Investor Lawyers Blog

NASAA Wants Investment Advisers To Be Banned From Forcing Clients Into Mandatory Arbitration

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

The North American Securities Administrations Association Inc. wants Congress to put into place a law to bar investment advisers from making clients go through arbitration to resolve their securities claims. They also want lawmakers to make either the SEC propose a rule that would get rid of the pre-dispute arbitration clauses currently found in broker firm contracts or push for similarly purposed legislation. The association recently unveiled its legislative priorities, which includes getting a discourse going about a recent FINRA panel ruling that found that the self-regulatory organization could not prevent Charles Schwab Corp. (SCHW) from using agreements that include mandatory pre-arbitration clauses to bar clients from taking part in class action securities cases.

NASAA President Heath Abshure has spoken about how giving investors options when it comes to settling claims is key to making them feel more confident about the financial markets. He said that when seeking relief they should have the option of going to the forum of their choice. The association also wants there to be legislation that would let the SEC impose user fees when investment advisors take exams (The group’s members believe this would enhance adviser oversight), as well as a law that would let crowdfunding victims file class action securities lawsuits. Crowdfunding involves using the Internet to sell securities in small batches to nonaccredited investors.

NASAA is hoping that the significant turnover that occurred in both the House and the Senate will give the organization a chance to generate new support.

Securities Roundup: Venecredit Fined $25K for Working with Foreign Finders, Ex-Merrill Lynch/LPL Financial Rep. Faces Fraud Charges, & BrokersXpress Broker is Suspended Over Private Placement-Related Misconduct

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

Venecredit Fined $25K for Working with Foreign Finders to Generate Retail Investor Business

According to the Financial Industry Regulatory Authority, Venecredit Securities must pay a $25,000 fine for allegedly using foreign finders to get new retail investor business. The financial firm has now been censured for two years.

The SRO says that the foreign finders served as the primary contacts between Venecredit and the clients and had access to account information via the clearing firm’s platform. These finders worked for a foreign brokerage firm that shares directors and officers with Venecredit and its wholly owned entity. FINRA contends that not only did Venecredit fail to create and put into effect proper supervisory measures that would have allowed it to look at customer complaints about the employees at the foreign brokerage firm, but also it failed to keep electronic correspondence from both the foreign traders and the personal email accounts of its registered representatives.

Ameriprise Fined $750,000 for Inadequate Supervision of Wire Transfer Requests

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

The Financial Industry Regulatory Authority has fined Ameriprise Financial Services Inc. and American Enterprise Investment Services Inc. $750,000 for failing to properly supervise wire-transfer requests and customer fund transmissions to third parties. Also, the SRO has barred Jennifer Guelinas, an ex-Ameriprise broker, for allegedly forging the signatures of two clients on wire-transfer requests and moving about $790,000 to her bank accounts. Ameriprise is an American Financial Inc. (AMP) unit.

FINRA said that Ameriprise had gone on to pay full restitution to its clients and that it was the latter’s affiliate clearing firm, American Enterprise Investment Services, that failed to put in supervisory systems for monitoring funds when they were transferred from client accounts to third parties. The SRO contends, however, that it was Ameriprise that did not detect that Guelinas wrongful actions even though there were a number of red flags. For example, she turned in three requests to send funds from a client’s account to bank account that appeared to belong to her. Amerirpise went ahead and put through the forged requests and moved the funds without asking questions. A third wire-transfer request by Guelinas also went through, says FINRA, but this time Ameriprise caught the wrongdoing before she could get to the money.

Amerirpise says that the since these incidents, which occurred several years ago, the financial firm has improved its related procedures, policies, and technology. By settling, Ameriprise and American Enterprise Investment Services are not admitting to or denying the securities allegations.

New Stream Capital LLC Hedge Fund Executives Face Criminal Securities Fraud Charges

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

The United States has charged Bart Gutekunst, Richard Pereira, and David Bryson, all New Stream Capital LLC hedge fund executives, with securities fraud, wire fraud, and conspiracy. Pereira is New Stream’s former CFO. According to US Attorney David Fein, the defendants ran a securities scam to fool investors so they could get and keep up investments partially because they were afraid they would lose their largest fun investor.

New Stream unveiled new feeder funds in November 2007. It told investors they would have to transfer their investments from a Bermuda-based fund that they were closing to these new ones. However, contend prosecutors, when New Stream’s biggest investor, Gottex Fund Management, intended to redeem its investment in the fund in Bermuda rather than transfer its money to the newer funds, the New Stream executives allegedly came up with a scam to keep the fund going so that the redemption would be reversed.

They are accused of restructuring New Stream’s structure to make sure Gottex Fund Management was prioritized. 2011, the fund and its affiliates petitioned for bankruptcy protection when their multiple restructuring efforts failed. After the US Bankruptcy Court in Delaware approved the firm’s liquidation plan last year, the funds’ investors were able to recover 7 to 19% of their monies.

SEC Needs to File Securities Fraud Lawsuits Sooner, Rules the US Supreme Court

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

In Gabelli v. SEC, the US Supreme Court has decided that in some securities fraud cases, the SEC needs to move faster when it comes to filing its case. The ruling could affect agencies nationwide.

In a unanimous decision, the justices sided with two officials of Gabelli Funds LLC, who sought to stop the regulator’s claim contending that they acted improperly by allowing a client to take part in market timing. The Commission sought civil penalties from them for illegal activities that allegedly took place leading up to August 2002.

Per the Investment Advisers Act, it is against the law for investment advisers to defraud clients and the regulator is allowed to seek penalties for such actions. However, the Commission only has five years from when the window opens to file. The regulator had argued that Gabelli and Alpert had let Headstart Advisers Ltd. take part in “market timing” in the fund while failing to disclose this and banning others from engaging in the same practice even as statements were issued noting that this was not allowed.

Alpert and Gabelli had argued that the SEC filed its securities complaint about these allegations after the statute of limitations for filing for penalties had passed. They said that under the appeals court decision, which said that the securities fraud lawsuit could go ahead because the statute of limitations doesn’t start with litigation involving fraud until the Commission has grounds to know that there was a violation, the SEC could then make an ancient claim just on the allegation that prior to that it hadn’t and couldn’t have found out about the violation sooner.

The Second Circuit’s ruling, reverses a District Court’s decision to throw out the SEC’s lawsuit against the two men because it said the civil penalty claim was time barred. The Second Circuit, however, disagreed, and accepted the Commissions contention that the discovery rule could be applied, which means that the five-year window to file didn’t start until the regulator found out (or could have reasonably discovered) the fraud.

Now, the US Supreme Court is saying that it never applies the Discovery Rule in a case where the government is the plaintiff bringing an enforcement action that seeks civil penalties in contradistinction to a victim that has been defrauded and wants compensation.

Shepherd Smith Edwards and Kantas, LTD, LLP represents securities fraud victims throughout the US. Your first case evaluation with one of our stockbroker fraud attorneys is free.

Securities fraud robs investors of their money every year. We work with institutional and individual investors seeking to recoup those losses. Call us today. Working with an experienced securities firm increases one’s chances of recovery.

Related Web Resources:
Gabelli v. SEC

Investment Advisers Act of 1940 (PDF)

More Blog Posts:
Judge that Dismissed Regulators’ Claims Against Morgan Keegan to Rule on ARS Lawsuit Again After His Ruling Was Reversed on Appeal, Institutional Investor Securities Blog, November 27, 2012

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

Plaintiff Must Arbitrate Faulty Investment Advice Claim With TD Ameritrade But Can Proceed With Litigation Against Oakwood Capital Management, Stockbroker Fraud Blog, October 29, 2012

Lure of High Returns Make Retail Investors Easy Targets for Securities Fraud Involving Complex Financial Products

Published on: February 26, 2013 | by Shepherd Smith Edwards & Kantas, LLP

In the wake of the recent financial crisis, retail investors, especially those seeking to save for retirement and who lost much when their stock portfolios and mutual funds dropped, are feeling compelled to get involved in complex products that until recently were targeted to their more sophisticated counterparts. Many want better returns than what they can get via government bonds and bank deposits. Unfortunately, regulators now have to contend with a barrage of related investor fraud claims.

According to The New York Times, tens of thousands of retail investors placed money into speculative bets that were marketed by aggressive financial advisers. Many of these alternative investments have started to go bad and are being named in a huge bulk of the more recent prosecutions and securities lawsuits.

It was just earlier this month that Massachusetts Secretary of the Commonwealth William Galvin ordered LPL Financial (LPLA) to pay $2.5 million in a REIT case for the allegedly improper sale of nontraded real estate investment trusts to hundreds of state residents. Approximately $28 million was invested in seven REITs involving 597 transactions. Galvin’s office accused the financial firm of not properly supervising its agents, who pushed the sales, and of engaging in business practices that were “dishonest and unethical.” The state contends that LPL made at least $1.8 million in commissions from the sales, which took place between 2006 and 2009. Meantime, in Arkansas, most of the 66 securities cases that are currently open reportedly involve unsophisticated investors that placed their funds in complex instruments.

Virgin Islands-Based Investment Adviser Faces SEC Fraud Charges Involving Alleged Kickbacks

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

The Securities Change Commission is charging TAG Virgin Islands owner James S. Tagliaferri with securities fraud. The investment adviser is accused of getting kickbacks from putting investors’ funds in companies that were being thinly traded in and then employing a Ponzi-like scam to give clients their supposed “returns.”

According to the SEC’s Enforcement division, Tagliaferri allegedly exercised his discretionary authority over his clients’ accounts to buy promissory notes that were put out by certain private companies. TAG was given millions of dollars in compensation, including cash in return for financing these companies-a conflict that investors didn’t know about. When it was time to pay these investors, Tagliaferri then used other clients’ funds to meet these obligations.

Specifically, contends the regulator, after 2007 the Virgin Islands-based investment adviser began placing TAG clients’ money in securities that were highly illiquid, including in promissory notes put out by different private companies that actually were holding companies, as well as $40M of investor funds in notes in International Equine Acquisitions Holdings, Inc.

ING Groep NV Broker-Dealers Fined $1.2M by FINRA Over Not Retaining Millions of E-Mails

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

FINRA is fining Directed Services LLC, ING Investment Advisors LLC, ING Financial Advisers LLC, ING America Equities Inc. and ING Financial Partners Inc. $1.2M for failing to keep or review million of email correspondence between ’04 and ’08. The five broker-dealers are affiliates of ING Groep NV (ING, INGA.AE).

According to ING Groep, the five ING units self-reported the problem to FINRA and that no customers were affected. In the wake of a thorough internal examination, the ING affiliates have taken significant steps to better its supervisory practices and email retention.

Per its findings, FINRA says the broker-dealers violated FINRA rules and federal provisions related to the retention of records when they did not properly configure the email accounts of staff to make sure correspondence was kept and reviewed. Also, because software wasn’t properly configured, close to 6 million emails that were marked for review at a supervisory level were not reviewed.

New York Fed Bailed Out Bank of America Over Mortgage-Backed Securities Sold to AIG

Published on: February 20, 2013 | by Shepherd Smith Edwards & Kantas, LLP

Recently, a secret deal came to light involving the Federal Reserve Bank of New York bailing out Bank of America (BAC) that released the latter from all legal claims involving mortgage-backed securities losses that the former obtained when the government rescued American International Group (AIG) in 2008. Some believe that the bank was allowed to abscond responsibility even as AIG sought to recover $7 billion that was loss on these same MBSs.

According to The New York Times, as part of its settlement with BofA, the New York Fed obtained $43 million in a securities dispute involving two of the mortgage securities. For no compensation, the bank was released from all other legal claims.

The roots of this settlement can be traced back to 2008 when the government intervened to rescue AIG . Part of that aid involved AIG selling mortgage securities to Maiden Lane II, which the New York Fed oversees. At the time, the insurer was losing money from toxic mortgages, many of which came from BofA. AIG obtained $20.8 billion for securities valued at $39.2 billion.

FINRA Pulls Back on Regulating Registered Investment Advisers

Published on: February 19, 2013 | by Shepherd Smith Edwards & Kantas, LLP

According to Financial Industry Regulatory Authority Chief Executive and Chairman Richard Ketchum, the SRO is pulling back from its bid to regulate Regulating Registered Investment Advisers. This move comes after FINRA spent the last couple of years lobbing to become the main regulator for RIAs.

However, according to Ketchum, in the wake of the current political climate and changes in leadership during the 2012 election, he does not expect that the House of Representative Financial Services Committee will try to revamp the way RIAs are currently regulated, which is via the Securities and Exchange Commission. For advisers that did not want FINRA overseeing them, this is good news.

However, not all of those that were against the SRO taking over RIA regulation are convinced that FINRA has completely given up. Some are worried that the regulator intends to return to the issue at a later date.