Investor Lawyers Blog

Three Oil Service Executives Face SEC Charges in Texas Court For Allegedly Bribing Nigerian Customs Officials

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

In the U.S. District Court for the Southern District of Texas, the SEC has charged three oil services executives that were allegedly involved in a scam to bribe Nigerian customs officials with Foreign Corrupt Practices Act violations. The men are accused of using these payments to seek illicit permits for oil rigs.

The three men charged are former Noble Corp. controller Thomas F. O’Rourke, ex-CEO Mark Jackson, and former Noble Nigerian subsidiary manager James Ruehlen. Jackson and Ruehlen allegedly are the ones that bribed the officials to get them to process the bogus paperwork that was supposed to demonstrate re-import and export of the oil rigs even though the rigs were “never moved.”

According to the SEC, the purpose of the scam was to prevent Noble from losing business and suffering substantial costs for exporting rigs from Nigeria and requiring new permits to re-import them. O’Rourke, who was also in charge of Noble’s internal audit, is accused of playing a hand in approving the bribes and letting them fall under the area of legitimate operating expenses.

Insurance Agent Convicted in Annuity Case Involving 83-Year-Old Dementia Patient

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

Independent insurance agent Glenn A. Neasham has been convicted for felony theft for selling a complex annuity to an elderly woman who was suffering from dementia. Neasham, who maintains that the woman seemed fine when the transaction was made in 2008, contends and that he acted appropriately. Now, other insurance agents say they are having second thoughts about offering this financial product.

“Indexed” annuities are savings products that pay interest tied to how the stock- and bond-market indexes perform. An insurance agent gives the buyer a guarantee that the latter won’t lose any principal as long as the investor doesn’t withdraw his/her money early when steep penalties would otherwise ensue.

A lot of insurance agents like annuities because they can earn high commissions (12% or greater of the amount invested).from insurance companies. Annuity sales have increased by over four times in the last 10 years as a volatile stock market and low interest rates attracted buyers.

SEC Chairman Schapiro Says Jumpstart Our Business Startups Act Needs Better Investor Protections

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

Earlier this month, Securities and Exchange Commission Chairman Mary Schapiro wrote a letter to Senate Banking Committee Chairman Tim Johnson (D-S.D.) over her concerns that modifications needed to be made to the Jumpstart Our Business Startups Act to make sure that investor protections are enhanced. The US Senate is heading toward a final vote on the Start-Up Focused JOBS Act. The Republican-introduced bundle of bills is geared toward helping along capital growth by loosening reporting requirements and securities law registration. The US House passed its version of the legislation on March 8.

Today, the Senate’s version passed by a 76-22 vote through a procedural process to end debating over the Act. However, before the final vote can be made, the senators must first vote on two amendments, including one that would toughen the limits on how much money a very small investor may place in a crowd-funding offering.

The SEC is also working on a number of capital formation initiatives. In her letter, Schapiro wrote about what she considered were problems with HR 3606, including what she considered its too broad of a definition an “emerging growth company,” which are firms with under $700 million in public float and less than $1 billion in yearly gross revenue. She believes that this very expansiveness could get rid of important investor protections in even very big companies. Schapiro also thinks that the JOBS Act would “weaken” key protections by getting rid of safeguard that were implemented after the dot-com era-related research scandals, while reversing SRO-established rules that put into place “mandatory quiet periods” for stopping banks from using conflicted research as a reward to insiders that chose a particular bank as an underwriter.

US Army Staff Sergeant Held in Afghan Civilian Massacre Was Once Accused of Securities Fraud

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

Before US Army Staff Sergeant Robert Bales joined the military, he had a career as a stock trader. Now, media sources, who have been digging into his background to find out more about the man accused of massacring 16 villagers in Afghanistan, are reporting that the 38-year-old’s stockbroker career ended after he was accused of defrauding an elderly couple and bilking them of their life savings.

According to The Washington Post, prior to joining the military, Bales and MPI, the financial firm that he worked for, were ordered by the Financial Industry Regulatory Authority to pay a $1.4 million securities settlement (compensation and punitive damages), for allegedly engaging in unauthorized trading, fraud, unsuitable investments, churning, and breach of fiduciary duty. Bales allegedly sold valuable stocks off while favoring penny stocks in order to up his commission.

The claimant, 74-year-old Gary Liebschner, said that he was never paid a cent of the arbitration award. In his securities complaint against Bales, which he filed in 2000, Liebschner said that $825,000 in AT & T stock lost all value because of trades that this former stock trader had made for him. ABC News says that when Liebschner was asked if he thought of Bales was a con man, the elderly senior replied in the affirmative.

“A question one may ask is, what do the actions of this man as a soldier have in common with his actions as a former stockbroker?” asked Shepherd Smith Edwards and Kantas, LTD LLP Founder and Stockbroker Fraud Lawyer William Shepherd. “In either case, it is apparent that he was and is a very disturbed person. Having represented thousands of investors to recover investment losses I have found that most of the harm is caused by either the large percentage of ruthless financial firms or the small percentage of disturbed brokers. Most financial advisors are honest and care very much about their clients, but a few of them range from gambling addicts to complete sociopaths.”

US officials have said that early on the morning of March 11, Bales walked to two villages and started shooting families in their homes. He initially reported shooting a number of Afghan men outside a US combat post and reports of the staff sergeant’s initial account imply that he may have asserted that his actions had a legitimate military goal even though he entered the villages without authorization. What he didn’t mention, however, was that he had also killed over a dozen women and children. Bales’ defense lawyer, who says that his client doesn’t remember the shootings, plans to mount an insanity defense.

Afghan Murder Suspect Bales ‘Took My Life Savings,’ Says Retiree, ABC News, March 19, 2012

Staff Sgt. Robert Bales’ arrest as suspect in civilian shootings renews questions about mission in Afghanistan: A Closer Look, Cleveland.com, March 18, 2012

More Blog Posts:
AmeriFirst Funding Corp. Owner Convicted of Texas Securities Fraud, Stockbroker Fraud Blog, February 3, 2012

Well Fargo Advisers to Pay $2 Million to Settle Claims that Broker Sold Unsuitable Reverse Convertible Securities to Seniors, Stockbroker Fraud Blog, December 17, 2011

Wells Fargo & Co. May Have to Pay Another $15M to Minnesota Nonprofits For Securities Fraud, Institutional Investor Securities Fraud, December 24, 2010 Continue Reading ›

SEC and SIPC Clash Over Standard of Proof Necessary to Insure Investors For Stanford Ponzi Fraud Losses

Published on: March 17, 2012 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission and the Securities Investor Protection Corporation are at odds over what the standard of proof should be used for the SEC’s application to make SIPC start liquidation proceedings for Stanford Group Co. The SEC recently sued the non-profit corporation, which is supposed to provide coverage protection for investors in the event that the brokerage firm they are working with fails. The SIPC has so far refused to provide the defrauded investors of R. Allen Stanford’s $7 billion Ponzi scam with any compensation, contending that the Stanford bank involved in the scam was Stanford International Bank Ltd. in Antigua and not SIPC member Stanford Group. Stanford has been convicted on 13 criminal counts related to the financial fraud.

During a U.S. District Court for the District of Columbia hearing, SC chief litigation counsel Matthew Martens said the probable cause standard is sensible in light of the Securities Investor Protection Act’s structure. SIPC lawyer Eugene Frank Assaf Jr., however, contended that the preponderance of the evidence standard is the one that should be used. Assaf said this should be the standard because this is SIPC’s only chance to seriously challenge the “compulsion issue.”

The SEC and SIPC have been battling it out since June 2011 when the Commission asked the latter to start liquidation proceedings on the grounds that individuals who had invested in the Ponzi scam through SGC deserved protection under SIPA. SIPC, however, did not act on this request. So the SEC went to court to get an order compelling the nonprofit organization to begin liquidating. The Commission was granted a partial win last month when the court found that a summary proceeding would be enough to resolve the SEC’s application.

Some 21,000 clients who purchased CD’s through SGC would be able to file claims for reimbursement through SIPA if the SEC prevails in this case.

Earlier this month, SIPC CEO and President Stephen Harbeck stood by the entity’s decision to not provide loss coverage to the victims of R. Allen Stanford’s Ponzi scam. When giving testimony to the House Financial Services Capital Markets Subcommittee, Harbeck noted that Stanford’s investors made the choice to send their assets to an offshore bank that wasn’t protected by the US government.

He pointed to the SEC’s own statements regarding how the CDs these investors purchased paid return rates that were “excessive” and likely “impossible.” He said that SIPA has never been interpreted to “pay back the purchase price of a bad investment. ”

SEC Suit Pursues Payouts by SIPC, The Wall Street Journal, December 13, 2011

Securities Investor Protection Corporation

More Blog Posts:

SEC and SIPC Go to Court Over Whether SIPA Protects Stanford Ponzi Fraud Investors, Stockbroker Fraud Blog, February 6, 2012

SEC Sues SIPC Over R. Allen Stanford Ponzi Payouts, Stockbroker Fraud Blog, December 20, 2011

SEC Gets Initial Victory in Lawsuit Against SIPC Over Payments Owed to Stanford Ponzi Scam Investors, Institutional Investor Securities Blog, February 10, 2012 Continue Reading ›

SharesPost, its CEO, and Fund Manager Settle with the SEC

Published on: March 17, 2012 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission says that it has reached a securities settlement in its administrative proceeding against SharesPost. Along with its Chief Executive Officer Greg Brogger, the online platform that serves as a secondary market for pre-IPO shares will pay $100,000 in penalties.

According to the SEC, SharesPost was matching up the sellers of private company stock and buyers even though it wasn’t a registered broker-dealer. Also, the online service allegedly let other broker-dealers’ registered representatives present themselves as SharesPost employees and make commissions on securities transactions, allowed one of its affiliates to manage pooled investment vehicles that were supposed to buy stock in single private firms and interests in funds that Sharespost made available, and published on the website third-party information about issuers’ financial metrics, research reports, and a valuation index that it created.

The SEC noted that although it is open to innovation in capital markets, products and new platforms have to abide by the rules, including making sure that basic disclosure and fairness occur. The Commission said that that broker-dealer registration is key in helping protect customers—especially considering that there are risks involved in the secondary marketplace for pre-IPO stocks for even the most sophisticated investors.

The Commission also settled its securities case against FB Financial Group and its fund manager Laurence Albukerk. The fund manager is accused of providing offering materials that did not let investors know he was making extra fees because he was buying Facebook shares using an entity that his wife controlled. Albukerk and his financial firm have agreed to pay pre-judgment interest plus disgorgement of $210,499 and $100,000 fine. Sharespost, Brogger, Albukerk, and FB Financial Group agreed to settle without denying or admitting to any wrongdoing.

Meantime, in a related securities fraud lawsuit filed in civil court, the SEC accused Frank Mazzola and his financial firms Facie Libre Management Associates, LLC and Felix Investments of making secret commissions and taking part in improper self-dealing. Mazzola and the firms allegedly made a number of false statements to investors about offerings in Zynga, Facebook, and Twitter while not revealing that certain prices were raised as a result of commissions.

Facie Libre also allegedly sold Facebook interests even though it didn’t own some of these shares. Both of the firms and Mazzola are accused of misleading an investor into thinking they had acquired Zynga stock, as well as of making misrepresentations about Twitter revenue. This case is still open. Felix Investments and Mazzola have, however, settled a related but separate action with the Financial Industry Regulatory Authority with the firm consenting to pay a $250,000 fine and Mazzola a $30,000 fine.

In the wake of electronic markets and Wall Street banks all rushing to present investors with an opportunity to trade stakes in popular technology companies prior to them going public, regulators and lawmakers have been more closely scrutinizing private share trading over the last year. That said, alternative online investment platforms, which are called “shadow markets,” can be very risky.

“The real shock is the lack of problems the SEC finds with such trading in pre-public shares,” says Shepherd Smith Edwards and Kantas, LTD LLP Founder and stockbroker fraud lawyer William Shepherd. “The penalties levied are only for firms not being licensed to sell securities engaging in such practices and/or for ‘self-dealing.’ Meanwhile, this entire practice flies in the face of both the letter and intent of securities laws that have been on the books since the 1930’s. Wall Street screams about new regulations while it ignores current ones. In driving terms, think of this as the police watching as drag races are being held in your neighborhood, ignoring red lights and stop signs on every corner, and being only concerned with whether the drivers are licensed.”

SEC charges SharesPost, Felix over pre-IPO trading, Reuters, March 14, 2012

More Blog Posts:

Securities and Exchange Commission Charges Investment Adviser with Committing Securities Fraud on Linked In, Stockbroker Fraud Blog, January 6, 2012

FINRA Fines AXA Advisors $100,000 For Allegedly Not Firing Broker who Ran Ponzi Scam Sooner

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

AXA Advisors LLC will pay a $100,000 fine to settle Financial Industry Regulatory Authority allegations that it delayed too long before firing a broker who was also the mastermind of a Ponzi scam. The financial firm turned in a Letter of Acceptance, Waiver, and Consent prior to there having to be a regulatory hearing, without denying or admitting to the findings, and without an adjudication of any issue. AXA Advisors is a subsidiary of AXA Financial, Inc., which is an AXA Group member.

Kenneth Neely, a former registered representative, started working with AXA in its Clayton, Missouri office in August 2007. FINRA contends that already by then, Neely had been the subject of four client complaints. Three of these were securities arbitrations over business practices he employed with previous employees. (Prior to working at AXA, he was registered with Stifel, Nicolaus & Co., Inc. and UBS PaineWebber, Inc.) The SRO believes that AXA also knew that Neely was having financial problems at the time.

Neely was permanently barred by FINRA in 2009 for running the Ponzi scam, which bilked its victims of $600,000. Many of the investors he defrauded belonged to his church. According to the SRO, Neely to conceal his financial scheme by having investors pay $2K to $3K to his wife. He also created fake invoices to make them appear as if they were actual ownership certificates. He did pay investors about $300,000. A lot of his investors’ money went toward supporting his extravagant lifestyle. Neely eventually pleaded guilty to the federal crime of mail fraud. He was sentenced to 37 months in months in prison and ordered to pay restitution in the amount of $618,270.

Per the AWC, Neely started running a Ponzi scam in 2001 while he was still working at UBS. He continued his fraud operation while at Stifel and when he went to go work with AXA. He persuaded AXA clients, Stifel customers, and others to take part in the St. Louis Investment Club, which was a fake club and put their money in the St. Charles REIT, which was a bogus real estate investment trust. After he admitted to converting and commingling funds. AXA fired him in July 2009.

However, it was as early as 2008, when AXA conducted its yearly audit of Neely, that a review of his computer brought up an Excel spreadsheet noting eight people’s payment schedules. Per the AWC, these people were investors in Neely’s fraud. An AXA examiner asked Neely to explain the spreadsheet and the broker claimed that the figures were for showing a potential client/friend, who wanted to start a business, how to handle his finances. The AWC alleges that this explanation was a false one.

FINRA found that AXA failed to properly supervise or investigate Neely by not responding appropriately to the spreadsheet, his excuses, or the fact that he had a questionable history. AXA has now been both sanctioned and fined.

AXA Fined $100,000 For Not Axing Ponzi Broker Sooner, Forbes, March 15, 2012

Ex-AXA Broker Barred by Finra After Ponzi Scheme, New York Times, July 28, 2009

More Blog Posts:
Stifel, Nicolaus & Co. and AXA Advisors Broker Charged in Ponzi Scheme Victimizing Church Members, Stockbroker Fraud Blog, November 5, 2009
AXA Rosenberg Entities Settle Securities Fraud Charges Over Computer Error Concealment for Over $240M, February 10, 2011 Continue Reading ›

SEC Chairman Mary Schapiro Stands By Agency’s 2011 Enforcement Record

Published on: March 15, 2012 | by Shepherd Smith Edwards & Kantas, LLP

Batting away criticism that many of the Security and Exchange Commission’s enforcement actions for fiscal year 2011 were actually follow-on administrative proceedings and not new actions, Chairman Mary Schapiro stood by the agency’s record. She also noted that in some instances, follow-ons are key to enforcing federal securities laws. Schapiro made her statements to a House Appropriations panel.

Per recent media findings, over 30% of the SEC’s FY 2011 735 enforcement actions (the agency has never filed this many in a fiscal year before) were follow-on administrative proceedings. Schapiro, who was testifying in front of the House Appropriations Financial Services Subcommittee on the White House’s proposed $1.566 billion FY2013 budget for the SEC, noted that some of the enforcement actions were the most complex to ever occur and included those involving municipal securities market-related bid rigging, misleading sales practices related to structured products, Foreign Corrupt Practices Act-related violations, and insider trading. She also pointed to the number of senior level people that have been the target of many of last year’s SEC enforcements.

Schapiro said that even as the SEC has already proposed or adopted regulations for over three-fourths of the duties it was tasked with under the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, the most challenging ones, including proposals to enhance disclosures for companies that use conflict minerals or pay governments for access to natural gas, minerals, and oil, are still on the horizon. So is the SEC’s joint proposal with banking regulators on the Volcker rule, which exempts insurance firms from proprietary trading restrictions while preventing financial institutions and affiliated insurers from being able to invest in private equity and hedge funds. She said stated the SEC is “rethinking” how it deals with its Volcker rulemaking.

SEC Looks Likely to Win Appeal in $285M Securities Settlement that Judge Rakoff Rejected

Published on: March 15, 2012 | by Shepherd Smith Edwards & Kantas, LLP

In a primarily procedural decision, the U.S. Court of Appeals for the Second Circuit has ruled that the Securities and Exchange Commission’s case against Citigroup, which resulted in a proposed $285M securities fred settlement, be stayed pending a joint appeal of U.S. Senior District Judge Jed Rakoff’s ruling that the civil lawsuit proceed to trial. Rakoff had rejected the settlement on the grounds that he didn’t believe that it was “adequate.” He also questioned the Commission’s practice of letting parties settle securities causes without having to admit or deny wrongdoing. The trial in SEC v. Citigroup Global Markets, Inc. had been scheduled for July 2012.

In December, the SEC filed a Notice of Appeal to the 2nd Circuit contending that the district court judge made a legal mistake in declaring an unprecedented standard that the Commission believes hurts investors by not allowing them to avail of “benefits that were immediate, substantial, and definite.” The notice also stated that it considered it incorrect for the district court to require an admission of facts or a trial as terms of condition for approving a proposed consent judgment—especially because the SEC provided Rakoff with information demonstrating the “reasoned basis” for its findings.

The 2nd circuit’s ruling deals a blow to Rakoff’s decision, which other federal judges have cited when asking if the public’s interest is being served when federal agencies propose settlements. The three-judge panel’s appellate ruling, which was a per curiam (unsigned) decision, found that the SEC and Citi would likely win their contention that Rakoff was in error when he turned down the securities settlement. The appeals court justices said that they had to defer to an executive agency’s evaluation of what is best for the public and that there was no grounds to question the SEC’s claim that the $285M securities settlement with Citigroup is in that interest.

The 2nd circuit said that Rakoff “misinterpreted” precedent related to his discretion to determine public interest and went beyond his judicial authority. Also, per the appellate panel, while district court judges should not merely rubber stamp on behalf of federal agencies it is not their job to define the latter’s policies.

It is important to note, however, that the 2nd circuit’s ruling only tackles the preliminary issue of whether the securities case should be stayed pending the completion of the appeal. The panel said it would be up to the justices that hear the appeal to resolve all matters and that this ruling should not have any “preclusive” impact. Counsel would also be appointed to argue Rakoff’s side during the appeal.

Ruling Gives Edge to U.S. in Its Appeal of Citi Case, NY Times, March 15, 2012

Second Circuit: Rakoff, Mind, Wall Street Journal, March 15, 2012

More Blog Posts:
Citigroup’s $285M Settlement With the SEC Is Turned Down by Judge Rakoff, Stockbroker Fraud Blog, November 28, 2011

Citigroup’s $285M Mortgage-Related CDO Settlement with Raises Concerns About SEC’s Enforcement Practices for Judge Rakoff, Institutional investor Securities Blog, November 9, 2011

Citigroup’s $75 Million Securities Fraud Settlement with the SEC Over Subprime Mortgage Debt Approved by Judge, Stockbroker Fraud Blog, October 23, 2010

Texas Securities Fraud: District Court Holds Ex-Dell Administrative Assistant and Her Stockbroker Spouse Liable for Insider Trading

Published on: March 13, 2012 | by Shepherd Smith Edwards & Kantas, LLP

In the U.S. District Court for the Western District of Texas, Judge James R. Nowlin entered summary judgment against Marleen and John Jantzen. In SEC v. Jansen, the Securities and Exchange Commission had charged the couple with Texas securities fraud for using insider information about Dell Inc. to buy Perot Systems Corp. securities. Marleen is a former Dell administrative assistant. John is a registered stockbroker.

The SEC submitted the allegations against couple in October 2010 and contended that Marleen gave material, nonpublic information about Dell’s upcoming tender offer for Perot shares to her husband. The Commission claimed that on September 18, 2009, which was the final day of trading prior to the announcement of the Perot acquisition, Marleen, who was given “explicit orders” by her employer “not to trade, ” made a cash transfer to the Jantzens’ brokerage account. Within minutes of the money being moved over, John bought 24 Perot call options contracts and 500 shares of Perot common stock. He cashed in on September 21, 2009, which is the same day that Perot Systems and Dell announced the tender offer. (The stock price had immediately gone from $17.91 to $29.56, allowing the couple to make $26,920.50 in trading profits in a single day.)

According to the Court, the Jantzens violated sections 14(e) and 10(b) of the Exchange Act and Rules 14e-3(a) and 10b-5 thereunder, and Marleen also violated Rule 14e-3(d). The couple is enjoined from future violations of these provisions. They must also pay $26,920.50 in ill-gotten gains, as well as prejudgment interest. The Court also found that per evidence, there was a “high degree of scienter” especially involving John, who, as a licensed securities broker, was most certainly cognizant of his actions and their meaning. The district court, however, has deferred a final ruling on the SEC’s request for monetary penalties pending further briefing by both sides.

The Jantzens are not the only ones to settle with the SEC over insider trading related to the Dell-Perot Systems deal. In 2010, Texas resident Reza Saleh agreed to give back over $8.6M in illicit profits he made after he made illegal trades in Perot Systems call options before the merger was made public.

Saleh, who used to work for companies owned by the Perot family, settled the Texas securities claim without deny or admitting to the allegations. He also consented to an SEC administrative order that says he cannot associate with any investment advisers ever again. He also agreed to a permanent enjoinment that would prevent him from violating the Securities Exchange Act of 1934’s anti-fraud provisions in the future.

COURT ENTERS SUMMARY JUDGMENT AGAINST INSIDER TRADING DEFENDANTS JOHN JANTZEN AND WIFE, MARLEEN JANTZEN, SEC, March 1, 2012

SEC settles insider trading case involving Perot acquaintance Reza Saleh, Dallas News, January 6, 2010

More Blog Posts:
Texan R. Allen Stanford Convicted on 13 Criminal Counts Over $7.2B Ponzi Fraud, Stockbroker Fraud Blog, March 7, 2012

NFA Enforcement Action Filed Naming Texas Financial Firm J Hansen Investments, Stockbroker Fraud Blog, February 26, 2012

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 ›