Investor Lawyers Blog

JP Morgan Chase To Pay $150M to Settle Securities Lawsuit Over Lending Program Losses of Union Pension Funds

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

To settle a securities lending lawsuit filed by the AFTRA Retirement Fund, the Investment Committee of the Manhattan and Bronx Surface Transit Operating System, and the Imperial County Employees’ Retirement System, JPMorgan Chase & Co. will pay $150 million. The union pension funds are blaming the financial firm for losses that they sustained through its securities lending program. A district court will have to approve the settlement.

JPMorgan had invested their money in Sigma Finance Corp. medium term notes, which is a financial instrument that has since failed. However, billions of dollars of repurchase financing was extended to Sigma in the process.

The securities claims accused JPMorgan of violating the Employee Retirement Income Security Act and its state-imposed fiduciary obligations when it invested in Sigma. The plaintiffs contend that financial firm should have known that the investment was a poor one.

Per the union pension funds’ contracts with JPMorgan, the investment bank is only supposed to put their money in investment vehicles that are low-risk and conservative. They believe that the Sigma vehicle did not meet that standard.

The consolidated class action alleges that JPMorgan foresaw Sigma’s impending failure, took part in predatory repo arrangements with significant discounts in order to pick the best of Sigma’s assets in its portfolio, and reduced the quality and quantity of these assets by taking title to assets in an amount that was nearly a billion dollars more than the financing it gave.

The Board of Trustees of the American Federation of Television and Radio Artists (AFTRA) Retirement Fund, which initially brought the class action case, contended that JPMorgan made close to $2 billion profit, even as the notes were left with almost no value. Last year, a year after the court certified the class action case, a judge gave partial summary judgment to the financial firm.

The plaintiffs believe that the securities lawsuit brought up a number of key factual and legal matters under New York common law and ERISA and that this made the case very hard to litigate. They say the $150 million proposed settlement is a representation of 30 – 100% of the potential provable losses if liability were to be set up for a certain breach date. Therefore, seeing as a trial could have led to a wide range of potential damage results, the settlement figure represents an appropriate range of recovery

JPMorgan Agrees to Pay $150M To Settle Securities Lending Lawsuit, Bomberg, March 20, 2012

JPMorgan to pay $150 million over failed Sigma SIV, Reuters, March 20, 2012

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JPMorgan Chase to Pay $211M to Settle Charges It Rigged Municipal Bond Transaction Bidding Competitions, Stockbroker Fraud Blog, July 9, 2011

JP Morgan Chase Agrees to Pay $861M to Lehman Brothers Trustee, Stockbroker Fraud Blog, June 28, 2011

Investors Want JP Morgan Chase & Co. To Explain Over $95B of Mortgage-Backed Securities, Institutional Investor Securities Blog, December 17, 2011 Continue Reading ›

Some Former Pro-Athletes Regain the Spotlight But This Time For Financial Fraud

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

A number of former professional athletes have been accused of parlaying their hero/celebrity status and the credibility built on their names to commit securities fraud. According to USA Today, the adulation of celebrities, including sports heroes, in our culture makes high-profile athletes “naturals” for investment fraud.

“Success in too many occupations is more about who you know than what you know. The best talent for selling investments involves getting clients through the front door. Sports stars have a greater opportunity than most to do that,” said Shepherd Smith Edwards and Kantas, LTD, LLP Founder and Stockbroker Fraud Lawyer William Shepherd.

Among the famous ex-athletes to be targeted by the US Securities and Exchange Commission over financial fraud allegations is Willie Gault, the former National Football League member of the Chicago Bears. Known as one of the fastest wide receiver ever and for playing a key part in his team’s victory over the New England Patriots during the 1986 Super bowl, Gault was also a former member of the US Olympic team.

Institutional Investor Fraud Roundup: Decline in Securities Class Action Settlements, ESMA Recognizes US Credit Rating Agency Framework, and Court Dismisses Securities Lawsuit Against Mecox Lane

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

According to a report published by Cornerstone Research, there has been a decline not just in the number of securities class action settlements that the courts have approved, but also in the value of the settlements. There were 65 approved class action settlements for $1.4 billion in 2011, which, per the report, is the lowest number of settlements (and corresponding dollars) reached. That’s 25% less than in 2010 and over 35% under the average for the 10 years prior. The report analyzed agreed-upon settlement amounts, as well as disclosed the values of noncash components. (Attorneys’ fees, additional related derivative payments, SEC/other regulatory settlements, and contingency settlements were not part of this examination.)

The average reported settlement went down from $36.3 million in 2010 to $21 million last year. The declines are being attributed to a decrease in “mega” settlements of $100 million or greater. There was also a reported 40% drop in media “estimated damages,” which is the leading factor in figuring out settlement amounts. Also, according to the report, over 20% of the cases that were settled last year did not involve claims made under the 1934 Securities Exchange Act Rule 10b-5, which tends to settle for higher figures than securities claims made under Sections 11 or 12(a)(2).

Our securities fraud law firm represents institutional investors with individual claims against broker-dealers, investment advisors, and others. Filing your own securities arbitration claim/lawsuit and working with an experienced stockbroker fraud lawyer gives you, the claimant, a better chance of recovering more than if you had filed with a class.

SEC’s Office of the Whistleblower In Early Phase of Evaluating Reward Claims

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

Securities and Exchange Commission’s Office of the Whistleblower Chief Sean McKessy says that the preliminary stage for processing claims stemming from whistleblower cases that resulted in over $1 million in sanctions is underway. McKessy spoke before an Investment Adviser Association-hosted panel earlier this month. He said that the share that an eligible whistleblower can receive would depend on the amount that is actually collected, which might be different from how much a party has been ordered to pay. McKessy made sure to say that the views expressed were his alone and did not reflect those of the SEC or other staff members.

The first reward under the SEC’s whistleblower program, implemented under the

2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, has yet to be issued. Per the program, whistleblowers that provide “original information” of their own accord that leads to the government recovering over $1 million in monetary penalties are entitled to 10-30% of what is paid. SEC staff can also investigate and prosecute employers that retaliate against an employee who stepped forward, regardless of whether or not the federal regulator decided to bring a case based on the information that this person provided.

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

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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

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