Investor Lawyers Blog

Number of Securities Class Action Settlements Reached in 2010 Hit Lowest Level in a Decade, Says Report

Published on: March 31, 2011 | by Shepherd Smith Edwards & Kantas, LLP

Per a new study by Cornerstone Research Inc., 86 securities class action settlements were approved in 2010-that’s significantly less than the 101 securities class action settlements that the courts approved in 2009. The settlements for last year’s cases totaled $3.1 billion. In 2009, the settlements reached $3.8 billion.

One reason for this may be that some securities class action lawsuits, including a number of complaints related to the 2007 – 2009 financial collapse, are taking a longer time to settle because they are likely more complex. Close to 200 securities class actions related to the credit crisis have been filed. Largest settlements under consideration include:

$624M – Countrywide Financial Corp.

AIG Reorganizes Property and Casualty Insurer Chartis

Published on: March 31, 2011 | by Shepherd Smith Edwards & Kantas, LLP

American International Group Inc. is reorganizing Chartis, its property and casual insurer, into two global groups—one consumer and one commercial. AIG executive vice president, finance, risk and investments Peter D. Hancock has been named Chartis’s chief executive officer, while current Chartis CEO Kristian P. Moor is to become vice chairman.

John Q. Doyle, who was formerly Chartis US’s CEO will head the global commercial business, while current chief administrative officer Jeffrey L. Hayman will be in charge of the global consumer business group. Both men will report to Hancock. The reorganization will section Chartis into four regions: U.S./Canada, Europe, Growth Economies, and Far East.

It was just this February that Chartis had to put aside $4.2 billion for loss reserve increases. According to AIG CEO Robert Benmosche, strengthening claims management, underwriting, risk management, and reserving so that the right risk-adjusted returns are earned remain top priorities. Benmosche promised to rebuild businesses needed to pay back the firm’s $182.3 billion government rescue. Benmosche, who is undergoing treatment for cancer, intends to step down in 2012.

Chartis has over 45 million clients internationally located in over 160 nations. Last year, the insurer wrote $31.6 billion in net premiums. Meantime, AIG’s stock performance has been less than stellar with a 26% drop since the start of the year.

Related Web Resources:
AIG Revamps Chartis, Makes Hancock Head After Reserve Boost, Bloomberg, March 31, 2011

Venezuelan Workers Fall Victim to Francisco Illarramendi’s Ponzi Scam

Published on: March 30, 2011 | by Shepherd Smith Edwards & Kantas, LLP

Our Stockbroker Fraud Blog and our Institutional Investor Securities Blog have been following the story of Michael Kenwood Capital Management, LLC principal Francisco Illarramendi, who recently pleaded guilty to securities fraud, investment adviser fraud, and conspiracy to obstruct justice, and wire fraud. Now, news that the Ponzi scam, which targeted clients overseas, may be impacting workers in Venezuela.

Illarramendi is Venezuelan-American. According to National Public Radio/AP, he was in charged of investing hundreds of millions of dollars from a state oil workers’ pension fund. Now, the Venezuelan government is attempting to recover what it can from the employee retirement fund for Petroleos de Venezuela, which put forth about 90% of the investment. Rafael Ramirez, Venezuela’s oil minister, says that any pension fund losses would be made up by the oil company. Per The Wall Street Journal, officials from the petroleum workers union are claiming that about $500 million was invested.

The monetary scope of the Ponzi scheme has not been verified. The Securities and Exchange Commission, however, has said that at one point Illarramendi gave over a bogus letter from an accountant in Venezuela in an effort to verify some $275M in nonexistent assets.

Prosecutors claim that Illarramendi transferred money between investment accounts without notifying clients, as well as falsified documents to fool his clients.
While all his investors are located abroad, the financial fraud scam has impacted startup technology companies in the US that depended on Investments from Illarramendi’s group.

If convicted, Illarramendi could end up serving up to 70 years behind bars.

Venezuelan Workers Caught Up In Conn. Ponzi Scheme, NPR/AP, March 30, 2011
Venezuela Oil Min: Working With US To Recover Pension Fund Money, The Wall Street Journal, March 27, 2011

Related Web Resource:
Petroleos de Venezuela

More Blog Posts:
Michael Kenwood Capital Management, LLC Principal Pleads Guilty to Securities Fraud Involving Ponzi Scam, Institutional Investors Securities Blog, March 17, 2011
Order to Freeze Assets in $53M Fund Fraud Allegedly Involving Michael Kenwood Asset Management LLC Obtained by SEC, Stockbroker Fraud Blog, February 21, 2011 Continue Reading ›

Impartiality of SEC Report by Boston Consulting Group Questioned by Key House Republicans

Published on: March 30, 2011 | by Shepherd Smith Edwards & Kantas, LLP

Rep. Randy Neugebauer (R-Texas), who is the Financial Services Oversight Subcommittee chairman, and Rep. Spencer Bachus (R-Ala.), the House Financial Services Committee chairman, have sent a letter to US Securities and Exchange Commission Chairman Mary Schapiro asking her about Boston Consulting Group Inc.’s recent report on the recent report on SEC reform. Even though BCG is an independent consultant, the two GOP members are questioning the report’s impartiality.

In their letter, they asked Schapiro to disclose what (if any) editorial input the SEC provided on the content of the BCG report. They also want to see any earlier drafts that BCG may have sent the SEC Chairman. Neugebauer and Bachus said that given the regulatory failures from the 2008 economic collapse, it was important that BCG was allowed compete independence to do its job and that the report did not undergo any editorial deletions, review, or insertions by the SEC.

Dodd-Frank Wall Street Reform and Consumer Protection Act’s Section 967 had directed the SEC to retain the services of an independent consultant to analyze the agency’s structure and operation, as well as suggest reforms. BCG issued its report on March 10. Among its recommendations: for the SEC:

• Hire staff with “high-priority” skills
• Invest in key technology systems,
• Improve oversight over SROs (self-regulatory organizations)
• If Congress determines that the SEC cannot fulfill expectations by further optimizing its resources, the lawmaking body should “relax” funding constraints

BCG has said that it stands by the report’s “integrity and independence.” Meantime, Schapiro has said that the report confirms her own worries that the SEC lacks the resources to do all that it is expected to accomplish.

Our institutional investment fraud lawyers have successfully represented clients throughout the US.

Related Web Resources:
Integrity of report on SEC questioned, Washington Post, March 18, 2011

Statement From Chairman Schapiro on Independent Consultant Report of SEC Organization and Operations, SEC, March 10, 2011

Read the BCG Report (PDF)

SEC Needs to Keep a Closer Eye on FINRA, Says Report, Stockbroker Fraud Blog, March 15, 2011

SEC Securities Settlements Often Don’t Come with Admission of Wrongdoing

Published on: March 29, 2011 | by Shepherd Smith Edwards & Kantas, LLP

As Bloomberg News columnist Ann Woolner points out, in most US Securities and Exchange Commission where a settlement is reached, the defendant usually ends up not having to admit to doing anything wrong. Instead, the securities fraud agreement is accompanied by the boilerplate caveat that says that by settling, the plaintiff is doing so without “without admitting or denying” wrongdoing.

Granted, there are certain cases where a conviction or guilty plea in a related criminal case makes it clear that a wrongful action did take place. One might also say that by agreeing to settle and pay a huge financial sum, the plaintiff is admitting to the wrongdoing without actually admitting to doing anything wrong. However, as Woolner points, not all defendants of US Securities and Exchange Commission cases are also charged in criminal court over the alleged securities fraud. Even when a settlement is reached, without an admission, the exact nature of the fraud is often left unclear.

SEC spokesperson John Nestor says that of the over 600 securities lawsuits filed every year, only about 20 of them ever go to trial. Nestor notes that the SEC’s primary objective in any civil case is to secure the proper sanctions against wrongdoers and not making them admit wrongdoing is a way to get this done. Many violators will give up a great deal to avoid being held liable in civil court. They also have little incentive to confess because this could help the securities fraud lawsuits of plaintiffs.

U.S. District Judge Jed Rakoff says that letting securities defendants get away with not admitting what they have done is a “disservice to the public.” Meantime, SEC commissioner also says that he wants defendants to “take accountability” and “issue mea culpas.” He also wants companies to stop putting out press releases suggesting that the SEC overreacted.

Related Web Resources:
Uncle Sam Wants Your Cash, Not Confession: Ann Woolner, Bloomberg, March 24, 2011

US Securities and Exchange Commission

More Blog Posts:
Bank of America to Pay $137M Over Alleged Investment Scam To Pay Municipalities Low Interest Rates on Investments and $9M Over Alleged Bid-Rigging Scheme to Nonprofits, Institutional Investors Securities Blog, December 16, 2010

NJ Settles Municipal Bond Offering Fraud Charges with SEC, Institutional Investors Securities Blog, September 30, 2010

Federal Judge to Approve Citigroup’s $75M Securities Settlement with SEC Over Bank’s Subprime Mortgage Debt Reporting to Investors, Institutional Investors Securities Blog, September 29, 2010

FINRA Panel Orders Wedbush Securities to Pay $233,000 in Securities Fraud Damages

Published on: March 28, 2011 | by Shepherd Smith Edwards & Kantas, LLP

A Financial Industry Regulatory Authority (FINRA) arbitration panel says Wedbush Securities Incorporated must pay Karen E. Ray $233,000 in damages. Ray had accused the brokerage firm of numerous causes of action, including negligence, purposely negligent misrepresentations, and violating FINRA Rules of Fair Practices.

Rays case isn’t the first one against the broker-dealer. FINRA’s broker report on the financial firm noted that Wedbush has been at the center of a number of customer complaints and over 40 regulatory inquiries brought by the Securities and Exchange Commission, FINRA (previously NASD), the NYSE Division of Enforcement, as well as regulatory bodies in Colorado, Washington, New Jersey, Georgia, Idaho, and Oregon.

Among the allegations are those involving supervisory failures and market timing. The broker report also noted that Wedbush had received over 40 securities arbitration claims by customers alleging unsuitability, negligence, excessive margin, churning, misrepresentation, and/or breach of fiduciary duty. Their cases involved different kinds of securities, such as mutual funds, bonds, stocks, municipal securities, annuities, and options.

Prison Term for Broker Accused of Investment Fraud Affirmed by 7th Circuit Even Though Sentence Exceeds Guidelines

Published on: March 26, 2011 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. Court of Appeals for the Seventh Circuit has affirmed broker Scott Schlueter’s 48-month prison sentence even though it exceeds sentencing guidelines. Schlueter is accused of conducting an investment scam that resulted in over $300,000 in financial losses for investors, who also happened to be friends of his.

Schlueter has admitted that rather than placing investors’ money in no-risk investments, he kept the funds while paying out interest from time to time. He has pleaded guilty to securities fraud, wire fraud, and mail fraud.

Although sentencing guidelines call for 33 to 41 months behind bars, the district court judge sentenced Schlueter to 48 months. The judge contends that the serious impact of the rogue broker’s actions was not accounted for in the sentencing guideline range and that an above-range sentence was “more than adequate” considering that Schlueter not just bilked investors of money they needed during “critical stages of their lives,” but he also took advantage of his friendships with investors to defraud them.

For example, one 75-year-old man ended up having to go back to work. Another investor, a widow, had to get a second job after she lost her insurance money.

Schlueter, who argued that he should only sentenced for two year because he had a tough childhood and suffered from alcoholism, contested the above-range sentenced. The appeals court, however, turned down his request down and affirmed the four-year sentence.

More Blog Posts:
Wall Street Targeting Older Investors With Structured Product Sales, Reports AARP, Stockbroker Fraud Blog, March 11, 2011
Increase of Structured Notes with Derivatives Sales Seduces Retirees, Reports Bloomberg, Stockbroker Fraud Blog, September 25, 2010
Combatting Elder Financial Fraud: SEC, NASAA, & FINRA Update Their Best Practices to Protect Senior Investor, Stockbroker Fraud Blog, August 29, 2010 Continue Reading ›

FINRA Wants Amerivet Securities Inc.’s Lawsuit Seeking to Inspect the SRO’s Records Dismissed

Published on: March 26, 2011 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority wants the District of Columbia Court of Appeals to reverse the D.C. Superior Court’s decision to not dismiss Amerivet Securities Inc.’s lawsuit against the SRO. The broker-dealer wants to inspect FINRA’s records and books.

Amerivet Securities filed its complaint in August 2009 under the Delaware General Corporation Law’s Section 220, which lets a shareholder examine a company’s records and books for “any proper purpose.” The broker-dealer says it needs to inspect FINRA’s books and documents in order to expose the corporate wrongdoing related to the SRO’s 2008 investment losses and and allegedly inflated executive pay practices.

When our securities fraud attorneys covered this case more than a year ago, we noted that Amerivet had accused FINRA of failing to supervise and regulate a number of its larger member firms, including Lehman Brothers, Merrill Lynch, Bernard L. Madoff Investment Securities Inc., Bear Stearns and Co, and Stanford Financial Group. The broker-dealer also claimed that FINRA recklessly pursued high-risk investment strategies that were not appropriate for preserving capital. (Read our previous Stockbroker Fraud Blog post to find out more.) Last month, Judge John Mott ruled in favor of Amerivet and noted that pursuant to Section 220, the broker-dealer had asserted a proper purpose for wanting to make its inspection.

Reductions to SEC’s Budget Will Cause Staff Furloughs, Says Schapiro

Published on: March 24, 2011 | by Shepherd Smith Edwards & Kantas, LLP

Securities and Exchange Commission Chairman Schapiro says reducing the agency’s budget to where it was at in 2008 would result in “significant’ staff furloughs. Other likely consequences would be the curtailment of crucial travel, including visits to registered entities, the cessation of technology infrastructure initiatives, and the curtailing of the SEC’s Dodd-Frank enforcement capabilities. House Republicans are the ones pushing for the budget reductions. Schapiro made her case earlier this month while testifying before the Senate Banking Committee’s Securities subcommittee. Our securities fraud law firm will continue to monitor the developments regarding this matter.

Schapiro says that the continuing resolution, which would find the agency at fiscal year 2010 levels, already makes it tough to close deals with top-rank industry experts she has recruited. She also says any steep cuts would impede the SEC’s ability to oversee broker-dealers, mutual funds, investment advisers, and other participants in the retail investing market in “anything but the most cursory way.” Schapiro also expressed concern that credit rating agencies would be able to evade serious examination if the SEC’s budget was tightened.

Sen. Michael Crapo (R-Idaho.), a ranking subcommittee member, noted that while underfunding the SEC can make it hard for the agency it to do its job “aggressively” and “effectively,” he believes that in the wake of the financial crisis, it is now more than ever necessary for all levels of government to perform with greater efficiency. Crapo is calling for an “agency-wide examination” of where the SEC’s resources are going and an assessment of whether they can be “better utilized.” For example, is there technology that can compensate for a reduced staff? What about sharing technology costs over Dodd-Frank oversight needs with the Commodity Futures Trading Commission?

Schapiro also said that the SEC has been effectively implementing a 60-day comment period for most Dodd-Frank rulemaking, rather than just 30 days, to allow time for thoughtful feedback. Current SEC rules are also being examined to determine whether any of them are no longer applicable.

Related Web Resources:
Cuts will stifle, SEC chief warns, The Boston Globe, March 11, 2011
Schapiro Says SEC Will Have to Furlough Staff If House Republican Cuts Are Enacted, BNA Securities Daily, March 11, 2011 Continue Reading ›

FBI Arrests Texas Leader of Pump-and-Dump Scheme

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

FBI agents have arrested Christopher Rad, a Texas man who is charged with one count of conspiracy to commit securities fraud and transmit email messages. Rad, 42, is the alleged ringleader of an international securities fraud group accused of working with botnet operators, hackers, and email spam in a pump-and-dump scam.

Between November 2007 and February 2009, Rad allegedly acted as the middleman between computer experts, who know how to inflate a stock’s value, and stock promoters. The FBI says that he agreed to work with others to trade manipulated stock between themselves to make it appear as if the stocks were active. The hackers that he worked with would break into third-party brokerage accounts, liquidate the stocks, and use the balance to buy shares of the manipulated stock. They also allegedly distributed viruses so that computers around the world became infected. This created a “botnet,” a virtual army of computers that would then send out spam to promote the manipulated stocks. The pump-and-dump scheme let the fraudsters obtain control of “penny stocks” that weren’t traded on major exchanges.

If convicted, Rad end up behind bars for five years. He faces a $250,000 fine.