commission’s rules should reflect existing practices and customs that take such factors into consideration.

Institutional Investment Roundup: FINRA Lets Ex-UBS Broker Keep $1M Signing Bonus, Court Approves Settlement Reached By Ex-Bear Stearns Hedge Fund Managers & SEC, Madoff Investors’ Securities Suit Against the Govt. is Dismissed

Published on: June 23, 2012 | by Shepherd Smith Edwards & Kantas, LLP

A Financial Industry Arbitration panel has decided that ex-UBS Financial Services broker Pericles Gregoriou can keep $1 million of the signing bonus he was given when he joined the financial firm even though he left the company earlier than what the terms of the hiring agreement stipulated. Gregoriou worked for the UBS AG (UBS) unit from ’07 to ’09.

This is an unusual victory for a broker. They usually find it very challenging to contest demands by a financial firm to give back unpaid bonus money. However, the FINRA panel said that Gregoriou was not liable for the $1 million damages. Also, the
panel denied Gregoriou’s counterclaim against UBS and a number of individuals. He had sought $3.24 million.

In a securities fraud case involving two former Bear Stearns employees against the SEC, “reluctantly,” the U.S. District Court for the Eastern District of New York approved a settlement deal involving Matthew Tannin and Ralph Cioffi. The defendants are accused of making alleged representations about two failing hedge funds.

The ex-Bear Stearns managers faced civil and criminal charges in 2008 for allegedly misleading bank counterparties and investors about the financial state of the funds, which ended up failing due to subprime mortgage-backed securities exposure in 2007. Cioffi and Tannin were acquitted of the criminal allegations in 2009.

Senior Judge Frederic Block approved the agreement wile noting that the SEC has limited powers when it comes to getting back the financial losses of investors. He asked Congress to think about whether the government should do more to help victims of “Wall Street predators.”

Per the terms of the securities settlement, Tannin will pay $200K in disgorgement and a $100K fine. Meantime, Cioffi will also pay a $100K fine and $700K in disgorgement. Although both are settling without denying or admitting to the allegations, they also have agreed to not commit 1933 Securities Act violations in the future and consented to temporary securities industry bars—Tannin for two years and Cioffi for three years.

In other securities law news, the U.S. District for the District of Columbia dismissed the lawsuit that investors in Bernard Madoff’s Ponzi scam had filed against the government. The reason for the dismissal was lack of subject matter jurisdiction.

The investors blame the SEC for allowing the multibillion dollar scheme to continue for years and they have pointed to the latter’s alleged gross negligence” in not investigating the matter. The plaintiffs contend that the Commission breached its duty to them. Judge Paul Friedman, however, sided with the government in its argument that the investors’ claims are not allowed due to the Federal Tort Claims Act’s “discretionary function exception,” which gives the SEC broad authority in terms of when to deciding when to conduct probes into alleged securities law violations.

While recognizing the plaintiffs’ “tragic” financial losses, the court found that investors failed to identify any “mandatory obligations” that were violated by SEC employees that executed discretionary tasks. The plaintiffs also did not adequately plead that the SEC’s activities lacked grounding in matters of public policy.

Meantime, the SEC has named ex-Morgan Stanley (MS) executive Thomas J. Butler the director of its new Office of Credit Ratings. The office is in charge of overseeing the nine nationally recognized statistical rating organizations that are registered, and it was created by the Dodd-Frank Wall Street Reform and Consumer Protection Act. The office will conduct a yearly exam of each credit rating agency and put out a public report.

UBS loses case to recoup bonus from ex-broker, Reuters, February 6, 2012

Former Exec to Head Office of Credit Ratings, The Wall Street Journal, June 15, 2012

More Blog Posts:
SEC Wants Proposed Securities Settlements with Bear Stearns Executives to Get Court Approval, Stockbroker Fraud Blog, February 28, 2012

AARP, Investment Adviser Association, Among Groups Asking the SEC to Make Brokers Abide by 1940 Investment Advisers Act’s Fiduciary Duty, Stockbroker Fraud Blog, April 14, 2012

Morgan Stanley Smith Barney Ordered by FINRA Arbitration Panel to Pay $5M Over Allegedly False Promises Made To Brokers Recruited from UBS AG

Published on: June 22, 2012 | by Shepherd Smith Edwards & Kantas, LLP

A Financial Industry Regulatory Authority arbitration panel is ordering Morgan Stanley Smith Barney to pay $5 million to Todd G. Vitale and John P. Paladino, two of the brokers that the financial firm had wooed from UBS AG (UBS) in 2008. The two brokers are alleging fraudulent misrepresentations, breach of written and oral contract, promissory fraud, negligent misrepresentation, fraudulent omission and/or concealment, intentional interference with existing and prospective economic advantage, negligent omission and/or concealment, California Labor Code violations, breach of implied covenant of good faith and fair dealing, promissory estoppel, constructive fraud, negligent supervision, and failure to supervise. They both still work for Morgan Stanley Smith Barney.

Both brokers were recruited a few months before Morgan Stanley merged with Citigroup Inc.’s (C) Smith Barney. Per the terms of their recruiting agreement, Vitale was promised that within six months of joining the financial firm he would become a salaried manager. Paladino would then inherit Vitale’s book, which would come with significant revenue.

After the merger occurred, however, a number of key management changes happened, and four years after they were hired, Vitale still hasn’t been promoted to manager while Paladino has yet to get his book. Also, Paladino’s monthly income has been reduced.

Ruling on the case, the FINRA arbitration panel awarded $2 million to Paladino and $2.6 million to Vitale. $355,000 in legal fees was also awarded to the two men.

This arbitration proceeding is one of numerous cases of late involving investment advisers claiming that financial firms had wooed them with promises that were never fulfilled. Brokerage firms often make verbal commitments when recruiting and they protect themselves by not including these agreements in the actual employment contract.

“Successful financial advisors and brokers can manage tens of millions or even hundreds of millions of dollars of their clients’ assets and securities firms are willing to pay, or promise to pay, them millions of dollars to bring their clients’ accounts to a new firm,” said Shepherd Smith Edwards and Kantas, LTD, LLP Partners and FINRA Arbitration Attorney William Shepherd. “Just as firms are not always honest with investors, these firms do not always keep their promises to advisors and brokers. Because licensed representatives and their firms are required to sign agreements to arbitrate disputes, cases of this type must be decided in securities arbitration. Our law firm has represented both investors and investment professionals in securities arbitration proceedings in their disputes with financial firms.”

Meantime, Morgan Stanley Smith Barney has issued a statement saying that the financial firm’s disagree with the panel’s decision and the facts support the ruling. However, there are internal firm memos documenting the recruiting deal.

Former Morgan Stanley Smith Barney Brokers Win $5M Employment Dispute Arbitration Award, Forbes, June 20, 2012

Panel Says MSSB Must Pay Recruited Brokers $5 Million, Wall Street Journal, June 20, 2012

More Blog Posts:
Merrill Lynch to Pay Brokers Over $10M for Alleged Fraud Over Deferred Compensation Plans, Institutional Investor Securities Blog, April 5, 2012
Investment Advisers and Brokers Should Be Able To Explain in One Page Why an Investment Would Benefit a Retail Client, Says FINRA CEO Richard Ketchum, Stockbroker Fraud Blog, June 14, 2012

Securities Law Roundup: Ex-Sentinel Management Group Execs Indicted Over Alleged $500M Fraud, Egan-Jones Rating Wants Court to Hear Bias Claim Against SEC, and Oppenheimer Funds Pays $35M Over Alleged Mutual Fund Misstatements, Stockbroker Fraud Blog, June 13, 2012 Continue Reading ›

SEC Investor Advisory Committee Members Warn the Commission Not to Neglect Its Rulemaking Duties Even While Working to Implement the JOBS Act

Published on: June 21, 2012 | by Shepherd Smith Edwards & Kantas, LLP

Members of the Securities and Exchange Commission’s Investor Advisory Committee are cautioning that it is imperative that the SEC not ignore its rulemaking obligations that it was tasked under the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act even as it seeks to implement the new capital formation statute. The Jumpstart Our Business Startups Act was enacted in April.

The investor advisory committee, which is a new group at the SEC that was created under Dodd-Frank to provide the Commission advise about regulatory priorities, disclosure requirements, and investor protections, held their inaugural meeting on June 12. The committee takes the place of a prior one that was disbanded in 2010.

The JOBS Act
The JOBS Act is focused on helping smaller businesses gain access to capital. Per the statute’s Title II, the SEC has to allow general advertising and solicitation for private placement sales and offers under 1933 Securities Act Rule 144A and Regulation D Rule 506 as long as the buyers are accredited investors. The SEC’s Division of Corporation Finance associate director and chief counsel Thomas Kim has said that staff members are in the process of trying to determine how to practically implement the requirements so that investor protection isn’t compromised even as issuers are given some flexibility. Also, seeing as status or assets have resulted in a number of “prongs” for determining which entities or individuals are “accredited investors,” Kim noted that it was “reasonable” that issuers would take different steps to confirm accreditation depending on the accredited investor’s category.

Kim also spoke about how the crowdfunding rulewriting deadline of 270 days, which the SEC was given (under Title III of the JOBS Act) to come up with a registration exemption for crowdfunding, which involves “crowds” of investors sourcing small fund amounts, would be challenging to meet. A regulatory framework currently exists for the Title II modification to Rules 144A and Rules 506. However, the SEC would have to essentially make up from “whole cloth” a regulatory structure that incorporates disclosure requirements, funding portals, and other aspects from a completely new category of exempt offerings.

“An intense battle is being fought in Congress over Dodd-Frank efforts to ‘re-regulate’ the securities industry after the debacle caused by the ‘deregulation’ of that industry over the previous decade,” said Shepherd Smith Edwards and Kantas Founder and Stockbroker Fraud Attorney William Shepherd. Many believe such changes, if any, are months if not years away. Meanwhile, legislation to lower the bar in the issuance of new securities is sailing through at breakneck speed – proof positive as to who our representatives represent.”

JOBS Act (PDF)

More Blog Posts:

Advisory Performance Fee Rule Limit Adjusted by the SEC, Stockbroker Fraud Blog, July 30, 2011

Dire Predictions For Wall Street Reforms: Not Complete Until 2013, Even Longer to Implement, Half May Not Survive, Stockbroker Fraud Blog, May 12, 2012

SEC’s Efforts to Reconsider a ’07 Proposal Over Broker-Dealer Financial Requirements Elicits Concerns From Some Market Participants

Published on: June 20, 2012 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission’s efforts to revive a 2007 proposal, which would amend the rules under the 1934 Securities Exchange Act related to customer protection, net capital, notification, and books and records for broker-dealers, has some market participants upset. The proposal, which seeks to deal with areas of concern related to broker-dealer financial requirements and update the financial responsibility rules of these firms, was recently opened up again for comment by the SEC for a 30-day period through June 8, 2012 in the wake of the regulatory developments and economic events that have developed since 2007 and due to the public’s continued interest.

However, as our securities fraud law firm just mentioned, not everyone is welcoming this move with open arms. Earlier this month, BOK Financial Corp. (BOKF) wrote a letter to the SEC arguing that the proposal doesn’t factor in certain significant changes that have taken place since 2007 and that “key justifications” for specific proposed modifications appear to be based more on that time period rather than “current conditions.” Also voicing its disapproval was the National Investment Banking Association, which noted that the proposal fails to include numerical values or statistics that represent the present atmosphere. NIBA also pointed to the “unprecedented changes” that have followed since the proposal was introduced five years ago.

J.P. Morgan Trading Services is also not pleased with the SEC’s decision to revise this 2007 proposal. It is calling on the Commission to use other prudential rules that it believes would do a better job. Meantime, the Securities Industry and Financial Markets Association is warning that certain of the proposed requirements might up the financial osts for industry participants.

The proposal mandates that broker-dealers with the proprietary accounts of other broker-dealers maintain reserve funds to deal with claims stemming from these accounts. It also would prevent broker-dealers from including as part of these funds cash that was placed at affiliated banks, as well as some of the cash that was deposited in banks that are not affiliated.

That said, there are those that support this proposal. In a letter to the SEC, the Public Investors Arbitration Bar Association said that it believes the proposed measures would “marginally increase” broker-dealers’ financial stability while decreasing the risk of public investors that succeed in FINRA arbitration proceedings not being able to collect the damages that they are awarded through these proceedings. PIABA even believes that the proposal should additionally require that all broker-dealers have errors and omissions insurance to cover client claims to make sure that these financial firms are able to pay these arbitration awards.

Some Voice Concern at SEC Bid to Revive 2007 B-D Financial Responsibility Proposal, BNA/Bloomberg, June 18, 2012

Comments on Amendments to Financial Responsibility Rules for Broker-Dealers, SEC

More Blog Posts:
AARP, Investment Adviser Association, Among Groups Asking the SEC to Make Brokers Abide by 1940 Investment Advisers Act’s Fiduciary Duty, Stockbroker Fraud Blog, April 14, 2012

Despite Reports of Customer Satisfaction, Consumer Reports Uncovers Questionable Sales Practices at Certain Financial Firms, Stockbroker Fraud Blog, January 7, 2012
FINRA May Put Forward Another Proposal About Possible SEC Rule Regarding Fiduciary Duty, Institutional Investor Securities Blog, November 28, 2011 Continue Reading ›

Texas Securities Case: Mark Cuban Asks District Court To Reconsider Compelling the SEC to Produce Documents Related to Insider Trading Allegations Over Mamma.com Stock Offering

Published on: June 19, 2012 | by Shepherd Smith Edwards & Kantas, LLP

For the third time, billionaire Mark Cuban is asking the U.S. District Court for the Northern District of Texas to reconsider a previous ruling denying his motion to make the Securities and Exchange Commission provide summaries and interview notes related to its probe into his alleged insider trading activities. Cuban also wants the court to make the SEC give over similar documents in its investigation of Mamma.com.

The SEC had filed insider trading charges against Cuban, who is the owner of the Dallas Mavericks and the founder of HDNet, in 2008. The Commission is contending after Cuban became involved in a confidentiality agreement while on the phone with Mamma.com’s CEO about that company’s decision to take part in a PIPE offering, within hours of being given this insider information, he contacted his broker and allegedly improperly sold his 600,000 shares prior to the PIPE announcement. As a result, he avoided more than $750,000 in losses. Cuban has denied the Texas securities fraud allegations.

The district court threw out the SEC’s charges against Cuban in 2009, but the following year the U.S. Court of Appeals for the Fifth Circuit revived and remanded the Texas securities lawsuit against him. Then, last August Cuban moved to have certain documents produced, and he followed that request in September with an amended second motion. The SEC submitted its own motion to compel Cuban to produce documents in November.

Earlier this year, the district court ruled that Cuban is entitled to the nonprivileged parts of the SEC’s investigative files related to the probes on him and Mamma.com, as well as to documents having to do with the connection between the two investigations. The court, however, also decided that the Commission isn’t required to produce documents pertaining to certain individuals’ involvement with Mamma.com or the interview summaries and factual sections from the SEC’s interviews with certain witnesses in its Cuban probe.

Now, in his latest motion to compel, Cuban has stated that he believes that the summaries and notes he wants produced will allow his witnesses to remember events that happened nearly a decade ago. Referring to the court’s previous decision to partially grant his motion, Cuban said that the interview notes that the SEC produced after the court’s last order not only “exonerate” him but also demonstrate the “undue hardship” he is facing in litigating this lawsuit if the SEC is allowed to keep “withholding” interview documents.

SEC v. Cuban is slated to go to trial.

SEC Accuses Mark Cuban of Insider Trading, New York Times, November 17, 2008
Cuban Asks Court, for Third Time, To Compel SEC to Produce Documents, Bloomberg/BNA, June 12, 2012

More Blog Posts:
Dallas Mavericks Owner Mark Cuban’s Allegations of Misconduct Against the SEC Enforcement Staff are Without Merit, Says Inspector General’s Report, Stockbroker Fraud Blog, October 18, 2011

After District Court Dismisses Texas Securities Fraud Against Billionaire Mark Cuban, SEC Appeal Can Now Move Forward, Stockbroker Fraud Blog, August 17, 2009
US Sentencing Commission is Open to Public Comment on Proposed Amendments that Could Impact Insider Trading Convictions, Institutional Investor Securities Blog, February 29, 2012 Continue Reading ›

Securities and Exchange Commission Seeks Comments Regarding Its ‘Security-Based Swap Rules’ Implementation Plan

Published on: June 19, 2012 | by Shepherd Smith Edwards & Kantas, LLP

Now that the SEC has unveiled its plan via a “statement of general policy ” that lays out how it intends to phase in its new rules that govern security-based swap markets, it is seeking comments. Commenters have 60 days within when the statement is published in the Federal Register to make their thoughts known. While the statement gives the order in which market participants will have to comply with the new requirements, it doesn’t provide an estimate for when the rules would actually be implemented.

The 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act’s Title VII mandates that SEC set up a security-based swaps regulatory framework. In its policy statement, the Commission grouped its rules for security-based swaps into five categories:

• Definitional rules (for regulating and registering swap data repositories) and cross-border rules (that regulate non-U.S. market participants and cross-border swap transactions)

Lawmakers Use Funding Bill for Financial Police as Forum to Express Views on Regulators and their Agencies

Published on: June 18, 2012 | by Shepherd Smith Edwards & Kantas, LLP

The Senate Appropriations Committee is recommending that the Commodity Futures Trading Commission and the Securities and Exchange Commission be funded at the same levels that the White House has requested. The $22.9 billion spending bill would allot $308 million for the CFTC and $1.566 billion to the SEC for the next fiscal year. No amendments were offered. Fiscal year 2013 begins on October 1, 2012.

However, Senator Jerry Moran (R-Kan.), a ranking member of this committee’s Financial Services Subcommittee, did express his opposition to the portion of the bill having to do with CFTC funding by voting “no” on that part. He contends that CFTC chairman Gary Gensler has rebuffed efforts to modify the way the agency is run. He also claims that Gensler has neglected to make rulemaking a priority as it relates to implementing key aspects of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act.

The proposed funding for the CFTC is 50% above its present funding level, which is about $205 million. (Meantime, the proposed spending amount for the SEC is $245 million-a 19% rise from its current spending level.)

“One could argue that taxpayers are not getting their money’s worth from this investment but millions are involved in the securities and commodities markets and trillions of dollars change hands annually,” said Securities lawyer William Shepherd. ” Furthermore, more is lost through financial fraud than all other forms of fraud combined.”

Financial Services Subcommittee Chairman Richard Durbin (D-Ill.) has noted that the CFTC’s job, which includes overseeing the $300 trillion swaps market, is “huge.” Gensler, who supports the funding bill, has said that the CFTC’s proposed funding amount would allow the agency to have enough “cops on the beat” to maintain swaps and futures markets that are fair. He and Durbin also have pointed out that the swaps market is eight times bigger than the futures market.

It is important to note, however, that these funding recommendations are counter to two bills currently making their way through the US House. Both bills would provide funding to the two agencies at financial levels below what President Obama has requested.

“Conservatives stress that private enterprise works better than government,” said Securities fraud attorney Shepherd. ” If investment fraud laws were even as strong as a decade ago, free enterprise could cut the cost of regulation in half. This is because private law suits would then deter most investment fraud at no cost to taxpayers.”

U.S. Senate panel OKs budget boosts for SEC, CFTC, Chicago Tribune/Reuters, June 14, 2012

Obama proposes large budget boosts for SEC, CFTC, Reuters, February 13, 2012

United States Committee on Appropriations

More Blog Posts:
ABA Presses for Self-Funding for SEC and CFTC, Institutional Investor Securities Blog, May 31, 2012
SEC and CFTC Say They Found Out About JPMorgan’s $2B Trading Loss Through Media, Stockbroker Fraud Blog, May 31, 2012

AARP, Investment Adviser Association, Among Groups Asking the SEC to Make Brokers Abide by 1940 Investment Advisers Act’s Fiduciary Duty, Stockbroker Fraud Blog, April 14, 2012

ABA Presses for Self-Funding for SEC and CFTC, Institutional Investor Securities Blog, May 31, 2012 Continue Reading ›

Ex-Morgan Stanley Smith Barney Broker Settles with FINRA for Allegedly Failing to Notify Firm of Previous Arrest

Published on: June 16, 2012 | by Shepherd Smith Edwards & Kantas, LLP

Broker Bruce Parish Hutson has turned in a Letter of Acceptance, Waver, and Consent to settle allegations of Financial Industry Regulatory Authority rule violations involving his alleged failure to advise Morgan Stanley Smith Barney (MS) of his arrest for retail theft at a store in Wisconsin. FINRA has accepted the AWC, which Hutson submitted without denying or admitting to the findings and without adjudicating any issue.

The Ex-Morgan Stanley Smith Barney broker (and before that he worked for predecessor company Citigroup Global Markets Inc. ((ASBXL)), had entered a “no contest” plea to the misdemeanor charge in February 2010. He received a jail sentence of nine months, which was reduced to 12 months probation. On August 16, 2010, Hutson, turned in a Form UT (Uniform Termination Notice for Securities Industry Registration) stating that he was voluntarily let go from Morgan Stanley Smith Barney because the financial firm accused him of not properly reporting the arrest.

Also, although Form U4 (Uniform Application for Securities Industry Registration or Transfer) doesn’t mandate the disclosure of a mere arrest but does contemplate a criminal charge (at least), many industry members obligate employees to disclose any arrests. Yet when it was time to update this form by March 18, 2010, FINRA says that Hutson did not report the misdemeanor theft plea. Then, when he filled out Morgan Stanley Smith Barney’s yearly compliance questionnaire on May 19, 2010, he again denied having been arrested or charged with a crime in the past year or that he was statutorily disqualified.

FINRA contends that Hutson willfully violated its Article V, Section 2 (C) by-laws by not disclosing the criminal charge. The SRO also says that his later “no contest” plea to the misdemeanor theft violated FINRA Rule 2010 (when he made the false statement that he hadn’t been charged with any crime in the 12 months leading up to his completion of the compliance questionnaire) and he again violated this same rule when it was time to fill out the questionnaire. Per the AWC terms, Hutson is suspended from associating with any FINRA member for five months and he must pay a $5,000 fine.

“A broker can have a dozen complaints by investors and lose a half-dozen claims of wrongdoing, in which arbitrators reimburse these investors only part of their millions in collective losses, yet the broker is neither fined nor suspended,” said Shepherd Smith Edwards and Kantas, LTD, LLP founder and Securities Attorney William Shepherd. “A shoplifting charge in one’s past – very bad. Repeated misrepresentations to investors – so what. Perhaps FINRA should get its priorities straight.”

Broker Bruce Parish Hutson, Forbes, June 27, 2012

More Blog Posts:
Investor Groups, Securities Lawyers, and Business Community Comment on the JOBS Act Reg D’s Investor Verification Process, Institutional Investor Securities Blog, June 24, 2012

SEC Wants Proposed Securities Settlements with Bear Stearns Executives to Get Court Approval, Stockbroker Fraud Blog, February 28, 2012

Accused Texas Ponzi Scammer May Have Defrauded Investors of $2M, Stockbroker Fraud, August 3, 2011