Investor Lawyers Blog

California Insider Trading Charges Filed by SEC Against Ex-Investment Fund Associate Accused of Making 3000% Profit on Marvel Call Options in Disney Acquisition

Published on: August 23, 2011 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission has filed insider trading charges against Toby G. Scammell, who is accused of making more than $192,000 from insider trading information he received from his girlfriend about Walt Disney Company’s impending acquisition of Marvel Entertainment. Scammell, a 26-year-old ex-investment fund associate, made a more than 3000% profit in less than a month after he bought highly speculative Marvel call options for under $5500 and then sold them after the announcement of the acquisition was made on August 31, 2009 and Marvel’s stock price went up by more than 25%.

According to the SEC, Scammell’s girlfriend, who worked on the Marvel deal as an extern with Disney, found out confidential information about the deal, including when it would be announced and that Disney would pay $50/Marvel share. The Commission, however, doesn’t believe that Scammell’s girlfriend ever intended to give him insider tips or that she knew what he was doing with the information. Although the couple would talk about the acquisition as a subject of her business school application, she did not give him specific details. He also allegedly obtained information from confidential documents that he read off her Blackberry and from conversations he overheard regarding Marvel.

Scammell bought Marvel call options at $45 and $50 strike prices even though the highest that Marvel had ever traded at was $41.74. The SEC says that the Marvel options that Scammell bought were scheduled to expire soon after the Disney deal was announced and that in many cases the purchase of options represented 100% of the market. Scammell used his brother’s money to buy most of the Marvel call options. He did not, however, tell him about the alleged insider trading activities. Scammell’s brother had given him authority over his finances before going with the US army to Iraq.

The SEC says that before making the trades, Scammell used his computer to search for the terms “material non-public information,” “insider trading”, and “Rule 10b-5.” The Commission claims that Scammell not only used the insider information to garner an “unfair and illegal” advantage over others in the markets but that he exploited his romantic relationship with his girlfriend. The SEC says that after dating her exclusively for two years, he owed her a fiduciary duty, which he breached. He also allegedly acted with Scienter when he made the trades while having knowledge of the material, nonpublic data. The SEC says that when questioned, Scammell was unable to provide a believable explanation for his Marvell call options purchases.

The SEC is accusing Scammell of violating the Securities Exchange Act of 1934 (Section 10(b)) and Rule 10b-5 thereunder. It is seeking disgorgement of ill-gotten gains, a permanent injunction, prejudgment interest, and civil penalties.

SEC CHARGES FORMER INVESTMENT FUND ASSOCIATE WITH INSIDER TRADING, SEC, August 11, 2011
Read the SEC Complaint (PDF)

SEC Sues 26-Year Old On Charges He Made $200,000 Insider Trading Off Ex-Girlfriend’s Work Project, Business Insider, August 15, 2011

More Blog Posts:
Janney Montgomery Scott LLC to Pay $850K to Settle Securities Charges Over Alleged Failure to Prevent Inside Trading, Stockbroker Fraud Blog, July 21, 2011
“Poohster” Consultant Found Guilty of Insider Trading, Stockbroker Fraud Blog, June 23, 2011
Insider Trading: Former FrontPoint Partners Hedge Fund Manager Pleads Guilty to Criminal Charges, Institutional Investor Securities Blog, August 20, 2011 Continue Reading ›

NCUA Sues Goldman Sachs for $491M Over $1.2B of Mortgage-Back Securities Sales That Caused Credit Unions’ Failure

Published on: August 23, 2011 | by Shepherd Smith Edwards & Kantas, LLP

In its fifth MBS lawsuit seeking what is now totaling to be nearly $2 billion in compensatory damages for wholesale credit union members, the National Credit Union Administration (NCUA) wants $491 million in compensatory damages from Goldman Sachs. NCUA is accusing the financial firm of misrepresenting the MBS that were sold to member credit unions that then sustained huge losses that led to their failure.

Goldman Sachs allegedly misrepresented material facts in prospectuses, marketing collaterals, and when selling the MBS. Because of this, NCUA says that the credit unions thought that the risk of loss for their investments was low.

NCUA filed its securities complaint against Goldman Sachs in California district court. NCUA is serving as the liquidating agent for the corporate credit unions that failed. It has filed other securities lawsuits seeking nearly $2 billion in compensatory damages. Two of the other defendants that NCUA is suing are RBS Securities and JPMorgan. Both, and others, are accused of underestimating the risks involved with the MBS.

Texas Securities Fraud: Ex-Triton Financial CEO Convicted of Ponzi Scam that Bilked Ex-Heisman Trophy Winner Ty Detmer, Other Former NFL Players, and Hundreds of Other Investors of of Millions

Published on: August 22, 2011 | by Shepherd Smith Edwards & Kantas, LLP

Kurt Branham Barton, the former CEO, president, and founder of Triton Financial, has been convicted of running a $50 million Ponzi scam that bilked over 300 investors across the country, including former Heisman Trophy winners Ty Detmer, Chris Weinke, and Earl Campbell, NFL Kicker David Akers, and ex-NFL quarterback Jeff Blake. Barton could be sentenced to life in prison for the Texas securities fraud.

A jury convicted Barton on almost 39 criminal counts, including numerous counts of wire fraud, conspiracy to commit wire fraud, making false statements to financial institutions in order to get loans, money laundering, and one count of securities fraud. The Ponzi scam ran for four years through 2009.

According to prosecutors, Barton lied to investors, including relatives, business leaders, pro football players, and Church of Jesus Christ of Latter Day Saints members, when he said that his financial firm was using their money to invest in business, real estate, and short-term business loans. In fact, Barton was taking their funds to cover personal expenses, including luxury football tickets, expensive clothes, and sports cars. He deceived potential investors, commercial lenders, and financial institutions by presenting them with bogus monthly account statements.

Examples of those hit hard by Barton’s Texas securities scam is Detmer, who, during his testimony, admitted that he lost approximately $2 million-that’s the majority of his life savings-in the Ponzi scheme. The former NFL quarterback, who is now a coach in Austin, says he has been forced to liquidate accounts that were supposed to go to his daughters’ college education. He also had to put up his house for sale. Detmer thought Barton was his best friend. The two met at church. Detmer says that he even brought new investors to Barton. Another pro football player, David Akers, now of the San Francisco 49ers, lost over $3 million because of Barton’s scam. There are also many investors that aren’t famous who sustained significant losses because of the Texas Ponzi scam, including Diane Gordon, who lost her husband’s entire life insurance payment of approximately $850,000.

In 2009, the Securities and Exchange Commission filed a securities fraud lawsuit against Barton and two of his businesses. The SEC accused Barton of using famous celebrity athletes, stockbrokers, and others to promote Triton securities to new investors. Without denying or admitting to the SEC’s allegations, all defendants agreed to permanent injunctions from securities fraud violations in the future, appointment of a receiver, prohibition of the destruction of documents, and orders freezing assets.

Ty Detmer testifies at Ponzi fraud trial, UPI, August 9, 2011
Austin investment broker convicted of using NFL stars, churches to defraud clients, The Washington Post, August 17, 2011
The SEC’s Complaint (PDF)

More Blog Posts:
Ex-Triton Financial CEO Accused of Using NFL Contacts to Commit $50M Texas Securities Fraud, Stockbroker Fraud Blog, February 17, 2011
Texas Securities Fraud: Insurance Agent Could Get 100 Years Behind Bars for Using Fraudulent Annuities to Bilk Elderly Seniors of Over $5M, Stockbroker Fraud Blog, August 9, 2011
Accused Texas Ponzi Scammer May Have Defrauded Investors of $2M, Stockbroker Fraud Blog, August 3, 2011 Continue Reading ›

Insider Trading: Former FrontPoint Partners Hedge Fund Manager Pleads Guilty to Criminal Charges

Published on: August 20, 2011 | by Shepherd Smith Edwards & Kantas, LLP

Joseph “Chip” Skowron III, an ex- FrontPoint Partners Hedge Fund manager, has pleaded guilty to criminal charges involving insider trading activities that saved his financial firm more than $30 million in losses. Charges include conspiracy to commit securities fraud and to obstruct a Securities and Exchange Commission probe.

Skowron, 42, admitted that he received confidential information from Yves Benhamou, a French doctor working on clinical trials for a biotechnology company’s hepatitis C drug. After Benhamou notified him that there were certain problems with the medication, in 2008 Skowron had the hedge fund get rid of millions of dollars of shares in the company (the funds’ holdings of Human Genome Sciences Inc. (HGSI)), which is why the more than $30 million loss was averted.

This week, Skowron admitted to directing trades in six FrontPoint health-care funds based on the insider tip. He also said that he lied to the SEC in 2009 about whether Benhamou had given him material, nonpublic information. As part of his plea deal, Skowron will forfeit $5 million. He also could be ordered to serve 5 years behind bars. His sentencing is scheduled for later this year.

A few months ago, FrontPoint paid $33 million to regulators over the related losses that Skowron prevented when he sold the shares. Of the $33 million, $29 million was in disgorgement of avoided losses. The remaining $4 million was for prejudgment interest.

Following the former hedge fund manager’s guilty plea, FrontPoint issued a statement saying that Skowron lied and misled the financial firm’s internal compliance team, the federal government, and the external counsel retained to independently probe his actions. FrontPoint also pointed out that it was never accused of any wrongdoing in this matter.

Over the last two years, 47 hedge fund managers are among those that have pleaded guilty to or been convicted of insider trading. These outcomes are in part because federal government has stepped up its efforts to investigate insider trading on Wall Street.

Earlier this year, Preet Bharara, the United States attorney in Manhattan who has charged dozens of people with insider trading, said the scope of so many allegations indicated that the problem was a “corrupt business model” rather than an “occasional corrupt individual.” He condemned the “prevalence of illegal trading” that has been taking place on Wall Street.

Insider Trading
While legal insider trading, which involves a corporate insider selling stock in the company and reporting these trades to the SEC, does exist and is an acceptable practice, illegal insider trading is against the law. This type of insider trading involves the selling or buying of securities in a manner that uses material, nonpublic information and breaches a fiduciary duty or other relationship of confidence and trust. The person being tipped the insider information, the one tipping the information, or the actual person with the tip making the trade are among those who can be charged with committing illegal insider trading.

Ex-Fund Manager Pleads Guilty to Using Inside Tips, The Wall Street Journal, August 16, 2011

Insider Inquiry Steps Up Its Focus on Hedge Funds, New York Times, February 8, 2011

Former Hedge Fund Portfolio Manager Joseph “Chip” Skowron Pleads Guilty in Manhattan Federal Court to Insider Trading Scheme Involving Clinical Drug Trial, FBI, August 15, 2011

More Blog Posts:
Ex-Goldman Sachs Board Member Accused of Insider Trading with Galleon Group Co-Founder Seeks to Have SEC Administrative Case Against Him Dropped, Institutional Investor Securities Blog, April 19, 2011

44% of Insider Traders Convicted of Insider Trading in New York Manage to Get Out of Jail Before Even Serving Time, Institutional Investor Securities Blog, January 25, 2011

Janney Montgomery Scott LLC to Pay $850K to Settle Securities Charges Over Alleged Failure to Prevent Inside Trading, Stockbroker Fraud Blog, July 21, 2011

Allstate Files Securities Fraud Lawsuit Against Goldman Sachs Over More Than $123M of Mortgage-Backed Securities

Published on: August 18, 2011 | by Shepherd Smith Edwards & Kantas, LLP

According to Allstate Corp., Goldman Sachs Group Inc. committed securities fraud by fraudulently selling the insurer over $123 million of mortgage-backed securities prior to the collapse of the housing market. Allstate is also accusing Goldman of making “untrue statements” and leaving out “material facts” about the mortgages.

Allstate Insurance Corp, a subsidiary of Allstate Corp, filed the securities fraud complaint in New York State Supreme Court this week. The plaintiff is accusing the broker of violating state laws and negligent misrepresentation. Allstate believes that Goldman marketed the MBS as low-risk with strict underwriting criteria even though the latter knew the lenders had stopped abiding by the guidelines and that loans were being produced without the chance of payback.

Goldman has already settled for $550 million similar securities fraud charges filed by the SEC. This was the largest penalty a Wall Street financial firm has ever been ordered to pay. The Commission claimed that Goldman encouraged investors to buy into complex mortgage investments while failing to tell them that a client who was betting against the securities had crafted them. In April, a Senate Report said that in an attempt to move risk away from Goldman and to investors, the broker marketed four complex mortgage securities.

With this latest securities lawsuit against Goldman, Allstate has now filed nine MBS lawsuits since December. The defendants of the other complaints are Countrywide Financial, Bank of America Corp., Morgan Stanley, Merrill Lynch and Co, JPMorgan Chase & Co, Citigroup Inc., Deutsche Bank AG, and Credit Suisse Group:

• The securities lawsuit against Countrywide is over $700 million of toxic MBS that the insurer purchased. Bank of America is named in the complaint because it purchased Countrywide in 2008.

• The complaint against Morgan Stanley is over Allstate’s purchase of over $104 million in residential MBS in six offerings and the broker’s “central role” in creating and selling the securities. Allstate says that Morgan Stanley either knew or “recklessly disregarded” that the lenders involved were putting out risky loans that were not in compliance with underwriting standards.

• Allstate’s lawsuit against Merrill Lynch involves the allegedly fraudulent sale of approximately $167 million of residential mortgage-backed securities.

• The insurer is accusing JP Morgan Chase of misrepresenting the risks involved in over $757 million of mortgage securities that it purchased.

• Allstate bought over $200 million of MBS from the Citigroup defendants and approximately $185 million from the Deutsche bank units. Misrepresentations and omissions related underwriting standards, loan-to-value ratios, and owner occupancy data are among the allegations.

• Allstate’s securities lawsuit against Credit Suisse is over $231 million of MBS. Allstate, which bought the securities from the financial firm, says that the latter did not disclose that the underlying loans were toxic. Allstate is alleging fraudulent inducement, fraud, and negligent misrepresentation.

Our securities fraud attorneys represent investors who have suffered financial losses from investing in mortgage-backed securities.

Allstate sues Goldman over sour mortgage-backed securities, USA Today, August 16, 2011

Allstate Sues Goldman Sachs Over Toxic Mortgage Securities, Insurance Journal, August 17, 2011

More Blog Posts:
Morgan Stanley Reports a Possible $1.7B in Mortgage-Backed Securities Losses, Institutional Investor Securities Blog, August 16, 2011

Bank of America and Countrywide Financial Sued by Allstate over $700M in Bad Mortgaged-Backed Securities, Stockbroker Fraud Blog, December 29, 2010

Goldman Sachs Settles SEC Subprime Mortgage-CDO Related Charges for $550 Million, Stockbroker Fraud Blog, July 30, 2010

8/31/11 is Deadline for Opting Out of $100M Oppenheimer Mutual Funds Class Action Settlement

Published on: August 17, 2011 | by Shepherd Smith Edwards & Kantas, LLP

Our securities fraud lawyers would like to remind you that if you want to opt out of the $100M class action settlement with Oppenheimer Mutual Funds you have to do so by August 31, 2011. OppenheimerFunds Inc. agreed to pay that amount over accusations that it mismanaged its Oppenheimer Champion Fund (OCHBX, OPCHX and OCHCX) and its Oppenheimer Core Bond Fund (OPIGX). The class action was filed by investors accusing OppenheimerFunds of misrepresenting in its offering documents the degree of risk involved in complex securitized instruments, including mortgage-backed securities and credit default swaps.

Under the class action agreement, Champion Fund investors are to be paid $52.5 million. Core Bond investors are to receive $47.5 million. While this amount may seem like a lot, with thousands of class action claimants, Core Bund Fund investors will likely receive approximately 12 cents on the dollar, while Champion Fund investors will receive about 3 cents on the dollar.

This is not a lot of money for your losses, which is why you may want to seriously consider opting out of the class action and pursuing your own securities lawsuit or arbitration claim. Please contact our stockbroker fraud law firm today and ask for your free case evaluation.

You have until August 31, 2011 to send a written exclusion to the class counsel. Your letter cannot be postmarked after the deadline. Failure to opt out will prevent you from filing your own case at a later today. You should, however, get your share of the settlement.

OppenheimerFunds is a Massachusetts Mutual Life Insurance Company subsidiary. Defendants of the class action were charged with violating the Investment Company Act of 1940 and the Securities Act of 1933.

The Oppenheimer Core Bond Fund lost at least 33% of its value in 2008. During the first three months of 2009 it lost another 10%. The bond was promoted as appropriate for and offered by a number of 529 college savings plans, a number of annuities, and retirement plans. The Champion Fund lost about 80% of its value in 2008.

While staying part of a class action in a securities case may appear to be the easy way to recover your investment losses, this is truly not the case. Why should you get back so much left when you’ve lost so much?

By retaining the services of an experienced securities fraud law firm, you increase your chances of recovering the maximum amount possible. We know how devastating it can be to lose money that you have worked so hard for and saved.

OppenheimerFunds Settles Mismanagement Case for $100 Million, Bloomberg Businessweek, July 26, 2011
OppenheimerFunds to pay $100 million to settle mismanagement case, Denver Post, July 27, 2011
More Blog Posts:
Mortgage-Backed Securities Lawsuit Against Bank of America’s Merrill Lynch Now a Class Action Case, Stockbroker Fraud Blog, June 25, 2011
Class Members of Charles Schwab Corporation Securities Litigation Can Still Opt Out to File Individual Securities Claim, Stockbroker Fraud Blog, December 6, 2010
Wells Fargo Settles Mortgage-Backed Securities Class Action Case for $125M, Institutional Investor Securities Blog, July 19, 2011 Continue Reading ›

Citigroup Global Markets Fined $500,000 by FINRA for Inadequate Supervision of Broker Accused of Bilking Sick and Elderly Investors

Published on: August 16, 2011 | by Shepherd Smith Edwards & Kantas, LLP

Two months after a federal grand jury indicted Tamara Lanz Moon for misappropriating more than $800,000 in clients’ money, the Financial Industry Regulatory Authority (FINRA) has fined Citigroup Global Markets $500,000 for failing to properly supervise her. Moon is charged with six counts of mail fraud. The acts of broker misconduct allegedly took place between 2001 and 2008, when the 43-year-old broker was employed by Citigroup Global Markets as a registered sales assistant with Series 7 and 63 licenses.

Court documents report that Moon targeted at least 22 Citigroup clients who were sick, elderly, or for some reason couldn’t properly monitor their accounts. Her alleged victims included an elderly client suffering from Parkinson’s disease. Moon also allegedly forged signatures, changed account documents, opened accounts with deceased clients’ social security numbers, created bogus letters of authorization, revised customer addresses, and made unauthorized trades. She was fired in 2008 after Citigroup finally discovered her alleged misconduct. FINRA would go on to permanently barred her from the industry. Moon, who was arrested by the FBI following recent indictment, is out on bail.

According to FINRA, Citigroup failed to investigate or detect a number of “red flags” that should have let the financial firm know that Moon was improperly handing client funds. The SRO is also accusing FINRA of failing to put into place reasonable controls and systems related to the supervisory review of client accounts, which allowed Moon to falsify records, and neglecting to identify suspicious activity related to disbursements and transfers in the accounts that she was using to misappropriate clients’ money.

Morgan Stanley Reports a Possible $1.7B in Mortgage-Backed Securities Losses

Published on: August 16, 2011 | by Shepherd Smith Edwards & Kantas, LLP

Morgan Stanley says it may sustain $1.7B in losses over a number of securities fraud cases related to subprime mortgage deals. Citigroup Inc.’s (C.N) Citibank is the plaintiff of the securities lawsuit over the Capmark VI CDO and STACK 2006-1 CDO deals, while there are 15 plaintiffs seeking punitive damages over Cheyne Finance, a structured investment vehicle. Morgan Stanley is also reporting losses over a mortgage-backed security deal involving MBIA Corp.

Our securities fraud attorneys would like you to contact us if you are someone who sustained financial losses in any of these MBS deals with Morgan Stanley. Here are more details about the cases:

• Morgan Stanley says the losses in the Citibank securities fraud lawsuit may be a minimum of $269M over a credit default swap on the Capmark VI CDO deal and another one on the credit default swap involving the STACK 2006-1 CDO deal.

CapWest Loses $940,000 Dallas Securities Case in FINRA Arbitration

Published on: August 15, 2011 | by Shepherd Smith Edwards & Kantas, LLP

Financial Industry Regulatory Authority (FINRA) has ordered CapWest Securities Incorporated to pay nearly $940,000 in a Texas securities fraud case filed by a group of investors over the recommendation and sale of numerous illiquid, risky, convertible debentures. The claimants had accused CapWest of breach of fiduciary duty, breach of contract, state and federal securities law violations, fraud, gross negligence, negligence, and other actions.

Last month, the FINRA arbitration panel ordered CapWest to pay claimant Robert E. Lee, both as an individual and as a Robert Earl Lee Revocable Trust trustee, $137,000 in compensatory damages. CapWest was also ordered to pay $478,500 in compensatory damages to Beatrice M. McCrae and Buford E. McCrae, both as individuals and on behalf of B.E. McCrae Family Limited Partnership. Robert E. Lee was also to receive $37,330 in interest for the period of October 25, 2008 through July 15, 2011 at a 5% per annum rate. For Buford E. McCrae and Beatrice E. McCrae, the interest of 5% per annum was $95,180 for the period of October 16, 2006 through July 15, 2011. Under the Texas Deceptive Trade Practices Act, Robert E. Lee is to receive $17,450 in punitive damages. Buford E. McCrae and Beatrice M. McCrae are to get paid $57,370. Payment of the claimants’ costs, legal fees, and other fees were also granted.

Convertible Debentures

AIG Files $10 Billion Mortgage-Backed Securities Lawsuit Against Bank of America

Published on: August 13, 2011 | by Shepherd Smith Edwards & Kantas, LLP

American International Group (AIG) is seeking to recover over $10 billion in mortgage-backed securities-related losses from Bank of America (BAC). The losses were allegedly sustained on $28 billion in investments.

In what may be the largest MBS-related action filed by one investor, the complaint accuses Bank of America and its units Countrywide Financial and Merrill Lynch of misrepresenting the quality of the mortgages that were in the securities that investors bought. AIG also claims that Bank of America used false data to persuade the credit rating agencies to give the MBS high ratings.

Bank of America, which contends that the disclosures that were made were robust enough for sophisticated investors and that AIG is a “seasoned investor,” is denying AIG’s allegations against it. According to Bank of America spokesperson Lawrence Di Rita, the reason AIG suffered the financial losses at issue is because it was reckless in pursing profits and high yields in the “mortgage and structured finance markets.”

Bank of America’s 2008 acquisition of Countrywide for $4 billion has cost the financial firm much more in mortgage-related fines, losses, loan buybacks, and litigation expenses. Courthouse News Service database reports that Countrywide and Bank of America have been named as defendants in 1300 lawsuits in 2011 alone. Recently, Bank of America agreed to settle investor MBS claims for $8.5 billion. Parties to the settlement included the Bank of NY Mellon, BlackRock, the Federal reserve Bank of New York, and PIMCO. However, the New York Attorney General is now calling that settlement inadequate.

As for AIG, which is still largely owned by taxpayers following its 2008 government bailout, the New York Times says that the insurer is preparing similar securities fraud complaints against JPMorgan Chase, Goldman Sachs, and Deutsche Bank to try to recover some of the billions that it lost during the economic crisis.

Government Not Proving Helpful In Pursuing Investment Banks
Contrary to investors, who are seeking to hold big banks accountable in civil court, the Justice Department closed many of its investigations into Wall Street’s big banks without filing any criminal charges. Although it has brought cases against three employees at big financial banks, no executives have been charged. However, a spokesperson for the Justice Department says that the government has pursued the cases were appropriate and that it is much more difficult to prove that a crime has been committed beyond a reasonable doubt than to find a party liable in civil court.

The New York Times reports that a person familiar with the case says that the Justice Department has concluded its investigation into Countrywide’s actions heading into the financial crises and that there will be no charges filed. The government also recently closed its probe into Washington Mutual, with the finding that there was no evidence of criminal wrongdoing. The Washington bank almost failed because of high-risk mortgages.

Related Web Resources:

AIG sues Bank of America for $10 billion over mortgages, USA Today/AP, August 8, 2011