Investor Lawyers Blog

$75K FINRA Arbitration Award Against Wells Fargo Advisors LLC For Defaming an Ex-Employee in Form U-5 is Confirmed by District Court

Published on: July 25, 2011 | by Shepherd Smith Edwards & Kantas, LLP

In district court, Judge Samuel Conti has confirmed a Financial Industry Regulatory Authority panel’s $75,000 arbitration award to Kenneth Schaffer against Wells Fargo Advisors, LLC. It was the financial firm that began proceedings against its former employer last year.

Schaffer accused Wells Fargo of “ending” his career when on a Form U5, which is a Uniform Termination Notice for Securities Industry Registration, the firm provided descriptions of alleged infractions that he said were misleading and had prevented him from being offered another job. He claimed that the reasons given for his firing were pretextual and that he was actually let go over health issues. Schaffer also disputed Wells Fargo’s claim that he owed them money for a promissory note. While he said that the financial firm had represented the note as a “sales bonus,” Wells Fargo said that after terminating Schaffer’s employment was terminated on October 1, 2009, it should receive the entire $74,617.76 that was owed on a promissory note.

The FINRA arbitration panel, however, agreed with Schaffer and found the promissory notice “unconscionable.” It said that Wells Fargo therefore could not recover on it. The panel also said that because the Form U5 Termination Explanation was of a “defamatory nature,” the financial firm was liable to Schaffer for compensatory damages. The court confirmed the arbitration award, while denying Wells Fargo’s motion to vacate, and entitled Schaffer to recover legal fees.

Harvest Managers, Benchmark Asset Managers, and Investment Advisor to Pay $11.6 Million to Settle SEC Charges Over Allegedly Mishandled Client Funds

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

Following SEC charges that they used material misrepresentations and omissions to misappropriate about $8.7 million from clients, family, and friends, Sam Otto Folin, Benchmark Asset Managers LLC and Harvest Managers, LLC have agreed to pay $11.6M in disgorgement, civil penalties, and prejudgment interests to settle the securities fraud allegations. By settling, however, they are not denying or admitting any misconduct.

The SEC claims that for about eight years (about ’02 – ’10) even though all three defendants sold securities in the two firms and in Safe Haven Portfolios LLC, with the promise to investors that money would go to private and public companies that possessed goals and intentions that were “socially responsible, part of these funds allegedly were diverted to pay past investors, Folin’s salary, and both firms’ expenses. Harvest and Benchmark also allegedly issued “notes” to friends, and family advisory clients that they said were safe and conservative, while promising guaranteed interest rates that were above market. They then misrepresented the notes’ value on statements.

The SEC also accuses Benchmark and Folin of forming Save Have in 2004 under the guise of offering investments to a number of portfolios. They had clients place their money in Safe Haven From ’06 – ’09. They also allegedly made Save Haven pay more than $1.7M to Harvest and Benchmark as supposed “development” expenses, which weren’t actually expenses related to Safe Haven (and were allegedly improperly amortized) and made the latter issue over $3.9 million in loans to the two investment advisory firms.

SEC Charges Philadelphia-Based Registered Investment Adviser With Fraud, Sec.gov, July 12, 2011
Recent Fraud Cases Show Investors Must Remain Vigilant, Forbes, July 13, 2011

More Blog Posts:
SEC to Up Dollar Thresholds for When an Investment Adviser Can Charge Investors Performance Fees, Stockbroker Fraud Blog, May 24, 2011
Investment Manager Accused of Securities Fraud Must Pay Defrauded Clients Over $20 Million, Stockbroker Fraud Blog, November 10, 2010
SEC Charges Investment Adviser With Allegedly Making Unsuitable Hedge Fund Recommendations to Elderly Clients, Stockbroker Fraud Blog, October 15, 2010 Continue Reading ›

New Bill Calls for Whistleblowers to Notify Financial Firms of Alleged Violations

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

A new bill introduced by Republicans in the House is mandating that to be able to qualify for the SEC’s new Whistleblower program employees would have to first notify their firms of possible securities violations before going to the Commission. Commenting on the proposed legislation, which is known as the Whistleblower Improvement Act (H.R. 2483), Shepherd Smith Edwards and Kantas founder and Stockbroker Fraud Attorney William Shepherd said: “Does this even make sense: Before an employee anonymously reports his or her company is defrauding people, that employee must first report it to management of the company? The only goal in requiring this would be so the company can sweep the wrongdoing under the carpet rather than get caught. Who do these Congressional folks actually work for?”

Under Section 21F of the Securities Exchange Act of 1934, which was added by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Pub. L. No. 111-203), whistleblowers that voluntarily give original information about a federal securities law violation that has been committed are eligible for up to 30% of all penalties and fines collected by the SEC over the violation. This latest bill requires employees to first provide information about the alleged misconduct to their employees to qualify for part of the bounty. However, they don’t have to report the alleged violations internally when there is evidence of alleged misconduct involving the highest management levels or other evidence of bad faith by the employer. In many cases, prior to taking enforcement action the SEC would have to notify a company that a whistleblower has passed on information and an investigation is under way.

The new bill would revise the SEC rule that was implemented on May 25 that, per Dodd-Frank, doesn’t require employees to go to their firms internal compliance programs first. Business groups, the defense bar, and some Republican lawmakers had opposed the rule.

Related Web Resources:

Whistleblower Improvement Act (H.R. 2483)

Section 21F to the Securities Exchange Act of 1934 (PDF)

More Blog Posts:

Whistleblower Lawsuit Claims Taxpayers Were Defrauded When Federal Government Bailed Out Houston-Based American International Group in 2008, Stockbroker Fraud Blog, May 5, 2011

Federal Home Loan Banks Say Countrywide Financial Corp Mortgage Bond Investors May Be Owed Way More than What $8.5B Securities Settlement with Bank of America Corp. is Offering

Published on: July 22, 2011 | by Shepherd Smith Edwards & Kantas, LLP

According to six Federal Home Loan Banks, the investors of Countrywide Financial Corp.’s mortgage bonds may be entitled to three or more times more than what the proposed $8.5 billion securities settlement reached with Bank of America Corp (BAC) is offering. Bank of America acquired Countrywide in 2008.

Under the current settlement, which was reached with Bank of New York Mellon (the trustee of 22 institutional investors), Bank of America is supposed to pay those who placed money in the 530 residential mortgage securitization trusts that Countrywide had set up. Now, however, the Federal Home Loan Banks of Chicago, Boston, Pittsburgh, Indianapolis, Seattle, and San Francisco have filed a court filing seeking more information about the deal. The home loan banks claim that they also invested over $8.5 billion in the mortgage-backed securities. While the current proposal requires that Bank of America repurchase just 40% of MBS that defaulted, the FHLBs believe there may be grounds for upping the proposed settlement amount to at least $22 billion and they may want to join the case.

The six FHLBanks are not the only ones to object to BofA’s proposed settlement. Walnut Place LLC I-XI, which represents another group of Countrywide MBS investors, also has filed a court petition. They claim that Bank of New York Mellon was only attempting to arrive at an agreement for its 22 institutional investors that the rest of the investors would just have to abide by. Walnut Place LLC I-XI wants to block the current settlement and be excluded from any agreement that is finalized between BofA and Bank of New York Mellon.

Mortgage-Backed Securities
If you or your company suffered financial losses from investing in mortgage-backed securities, an experienced securities fraud attorney may be able to determine whether you have grounds for an institutional investment fraud claim.

Related Web Resources:

Mortgage Investors May Be Owed Three Times More in BofA Deal, Bloomberg, July 21, 2011

More Blog Posts:
Countrywide Finance. Corp, UBS Securities LLC, and JPMorgan Securities LLC Settle Mortgage-Backed Securities Lawsuit Filed by New Mexico Institutional Investors for $162M, Institutional Investors Securities Blog, March 10, 2011

Bank of America and Countrywide Financial Sued by Allstate over $700M in Bad Mortgaged-Backed Securities, Stockbroker Fraud Blog, December 29, 2010

Countrywide Financial, Merrill Lynch, and Citigroup Executives Defend Their Hefty Compensations Following Subprime Mortgage Crisis, Stockbroker Fraud Blog, March 12, 2008

Janney Montgomery Scott LLC to Pay $850K to Settle Securities Charges Over Alleged Failure to Prevent Inside Trading

Published on: July 21, 2011 | by Shepherd Smith Edwards & Kantas, LLP

Janney Montgomery Scott LLC has consented to pay $850,000 to resolve Securities and Exchange Commission charges that it failed to set up and enforce policies to prevent possible insider trading. The financial services firm also agreed to cease from further violations of laws that prevent the misuse of material, nonpublic information that could be used for insider trading. Even with the securities settlement, however, Janney is not admitting wrongdoing.

According to regulators, between January 2005 and July 2009, there were occasions when Janney’s Equity Capital Markets division did not enforce policies. Some of these failures, which created the risk that certain information could be used for insider trading, included:

• Failure to comply with written procedures.
• Not properly monitoring trading in securities belonging to companies that Janney’s investment bankers were advising.
• Not requiring that investment bankers obtain clearance for personal trades prior to making them.
• Failing to get yearly questionnaires identifying employees who had brokerage counts at other financial firms.
• Not reviewing these employees’ activities at these other firms.

Also per the settlement, Janney will retain an independent compliance consultant who will make recommendations about how to comply with laws pertaining to material, nonpublic information.

Insider Trading and Securities Fraud Enforcement Act of 1988
Under this act, firms must implement policies and procedures to prevent insider trading from happening and ensure that employees are aware of these immediately upon hiring. These policies and procedures have to be formal.

It is a firm’s responsibility to ensure that these policies are followed. They must conduct reviews of employees and proprietary trading, while monitoring employee trading that doesn’t involve the firm. If a firm suspects possible insider trading, it must immediately investigate the allegations.

Related Web Resources:
Janney Montgomery Scott To Pay $850K To Settle SEC Charges, RTT News, January 11, 2011
Janney Montgomery Scott settles SEC charges, Bloomberg/Business Week/AP, July 11, 2011
SEC Charges Janney Montgomery Scott Failed to Maintain and Enforce Policies to Prevent Misuse of Material, Nonpublic Information, SEC, July 11, 2011

More Blog Posts:
“Poohster” Consultant Found Guilty of Insider Trading, Stockbroker Fraud Blog, June 23, 2011
3 Hedge Funds Raided by FBI in Insider Trading Case, Stockbroker Fraud Blog, November 23, 2010
Ex-Goldman Sachs Board Member Accused of Insider Trading with Galleon Group Co-Founder Seeks to Have SEC Administrative Case Against Him Dropped, Institutional Investors Securities Blog, April 19, 2011 Continue Reading ›

Ex-Morgan Stanley Trader’s $25k Settlement Over Alleged Concealment of Proprietary Trades is Inadequate, Says SEC Commissioner Aguilar

Published on: July 20, 2011 | by Shepherd Smith Edwards & Kantas, LLP

Jennifer Kim, an ex-Morgan Stanley (MS) trader, has consented to a $25,000 settlement to resolve SEC allegations that she hid proprietary trades that that went above and beyond the financial firm’s risk limits. The alleged misconduct resulted in approximately $24.5m in losses for Morgan Stanley. SEC Commissioner Luis Aguilar, however, is calling the terms of her settlement “inadequate.” In his written dissent, he said that Kim also should have been charged with committing antifraud provisions violations.

Kim and Larry Feinblum, who was her supervisor, are accused of employing “fake” swap orders a minimum of 32 times to conceal their risks. The swap orders they entered into were ones that they intended to cancel soon after. This let them trick the monitoring systems, which recorded lower net risk positions. This alleged maneuvering allowed them to employ a trading strategy that would let them profit from the difference in prices between foreign and US markets.

In December 2009, Feinblum, who lost $7m in a day, told his supervisor about how he and Kim had concealed their positions and went above risk limits. Feinblum, who no longer works for Morgan Stanley, has settled the related securities claims against him for $150,000.

As part of her settlement, Kim agreed to a minimum three-year bar from the brokerage industry. She also consented to cease and desist from future records and books violations.

Even in settling, Feinblum and Kim are not denying or admitting wrongdoing.

Ex-Morgan Stanley Trader Settles SEC Claims Over Hiding Risk, Bloomberg, July 12, 2011
Ex-Broker to Pay $25K Over Risky Trades; Aguilar Objects to Penalty as ‘Inadequate’, BNA Securities Law Daily, July 14, 2011
SEC Order Against Kim (PDF)

SEC Commissioner Aguilar’s Dissent (PDF)

More Blog Posts:
Ex-Morgan Stanley Trader to Settle SEC Unauthorized Swaps Trading Claims for $150,000, Stockbrroker Fraud Blog, June 13, 2011
Morgan Stanley to Pay $500,000 to Resolve SEC Charges that it Recommended Unapproved Money Managers to Clients, Stockbroker Fraud Blog, July 27, 2009
Broker Settles SEC Charges He Defrauded Elderly Nuns, Stockbroker Fraud Blog, January 13, 2011 Continue Reading ›

Basketball Benefactor Accused of Texas Securities Fraud and Ponzi Scam that Targeted High-Profile Coaches Found Dead

Published on: July 19, 2011 | by Shepherd Smith Edwards & Kantas, LLP

David Salinas, a well-known University of Houston and Rice athletics benefactor, was found dead in his home over the weekend. The Galveston County medical examiner’s office is calling the 60-year-old’s death a suicide. Salinas’ death comes amidst allegations of Texas securities fraud, including his suspected involvement in a Ponzi scam that allegedly victimized high-profile athletics coaches. Select Asset Management, a Houston financial services firm that worked with Salinas, notified its clients that the US Securities and Exchange Commission has subpoenaed information from its files, as well as from those of J. David Financial Group, which is a Salinas business.

Coaches that invested with or gave testimonials to Salinas include Baylor coach Scott Drew, ex-Rice coach/current Texas A & M- Corpus Christi coach Willis Wilson, ex-Arizona coach Lute Olson, Texas Tech coach Billy Gillispie, Nebraska coach Doc Sadler, and others. According to Chron.com, one ex-NCAA coach is claiming that Salinas asked him for a “significant” amount of money to invest. In return, Salinas would direct players from Houston Select to the coach’s school. The former coach says he refused to get involved.

Salinas is the founder of Houston Select Basketball. Players that have contributed include Joseph Jones from Texas A & M, Dexter Pittman from Texas and NBA’s Miami Heat, Demetri Goodson from Gonzaga, Jawann McClellan from Arizona, and Cartier Martin from Kansas State and the Washington Wizards.

J David Insurance Group, which is also a Salinas business, is associated with Select Asset Management. The latter company’s CEO Brian Bjork is a Houston Select Founder, while its vice president Greg Muse is secretary of Houston Athletics Foundation, which is a nonprofit corporation that raised donations for University of Houston Athletics. Salinas served as the foundation’s director.

Our Houston securities fraud lawyers represent investors throughout Texas who have lost money in Ponzi scams and as a result of other kinds of financial fraud.

Related Web Resources:
Basketball benefactor found dead, Chron.com, July 19, 2011
Tom Penders talks about Salinas scandal, ESPN, July 19, 2011
Houston Select Basketball

More Blog Posts:
Texas Securities Fraud: SEC Halts Alleged Ponzi Scheme in the Dallas-Fort Worth Area, Stockbroker Fraud Blog, March 2, 2011
Texas Congressmen Seek Answers from SEC Chairwoman Regarding Conflict of Interest Related to Madoff Debacle, Stockbroker Fraud Blog, March 8, 2011
Michael Kenwood Capital Management, LLC Principal Pleads Guilty to Securities Fraud Involving Ponzi Scam, Institutional Investor Securities Blog, March 17, 2011 Continue Reading ›

Wells Fargo Settles Mortgage-Backed Securities Class Action Case for $125M

Published on: July 19, 2011 | by Shepherd Smith Edwards & Kantas, LLP

Wells Fargo & Co. (WFC) has consented to pay $125 million to settle allegations that it misled investors about the risks involved in mortgage-backed securities. The plaintiffs in the class action securities lawsuit include a number of public pensions, including the New Orleans Employees’ Retirement System, Government of Guam Retirement Fund, Alameda County Employees’ Retirement Association, the General Retirement System of Detroit and the Louisiana Sheriffs’ Pension and Relief Fund. Wells Fargo is the biggest home lender in the country.

The securities in question were backed by mortgage loans that Wells Fargo or its affiliates had bought or originated, which were issued through Wells Fargo Asset Securities Corp. in July and October 2005 and September 2006. Per the investors’ securities fraud lawsuit, the bank misrepresented the quality of the loans in 28 offerings (they were accompanied by inflated appraisals), which resulted in artificially high ratings for the securities. Wells Fargo also allegedly neglected to disclose that it did not follow the proper underwriting standards. As a result, the true risks of investing in these mortgage-backed securities were not disclosed.

A judge must still approve the proposed MBS settlement. However, by agreeing to settle, Wells Fargo and the underwriters have been quick to emphasize that this is not an admission of wrongdoing.

Meantime, Wells Fargo must still deal with MBS lawsuits filed by federal home loan banks and individual investors in Illinois, California, and Indiana. The investment bank was one of several that were sued in 2009 over alleged securities violations related to the sale of $36 billion in mortgage pass-through certificates. It was just last month that Bank of America consented to pay investors $8.5 billion for their mortgage back-securities-related losses that the investment bank assumed after its acquisition of Countrywide Financial.

Wells Fargo settles MBS investors claims for $125 million, Housing Wire, July 8, 2011

Wells Fargo to Pay $125 Million to Settle Mortgage-Backed Securities Case, Bloomberg, July 7, 2011

More Blog Posts:
Bank of America Cop. (BAC)’s Merrill Lynch a Defendant of Class-Action Mortgage-Backed Securities Lawsuit Against at Least 1,800 Investors, Institutional Investor Securities Blog, June 25, 2011

National Credit Union Administration Board Files $800M Mortgage-Backed Securities Fraud Lawsuits Against JP Morgan Securities, RBS Securities, and Other Financial Institutions, Institutional Investor Securities Blog, June 23, 2011

Holding Brokers to Investment Adviser Accountability Standards is a Bad Idea, Say Some Wall Street Executives

Published on: July 16, 2011 | by Shepherd Smith Edwards & Kantas, LLP

At the Securities Industry and Financial Markets Association conference on Wednesday, brokerage executives cautioned against imposing the standards of accountability for investment advisers on brokers. Rather than extending the Investment Advisers Act of 1940 to broker-dealers, this year’s SIMFA chair John Taft said that it would be better to create a new standard. Taft is also the head of Royal Bank of Canada’s US brokerage.

Right now, brokers and investment advisers are upheld to separate standards-even though many investors don’t realize that the two belong to different groups. As fiduciaries, investment advisers must prioritize their clients’ interests above that of their own or that of their financial firm. It wasn’t until 2008’s financial crisis when investors lost money on financial instruments that were lucrative for brokers that the call for a higher standard for these representatives grew louder.

At a conference panel, he said that imposing investment adviser accountability standards would not only be bad for the industry, potentially preventing some sales such as IPOs, but also he that this could harm investors.

Will brokers get their way on this? According to Shepherd Smith Edwards & Kantas LTD LLP Founder and Stockbroker Fraud Lawyer William Shepherd, the answer is, likely, yes:
“Decades ago, the difference between a ‘stock broker’ and ‘investment advisor’ was that stock brokers simply charged commissions to execute trades. At the time, there was also no online trading so investors could not do-it-themselves. In fact, May 1, 1975 (unaffectionately called “May Day”) was the first day stock commissions became negotiable. As commissions eventually eroded to just a few dollars per trade, stock brokerage firms migrated to higher charges on hidden-fee products, options, high volume trading, etc.

More recently, ‘stock brokers’ have dropped that moniker and simply become ‘investment advisors’ (whether called ‘financial consultants’, or whatever). Now that Wall Street’s agents have actually become investment advisors, and should be subject to the Investment Advisor Act of 1940, they instead want to escape the law, which has for 70 years been successful in regulating investment advisors. Why? Simply because they do not want to be responsible to their clients for cheating them.”

Related Web Resources:
Brokers say adviser standards could harm markets, Reuters, July 13, 2011
Is Wall Street Ready for Mayday 2?, The New York Times, April 28, 1985
Securities Industry and Financial Markets Association

More Blog Posts:
Do Brokers Owe a Fiduciary Duty to Clients?, Stockbroker Fraud Blog, January 27, 2011
Most Investors Want Fiduciary Standard for Investment Advisers and Broker-Dealers, Say Trade Groups to SEC, Stockbroker Fraud Blog, October 12, 2010
House and Senate Negotiators Can’t Seem to Agree on Fiduciary Standard in Financial Regulatory Reform Bill, Stockbroker Fraud Blog, June 17, 2010 Continue Reading ›

Wedbush Ordered By FINRA Panel To Pay $3.5M to Trader Over Withheld Compensation

Published on: July 16, 2011 | by Shepherd Smith Edwards & Kantas, LLP

A Financial Industry Regulator Authority Panel has ordered WedBush Securities Inc. to pay one of its traders over $3.5 million for refusing to properly compensate him. According to claimant Stephen Kelleher, he worked for the financial firm for years without consistently getting the incentive-base compensation that he was promised as a municipal sales trader. Kelleher started working for Wedbush in 2007 until right before the arbitration ruling was made.

Kelleher claims that Wedbush withheld nearly $5 million from him. While he regularly received his base salary, the bulk of his income, which was incentive-based compensation, was unevenly distributed and issued to him in May 2008, October 2009, and April 2010. Even then Kelleher contends that he did not receive everything he was owed.

In his FINRA arbitration claim, Kelleher alleged violation and failure to pay per labor laws, breach of contract, unfair business practices, and fraud. He sought over $6.1 million, including $4.17 million in compensation owed, close to $878,000 in interest, and penalties of $1 million and $2,100 over labor code violations. He also sought damages for civil code law violations, as well as punitive damages.

During the FINRA hearing, witnesses testified that it was Wedbush president and founder Edward W. Wedbush who made decisions about paying and withholding incentive compensation. Another Wedbush employee said that there were two years when he too didn’t get the incentive-based compensation that he was owed. The FINRA panel blamed Wedbush’s “corporate management structure” that required that Edward Wedbush, as majority shareholder, approve bonus pay at his discretion.

In addition to the $3.5 million, the FINRA panel also told Wedbush it has to give Kelleher the vested option to purchase 3,750 Wedbush shares at $20/share and another $375 shares at $26/share. Wedbush also must pay the Claimant for the $200 part of the FINRA filing fee that is non-refundable.

Wedbush intends to appeal the securities arbitration ruling.

Related Web Resources:
Wedbush ordered to pay $3.5M for ‘morally reprehensible failure’, Investment News, July 11, 2011

More Blog Posts:
FINRA Panel Orders Merrill Lynch Professional Clearing Corporation to Pay $64M Over Losses Sustained by Rosen Capital Institutional LP and Rosen Capital Partners LP, Institutional Investors Securities Blog, July 14, 2011