Investor Lawyers Blog

SIFMA Wants FINRA to Take Tougher Actions Against Brokers that Don’t Repay Promissory Notes

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

The Securities Industry and Financial Markets Association wants the Financial Industry Regulatory Authority Inc. to prevent brokers from being able to plead poverty to escape arbitration payment orders. The promissory notes provide money for retention and recruiting incentives, and as long as a broker agrees to stay with a financial firm for an agreed up on time, they are structured as forgivable notes.

Many brokers obtained such deals following the economic crisis. Since then, financial firms have gotten more active about submitting arbitration claims to get brokers to pay them back. In 2011 alone, 778 promissory note cases were filed. 1,152 such cases were filed the year before. In most cases, it is the financial firm that ends up winning.

When a broker won’t pay an arbitration award, FINRA files an action against him/her that could lead to suspension. However, if the broker demonstrates that he/she can’t pay it, then suspension may be avoided.

Many SIFMA members believe that FINRA should take more aggressive measures to get brokers to pay up. The trade group wants the SRO to prevent brokers from being able to claim that they cannot pay when slapped with a case from an industry claimant.
Such a move would likely mean that if a broker were unable to repay a promissory note, he/she would likely be suspended or have to file for bankruptcy. SIFMA also wants enhanced disclosure of awards that brokers don’t pay, because it believes that the consequence of having this failure made public is incentive for the broker to make good on the matter.

In a letter to FINRA that it sent last November, SIFMA voiced members’ concerns that the inability-to-pay defense was being abused and that not only was this resulting in compliance and regulatory risks, but also it was creating an unnecessary risk to investors. SIFMA claimed that FINRA Rule 9554 discriminates against industry claimants, who aren’t given the same protections as customer claimants, who don’t have to contend with the inability-to-pay defense from a broker. The trade organization noted that the Securities and Exchange Commission obligates FINRA to take appropriate disciplinary action against defendants that use this defense in bad faith.

SIFMA, Finra clash over deadbeat brokers, Investment News, January 15, 2012

FINRA Rules

Securities Industry and Financial Markets Association

More Blog Posts:
SIFMA Offers Up Best Practices for How Financial Firms Can Interact with Expert Networks, Institutional Investor Securities Blog, October 16, 2011

SEC and SIFMA Divided Over Whether Merrill Lynch Can Be Held Liable for Alleged ARS Market Manipulation, Institutional Investor Securities Blog, July 29, 2011

Micah S. Green, Expected New CEO of Largest Securities Industry Group, Resigns During Scandal, Stockbroker Fraud Blog, May 18, 2007

Raymond James Financial to Buy Morgan Keegan from Regions Financial for $930 Million

Published on: January 14, 2012 | by Shepherd Smith Edwards & Kantas, LLP

This week, Regions Financial Corp. (NYSE: RF) issued a statement announcing that Raymond James Financial Inc. (RJF) will be paying it $930 million to purchase Morgan Keegan & Company, Inc. and related affiliates in a stock purchase agreement. (Regions Morgan Keegan Trust and Morgan Asset Management, however, are not part of the sale.) Prior to closing, Morgan Keegan will pay Regions $250 million. This agreement, of course, will have to receiver regulatory approvals and meet closing conditions.

Also per the agreement:
• For all litigation matters connected to pre-closing activities, Regions will protect Raymond James against these losses. Meantime, Regions will benefit from already existing reserves by Regions at Morgan Keegan.

• Raymond James’ Public Finance and Fixed Income businesses will be headquartered in Memphis, Tennessee, which is also Morgan Keegan’s main base.

• Raymond James and Regions will become involved in a number of business relationships that will benefit both parties.

Regions placed Morgan Keegan on the market last June.

The sale is expected to close during the first quarter of 2012. This stock purchase agreement would allow Raymond James to grow its retail brokerage network, turning it into one of the largest firms in the US.

According to Regions, the deal would give it additional revenue opportunities, as a result of its solid partnership with Raymond James, for loan referrals, processing relationships, and deposits. The sale would also help Regions pay the federal government back some of the $3.5 billion that it received during the height of the economic crisis in 2008. However, Regions also anticipates a $575 million to $745 million impairment charge from the deal.

The Wall Street Journal says that to keep some Morgan Keegan management and financial advisers from leaving in the wake of the sale, Raymond James intends to offer up to $215 million in retention payments (restricted stock units and cash) as part of the acquisition deal. Already, a number of key Morgan Keegan employees have placed their signatures to employment contracts with Raymond James. The deal ups Raymond James headcount of financial advisers to 6000—a 60% increase and a 1000 more than prior to the deal. This will rank it third behind Morgan Stanley Smith Barney and just under Bank of America Corp.’s (BAC) Merrill Lynch.

It’s Official: Raymond James Buys Morgan Keegan, for $930 Million, The Wall Street Journal, January 11, 2012

Raymond James Said to Near $930 Million Purchase of Broker Morgan Keegan, Bloomberg, January 11, 2012

More Blog Posts:
Raymond James Must Pay $925,000 Over Auction-Rate Securities Dispute, Institutional Investor Securities Blog, September 1, 2010

Morgan Keegan & Company Ordered by FINRA to Pay $555,400 in Texas Securities Case Involving Morgan Keegan Proprietary Funds, Stockbroker Fraud Blog, September 6, 2011

Claims Filed Against Morgan Keegan Division of Regions Financial Causes Shortage of Arbitrators, Stockbroker Fraud Blog, February 8, 2010

Ex-SEC Lawyer to Settle DOJ Charges Accusing Him of Inappropriately Representing Ponzi Fraudster Allen Stanford

Published on: January 12, 2012 | by Shepherd Smith Edwards & Kantas, LLP

Spencer Barasch, a former Securities and Exchange Commission attorney, will reportedly settle the civil charges filed against him by the Department of Justice by paying a $50,0000 fine. He is accused of inappropriately representing Allen Stanford, the ex-billionaire who is facing trial for masterminding a $7B Ponzi scam. Per the planned settlement, Barasch will settle the DOJ charges by paying a $50,000 fine.

It was in 2010 that SEC Inspector General David Kotz issued a report finding that while Barasch was still at the commission he played a part in decisions that were made to quell investigations of Stanford. After Barasch vacated his post at the SEC, he made several attempts to try to represent Stanford. Although the SEC refused each request, Barasch eventually ended up providing Stanford with about seven billable hours in legal counsel.

Federal conflict of interest laws permanently bar ex-government lawyers from appearing in front of or communicating with the US government in certain situations. However, to bring a criminal conflict-of-interest case prosecutors have to prove that the ex-employee contacted the government on behalf of the defendant. As there has been no evidence that this occurred in the matter of Barasch representing Stanford, this is likely why the DOJ opted to pursue a civil case.

Barasch is also expected to settle the Security and Exchange Commission’s disciplinary action against him by consenting to a 6-month ban from being able to practice in front of the commission. He will likely settle this without admitting to or denying wrongdoing.

Meantime, prosecutors are continuing to prepare their criminal case against Stanford, who allegedly bilked thousands of investors when he persuaded them to purchase CDs from his bank in Antigua. He was arrested in 2009. Stanford continues to deny the charges.

Jury selection is scheduled to begin later this month in the criminal trial against him. This week, however, two of Stanford’s lawyers asked a judge to let them quit the ex-billionaire’s case. Robert Scardino and Ali Fazel say that budget limitations are preventing them from doing their job as his defense team. A court has frozen Stanford’s assets.

In addition to the criminal case filed case against Stanford, he also faces SEC civil charges, along with Stanford International Bank (SIB), investment adviser Stanford Capital Management, investment adviser and broker-dealer Stanford Group Company (SGC), Stanford Financial Group (SFG), and two senior company officials. According to regulators, the defendants misrepresented certain CDs as safe investments. Meantime, client’s money was placed in illiquid equities and real estate instead of diversified liquid assets.

Exclusive: Ex-SEC lawyer said to settle Stanford-linked case, Chicago Tribune, January 10, 2012
Ex-SEC Enforcer Settles Stanford Ethics Dispute With U.S., Bloomberg, January 13, 2012

More Blog Posts:
Securities Fraud Lawsuit Names NRP Financial Inc. in $150M Minnesota Ponzi Scam, Stockbroker Fraud Blog, January 10, 2012
SEC Sues SIPC Over R. Allen Stanford Ponzi Payouts, Stockbroker Fraud Blog, December 20, 2011
SEC Issues Emergency Order to Stop $26M “Green” Ponzi Scam, Institutional Investor Securities Blog, October 13, 2011 Continue Reading ›

Oppenheimer & Co. Must Buyback $6M in Auction-Rate Securities from Investor, Says FINRA Arbitration Panel

Published on: January 11, 2012 | by Shepherd Smith Edwards & Kantas, LLP

A Financial Industry Regulatory Authority arbitration panel has ordered Oppenheimer & Co. to repurchase the $5.98 million in New Jersey Turnpike ARS that it sold Nicole Davi Perry in 2007. The investor reportedly purchased the securities through Oppenheimer Holdings Inc. (OPY).

Perry, who, along with her father, filed her ARS arbitration claim against the financial firm in 2010, accused Oppenheimer of negligence and breach of fiduciary duty. She and her father, Ronald Davi, were reportedly looking for liquidity and safety, but instead ended up placing their funds in the auction-rate securities. They contend that they weren’t given an accurate picture of the risks involved or provided with a thorough explanation of the securities’ true nature.

Oppenheimer disagrees with the panel’s ruling. In addition to buying back Perry’s ARS, the financial firm has to cover her approximately $134,000 in legal fees.

It was just in 2010 that Oppenheimer settled the ARS securities cases filed against it by the states of New York and Massachusetts. The brokerage firm consented to buy back millions of dollars in bonds from customers who found their investments frozen after the ARS market collapsed and they had no way of being able to access their funds.

Oppenheimer is one of a number of brokerage firms that had to repurchase ARS from investors. These financial firms are accused of misrepresenting the risks involved and inaccurately claiming that the securities were “cash-like.” A number of these brokerage firms’ executives allegedly continued to allow investors to buy the bonds even though they already knew that the market stood on the brink of collapse and they were selling off their own ARS.

ARS
Auction rate securities are usually corporate bonds, municipal bonds, and preferred stock with long-term maturities. Investors receive interest rates or dividend yields that are reset at each successive auction.

ARS auctions take place at regular intervals—either every 7 days, 14 days, 28 days, or 5 days. The bidder turns in the lowest dividend yield or interest rate he or she is willing to go to purchase and hold the bond during the next auction interval. If the bidder wins at the auction, she/he must buy the bond at par value.

Failed auctions can happen when there are not enough bidding buyers available to acquire the entire ARS block being offered. A failed auction can prevent ARS holders from selling their securities in the auction.

There are many reasons why an auction might fail and why there is risk involved for investors. It is important that investors are notified of these risks before they buy into the securities and that they only they get into ARS if this type of investment is suitable for their financial goals and the realities of their finances.

Oppenheimer settles with Massachusetts, NY, Boston, February 24, 2010

More Blog Posts:
Oppenheimer Funds Investors Can Proceed with Their Securities Fraud Lawsuit, Stockbroker Fraud Blog, November 19, 2011

Raymond James Settles Auction-Rate Securities Case with Indiana Securities Division for $31M, Stockbroker Fraud Blog, August 27, 2011

Securities Fraud Lawsuit Names NRP Financial Inc. in $150M Minnesota Ponzi Scam

Published on: January 10, 2012 | by Shepherd Smith Edwards & Kantas, LLP

A Minnesota securities fraud lawsuit, filed by court-appointed receiver R.J. Zayed, contends that because NRP Financial Inc. allegedly failed to properly supervise former broker Jason Bo-Alan Beckman, the brokerage firm ended up assisting in one of the largest Ponzi scams that the state has ever experienced. The $150M financial fraud raised $47.3M from at least 143 clients. Over 900 investors sustained losses as a result of the scam.

Beckman worked as an NRP rep between 2005 and 2008. Last year, he was charged with 13 felony counts related to the alleged financial scheme, including the criminal charges of conspiracy to commit mail and wire fraud, mail fraud, aiding and abetting wire fraud, mail fraud, and money laundering. He also is accused of stealing $7M from Global Advisors LLC, which he owns.

Minneapolis money manager Trevor Cook is the supposed chief architect of the Minnesota Ponzi scam. (He is serving a 25-year prison after pleading guilty to tax evasion and mail fraud.) Involving foreign currency arbitrage, investors were allegedly told that yearly returns of up to 12% would be earned with little, if any, risk to their principal if they bought into the program. Beckman made representations about the currency program between 2006 and 2009.

Per the Ponzi fraud lawsuit, the scam would have ended sooner if only NPR Financial had properly supervised Beckman, denied transfer of investors’ funds to bank accounts maintained on behalf of shell entities, looked into improper transfers of clients’ monies that Beckman had made, and refused to let him hide his actions behind its name and reputation. A lot of the parties that invested were clients of Oxford Private Client Group LLC, which is not only a NRP Financial branch, but also it is partly owned by Cook and Beckman.

Oberlin Financial, which preceded NRP, is accused of having known
way back in April 2006 that Beckman had another business involving trading currencies. NPR also allegedly was aware that Beckman used marketing collaterals that made an inflated claim that there was $3.5B in assets under management.

National Retirement Partners Inc., which is NRP Financial’s parent, sold its assets to LPL for $27M. When the deal was taking place, LPL touted the buy as a way to get into the retirement and pension market. However, according to an LPL Investment Holdings spokesperson, the company is not named in the securities complaint and has not been liable in this case. The broker-dealer was not one of the assets that LPL Holdings bought from NRP.

B-D that sold assets to LPL played role in $150M scam: Lawsuit, Investment News, January 6, 2012
Patrick Kiley, two others indicted in Trevor Cook ponzi scheme, CityPages, January 6, 2011

More Blog Posts:
SEC Sues SIPC Over R. Allen Stanford Ponzi Payouts, Stockbroker Fraud Blog, December 20, 2011
SEC Charges Father and Son with Utah Securities Fraud In Alleged $220M Ponzi Scam Over Purported Real Estate Investments, Stockbroker Fraud Blog, December 15, 2011
SEC Issues Emergency Order to Stop $26M “Green” Ponzi Scam, Institutional Investor Securities Blog, October 13, 2011 Continue Reading ›

Despite Reports of Customer Satisfaction, Consumer Reports Uncovers Questionable Sales Practices at Certain Financial Firms

Published on: January 7, 2012 | by Shepherd Smith Edwards & Kantas, LLP

According to Consumer Reports, many of online readers are “very satisfied” with the services rendered by almost all 13 major brokerage firms in the US. 7,327 online subscribers took part in the survey to respond to questions about their own experiences between October 2010 and October 2011. Customer service, website advice, phone service, and financial advice were among the criteria evaluated.

USAA Brokerage Services was at the head of the list after having received the highest scores for customer satisfaction. Scottrade Inc. and Vanguard Brokerage Services tied for second. The other financial firms, ranking in the order that follows, are Charles Schwab, TD Ameritrade, Etrade, Fidelity Brokerage Services, WellsTrade (Wells Fargo), Merrill Edge/Bank of America, and Morgan Stanley Smith Barney LLC. The last three financial firms scored under the 80-point mark, which means that clients gave them an overall ranking of “fairly well satisfied” (but not “very satisfied”).

Also according to Consumer Reports, active investors can breathe a sigh of relief about the quality of support and service they are likely to receive at these large US brokerage firms. Several of the broker-dealers are even likely to offer investors free, basic investment plans. (That said, Consumer Reports warned that investors need to be aware that there are limitations to these kinds of plans in order to maximize any benefits.)

Despites such positive investor feedback, Consumer Reports says that its staff members, who acted as undercover researchers when they visited financial firms in New York and Washington, discovered that some broker-dealers continued to engage in questionable sales practices. For example:

• One staffer was shown a chart demonstrating a portfolio’s performance. However, the potential impact of key fees was not highlighted.
• Another staffer was guided toward a complex annuity product even though the financial adviser didn’t know a lot about her.
• One “empty nester” was directed toward a set of funds without being given any other options.
• Another tester, age 60, was advised to put half of his funds in cash and bonds even though he intended to retire in a year and had about a million dollars in investible assets, as well as a significant pension.

As an investor, you should be able to rely on the brokerage firm you work with for sound, customized advice that fits your specific investment needs. Unfortunately, this isn’t always the case and every year, there are those that will suffer unnecessary financial losses because they were told to place their funds in investments that were inappropriate for them or were never designed to meet their financial goals, or they were given insufficient information about the degree of risk involved (which they could never have afforded in the first place.)

Consumer Reports: Should brokerage clients be as content as they are?, Consumer Reports, January 5, 2012
Where to put your money, Consumer Reports, February 2012

More Blog Posts:
Former Brookstreet Securities Broker Who Promoted Subprime Mortgages Commits Suicide, Institutional Investor Securities Blog, January 7, 2012
Securities and Exchange Commission Charges Investment Adviser with Committing Securities Fraud on Linked In, Stockbroker Fraud Blog, January 6, 2012
Texas Securities Fraud: SEC Charges Life Partners Holdings Inc. in Life Settlement Scam, Stockbroker Fraud Blog, January 4, 2012 Continue Reading ›

Former Brookstreet Securities Broker Who Promoted Subprime Mortgages Commits Suicide

Published on: January 7, 2012 | by Shepherd Smith Edwards & Kantas, LLP

Cliff Popper, the South Florida trader and former Brookstreet Securities broker known for convincing retail investors to get to behind risky subprime mortgages and defrauding them of over $100 million, has died. Popper, who was awaiting the judge’s decision in a civil securities fraud trial where he was a defendant, killed himself earlier this week.

The US Securities and Exchange Commission had accused him of designing an investment program that misled clients, who ended up losing their investments when the housing market collapsed. While with Brookstreet, Popper traveled the US and coached brokers on how to sell the financial instruments. He and his team played a key role in selling CMOs, and as clients invested over $300 million in mortgaged backed securities, they made over $18 million in salary and commissions in three years.

In June 2007, however, as the sub-prime loan market declined and loan-based securities dropped significantly, certain investors borrowed up to 90% of all their investments. Brookstreet Securities Corp. went into decline after National Financial Services LLC (its clearing company) issued a margin call on accounts with collateralized mortgage obligations. The losses caused the financial firm to make shortfalls and lose all its capital. Brookstreet was forced to shut down its operations later that year. More than 600 brokers became unemployed.

In 2009, the SEC charged Popper and several others with securities fraud and of depleting the finances of investors, many of whom lost their life savings, retirement, and homes. At the civil securities fraud trial against him, Popper claimed that he never purposely made misrepresentations to anyone.

Popper was known for his extravagant lifestyle, including a $2.4 million condo and a Sun Life Stadium sky box. During the Superbowl XXXIX weekend in 2005, he spent $2,000 on a limo to transport clients to a Hawaiian Tropic model event. Popper previously worked for four financial firms, including Merrill Lynch Pierce Fenner & Smith Inc. and Workman Securities Corp.

Shepherd Smith Edwards & Kantas LTD, LLP has filed individual claims on behalf of investors that lost money from investing in mortgage backed securities through Brookstreet. Many clients were left in a state of financial limbo when the financial firm shut its doors.

CMO Securities
Investors in a CMO purchase entity-issued bonds and get payments in accordance to specific rules. The mortgages are the collateral and the bonds are known as “tranches.” CMOs transform illiquid, individual financial assets and turn them into liquid, tradable capital market instruments so that mortgage originators can fill up their funds, which can then go toward more origination activities.

More Blog Posts:
Wedbush Hit with Nun’s Complaint over CMO’s – May Have More Than Brokers in Common with Brookstreet, Stockbroker Fraud Blog, July 18, 2007

Some Brookstreet Brokers Become Wedbush Morgan Brokers, Stockbroker Fraud Blog, July 9, 2007

Northern Trust Securities Agrees to $600,000 FINRA Fine Over Charges It Failed to Properly Monitor High-Volume Securities Trades and CMO Sales, Institutional Investor Securities Blog, June 8, 2011

Securities and Exchange Commission Charges Investment Adviser with Committing Securities Fraud on Linked In

Published on: January 6, 2012 | by Shepherd Smith Edwards & Kantas, LLP

The SEC has charged investment adviser Anthony Fields with selling bogus securities on LinkedIn and other social networking sites. The alleged financial fraud has prompted the agency to put out two alerts warning of the risks that advisory firms and investors must contend with in the social media era.

According to the SEC, Fields used social media sites to offer over $500 billion in fake securities. He used Platinum Securities Brokers and Anthony Fields & Associates, which are his two proprietorships, to make numerous fraudulent offerings. He also allegedly provided misleading and untruthful information about Anthony Fields & Associates’ clients, assets under management, and operational history on the company’s Web site and in filings submitted to the Commission. The SEC claims that Fields did not maintain the necessary records and books, gave the impression that he was a broker-dealer even though he is not SEC-registered, and failed to implement appropriate compliance procedures and policies.

With retail investors turning to LinkedIn, Facebook, Twitter, YouTube, and other online networks to get information about investing, the risks of becoming exposed to fraud are growing. The SEC’s Office of Investor Education and Advocacy is offering investors a number of tips to avoid financial scams online, including:

• Be careful of unsolicited investment opportunities-especially from someone you don’t know.
• Be wary of any investment opportunity that sounds too good to be true.
• Watch out for “guaranteed returns” – there is no such thing.
• Consider it a “red flag” if you experience any pressure to invest or buy immediately.
• Watch out for affinity scams, which usually target group members.
• Make sure that your privacy is always protected online.
• Ask lots of questions about any investment opportunity.
• Do your due diligence.
• Don’t provide your Social Security number, any account information, or other sensitive data to or on social media Web site.
• Watch out for “friend” requests from financial service providers that you don’t know-remember, once you let them “in,” you are giving them access.
• Pick a solid password and don’t use the same one for multiple accounts.
• Deactivate file sharing.
• Be careful when using public computers or Wi-Fi that is accessible to others.
• Arm your computer with a firewall and antivirus software.
• Log out of your social networking accounts when you are not using them.
• Watch out for unfamiliar links sent to you-especially if you don’t know the sender.
• Make sure your mobile device is secure.

Examples of investment scams that have been known to use the Internet and social media:
• Market manipulation schemes • Pump-and-dump scams • Fraud marketed through spam e-mail or online investment newsletters
• High yield investment program scams • Fraud offerings made online
SEC Charges Illinois-Based Adviser in Social Media Scam Agency Issues Alerts on Social Media Risks for Investors and Firms, SEC, January 4, 2012
Read the SEC’s Investor Alert (PDF)

Read the SEC’s investor bulletin on understanding your accounts (PDF)

More Blog Posts:
FBI Arrests Texas Leader of Pump-and-Dump Scheme, Stockbroker Fraud, March 23, 2011
Lancer Management Group LLC Hedge Fund Manager Acquitted of Charges He Ran Market Manipulation Scam, Institutional Investor Securities Blog, May 5, 2011
Barclays Capital Ordered by FINRA to Pay $3M Fine For Alleged Subprime Mortgage Securitization-Related Misrepresentations, Institutional Investor Securities Blog, December 23, 2011 Continue Reading ›

Texas Securities Fraud: SEC Charges Life Partners Holdings Inc. in Life Settlement Scam

Published on: January 4, 2012 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission has filed Texas securities fraud charges against Life Partners Holdings Inc. and three of the company’s senior executives over their alleged involvement in a life settlement scam. Life Partners, which is a Nasdaq-traded company, makes nearly all of its revenue from the life settlements it brokers.

According to the SEC, CEO and Chairman Brian Pardo, CFO David Martin, and general counsel and president Scott Peden misled shareholders when they failed to reveal a significant risk, which was that Life Partners was materially underestimating the estimates for life expectancy that it was using to determine how to price transactions. The estimates have a critical effect on company profit margins, revenues, and shareholder profits.

The Commission contends that Life Partners, Pardo, Peden, and Martin took part in improper accounting and disclosure violations, which allowed the company’s books to become overvalued while making it appear as if there was a steady stream of earnings coming from the life settlement transactions that were being brokered.

Peden and Pardo are also charged with insider trading. The SEC claims that the two men sold about $300,000 and $11.5M, respectively, of Life Partners stock at prices that were inflated even though they had material, non-public information disclosing that the company had relied on short life expectancy estimates to make revenue.

In a statement issue by the SEC’s Division of Enforcement Director Robert Khuzami, the agency is claiming that Life Partners also deceived shareholders by retaining a medical doctor to designate baseless life expectancy estimates to underlying insurance policies. Dr. Donald T. Cassidy, who lacks actuarial training and had no previous experience in assigning life expectancy estimates, began working with Life Partners in 1999. (The Commission claims that Pardo and Peden neglected to perform substantial due diligence on the doctor’s qualifications to do this job. They also are accused of telling him to use a methodology created by a former underwriter, who is one of the company’s owners.)

Beginning fiscal year 2007 through fiscal year 2011’s third quarter, Life Partners allegedly understated impairment costs related to life settlement investments and prematurely recognized revenue. The company is also accused of improperly accelerating revenue recognition starting from the closing date until when it got a non-binding agreement with the policy owner to sell the life settlement. Because Life Partners used these Dr. Cassidy’s life expectancy estimates in its impairment calculations, millions of dollars in impairment costs were understated.

The SEC wants the repayment of bonuses and profits from stock sales.

Life Settlements
These usually involve the selling and buying of fractional interests of life insurance policies in the secondary market. For a lump sum amount, life insurance policy owners sell investors their policies. The amount that is offered is supposed to factor in the life expectancy of the insured and the policy’s terms and conditions. The longer the insured is expected to life, the more the investor has to pay in premiums. Policies owned by persons expected to not life as long cost more.

SEC fraud case could give new life to life settlements controversy, Bloomberg/Investment News, January 4, 2012
SEC Charges Life Settlements Firm and Three Executives with Disclosure and Accounting Fraud, SEC, January 3, 2012
SEC Complaint

Texas Securities Fraud: Unregistered Adviser Confesses to Selling Almost $400K in Promissory Notes and Investments Despite Cease and Desist Order, Stockbroker Fraud Blog, December 5, 2011
Texas Securities Fraud: Raymond James Financial Services Pays Elderly Senior Investor About $1.8M Following Loss of Appeal, Stockbroker Fraud Blog, December 2, 2011
Former Texan and First Capital Savings and Loan To Pay $4.5M for Alleged Foreign Currency Ponzi Scheme, Stockbroker Fraud Blog, November 11, 2011 Continue Reading ›

With Confirmation of Richard Cordray as Its Director, The Consumer Financial Protection Bureau Can Finally Get to Work

Published on: January 4, 2012 | by Shepherd Smith Edwards & Kantas, LLP

US President Barack Obama overrode a Republican blockade in the Senate today when he appointed Richard Cordray as director of The Consumer Financial Protection Bureau. The new agency, which was designated the key regulator and protector of the average citizen over the Wall Street wealthy when financial regulations were overhauled 18 months ago, has, until now, been crippled by its lack of leadership.

Consumer advocates are applauding Mr. Obama’s appointment. Senate Republicans, however, expressed anger at the President’s move, which they are calling an unprecedented end run that has let him circumnavigate the confirmation process. House Speaker John A. Boehner (R-Ohio) expressed concern that Obama’s “cavalier action” could damage the Constitution’s established system of checks and balances.

However, (the Los Angeles Times reports that) not only will this appointment likely be challenged in court, but also, it could raise doubts about how much influence it will really have as a government watchdog for consumers in the financial marketplace—especially if Cordray’s appointment is later found to be unconstitutional.

In the meantime, the Consumer Financial Protection Bureau can now really get to work. Among its numerous powers are the ability to act against financial firms that sell products or take part in practices that are considered deceptive, unfair, or abusive (involving instruments such as prepaid charge cards and private education loans) and the ability to create new regulations for credit cards, mortgages, and other banking products.

Obama nominated Cordray, who was formerly Ohio attorney general and had taken aggressive action when investigating the mortgage and banking industries, in July. While 53 senators voted to confirm him, Cordray was 60 votes short of what he needed to beat a Republican filibuster.

The US Constitution gives our nation’s president the authority to fill temporary vacancies when the Senate isn’t in session. This power has allowed past presidents to use temporary appointments to overcome Senate opposition to nominees. However, with recess appointments, unless they are later confirmed, appointees can only serve for two years.

Following his appointment today, Cordray vowed to make supervising nonbank financial institutions a primary priority. Until now, these companies have had little oversight. In a blog post published on the bureau’s Web site, Cordray spoke about the CFPB now being able to help the banking and nonbanking markets run “fairly, transparently, and competitively.” He also spoke about how the lack of “regular federal oversight” leading up to the financial crisis resulted in community banks, credit unions, and other businesses ignoring responsibility even as consumers were harmed.

Shepherd Smith Edwards and Kantas, LTD LLP is a stockbroker fraud law firm that represents victims of securities fraud.

Appointment Clears the Way for Consumer Agency to Act, NY Times, January 4, 2011

Richard Cordray appointment ‘turns lights on’ at consumer bureau, Los Angeles Times, January 4, 2011

Consumer Financial Protection Bureau

More Blog Posts:
Former US Treasury Secretary Henry Paulson Told Hedge Funds About Fannie Mae and Freddie Mac Bailouts in Advance, Institutional Investor Securities Blog, November 30, 2011

Bonds Defeat Stocks For the First Time Since Prior to the Civil War, Institutional Investor Securities Blog, November 26, 2011

Long Island Rail Road Disability Fraud Leads to 11 People Charged, Stockbroker Fraud Blog, October 29, 2011