Investor Lawyers Blog

FINRA Panel Orders Merrill Lynch Professional Clearing Corporation to Pay $64M Over Losses Sustained by Rosen Capital Institutional LP and Rosen Capital Partners LP

Published on: July 14, 2011 | by Shepherd Smith Edwards & Kantas, LLP

Merrill Lynch Professional Clearing Corporation must pay hedge funds Rosen Capital Partners LP and Rosen Capital Institutional LP $63,665,202.00 in compensatory damages plus interest (9% from October 7, 2008). A Financial Industry Regulatory Authority arbitration panel issued the order which found the respondent liable.

In their statement of claim, made by the claimants in 2009, the hedge funds accused Merrill Lynch of reach of contract, fraud, breach of the duty of good faith and fair dealing (the New York Uniform Commercial Code), and negligence related to the allegedly unexpected margin calls that caused the claimants to sustain financial losses.

Rosen Capital Partners and Rosen Capital Institutional had originally sought at least $90 million in compensatory damages, as well as punitive damages and other costs. Meantime, Merrill Lynch had sough to have the entire matter dismissed and that it be awarded all costs incurred from the suit and other relief as deemed appropriate.

Ex-UBS Financial Adviser Pleads Guilty to Defrauding Private Fund Investors

Published on: July 13, 2011 | by Shepherd Smith Edwards & Kantas, LLP

Steven T. Kobayashi has pleaded guilty to money laundering and wire fraud. The former UBS financial adviser is accused of bilking his private investment fund investors. As part of his plea agreement, he will pay $5,431,600 in restitution and serve a 65-month prison term.

Per the criminal charges, beginning in 2006 Kobayashi, who regularly made financial trades authorized by clients whose account he had access to, started transferring some of these funds into his own bank accounts without the investors’ “knowledge or authorization.” In some instances, clients gave their authorization because they were told the withdrawals were necessary to make investments. On other occasions, he forged their signatures on authorization forms.

Earlier this year, the ex-UBS adviser settled SEC securities fraud charges. The agency says that Kobayashi set up Life Settlement Partners LLC, which is a fund that invested in life settlement polices. He was able to raise millions of dollars for the fund from his UBS customers. However, he also started using the money to pay for prostitutes, expensive cars, and pay off gambling debts.

The SEC says that to try and pay back the fund and investors before they discovered his misconduct, he convinced several other UBS clients to liquidate securities and transfer to the proceeds to entities under his control. This allowed him to steal more money from the investors. Kobayashi settled the SEC charges without denying or admitting to them.

Related Web Resources:
Ex-UBS Adviser Pleads Guilty To Charges He Bilked Private Fund Investors, BNA Securities Law-Daily, June 10, 2011
Ex-UBS Advisor Faces Criminal Charges, in Life Settlement Case, On Wall Street, March 3, 2011
SEC CHARGES FORMER UBS FINANCIAL ADVISER WITH DEFRAUDING LIFE SETTLEMENT FUND INVESTORS, SEC.gov, March 3, 2011

More Blog Posts:
Texas Securities Fraud: Planmember Securities Corp. Registered Representatives Accused of Improperly Selling Life Settlement Notes, Stockbroker Fraud Blog, June 27, 2011
Life Settlements or Viaticals should be Considered “Securities,” Recommends the SEC to Congress , Stockbroker Fraud Blog, August 8, 2010
AIG Trying to Get More Investors to Buy Life Settlements, Institutional Investor Securities Blog, April 26, 2011 Continue Reading ›

GSA Expected to Take Over SEC Leasing System Following Flawed $551M Deal, Says Chairman Schapiro

Published on: July 11, 2011 | by Shepherd Smith Edwards & Kantas, LLP

According to US Securities and Exchange Commission chairman Mary Schapiro, the General Securities Administration will likely take over the SEC’s leasing space system following the agency’s $550 million deal for 900,000 square feet of office space that it ended up not needing. Schapiro made her statements during testimony before a House subcommittee that oversees public buildings. The subcommittee has been looking at the deal.

The SEC made a 10-year deal to rent space at the Constitution Center in DC. The agreement was reached after the 2010 Dodd-Frank Act suggested that the SEC would need to hire hundreds of new employees because of its new tasks. However, the SEC never received the entire $1.3 billion that the reform bill had authorized for this year and the agency had to tell the property owner that it didn’t need the leased space.

Schapiro said she leased the space after she was notified that there were no other leasing options and that the price was right. It was just weeks later that she realized that the SEC couldn’t afford that degree of expansion. Last fall, the agency backed out of about 600,000 of the square feet it had leased. Two other agencies ended up taking most of that space. Meantime, the rest of the space has not been subleased and the landlord is now claiming the agency owes it almost $94 million in damages.

Last May, SEC Inspector General H. David Kotz made available the findings of his offices’s probe into the deal. According to Investment News, Kotz said the agency’s analysis had been “deeply flawed and unsound” and that he wants to ensure that SEC officials who were responsible are held “appropriately accountable.” Schapiro and the SEC recently told Kotz about how they intend to fix the system.

Our securities fraud law firm represent clients throughout the US and abroad. We represent individual investors and larger investors with losses up to hundreds of millions of dollars.

Related Web Resources:
Schapiro says GSA will take over SEC leasing after $557M mistake, Investment News, July 6, 2011
UPDATE: Lawmakers Criticize SEC For Lease On Space Never Used, The Wall Street Journal, June 16, 2011
SEC Office of Inspector General

General Securities Administration

More Blog Posts:
Texas Congressmen Seek Answers from SEC Chairwoman Regarding Conflict of Interest Related to Madoff Debacle, Stockbroker Fraud Blog, March 8, 2011
SEC IG Investigating Whether Examiners Were Told by Regional Official to Ignore “Red Flags” Indicating Massive Fraud, Institutional Investors Securities Blog, December 11, 2010
Goldman Sach’s $550 Million Securities Fraud Settlement Not Tied to Financial Reform Bill, Says SEC IG, Institutional Investors Securities Blog, October 27, 2010 Continue Reading ›

Ban on Private Securities Offerings Solicitations Could Be Revised by SEC or Congress, Says Ex-Official

Published on: July 11, 2011 | by Shepherd Smith Edwards & Kantas, LLP

According to ex- SEC’s Office of International Corporate Finance chief Sarah Hanks, there is the strong possibility that Congress or the Securities and Exchange Commission will modify the agency’s ban on the general solicitation for private securities offerings and the number of shareholders that trigger reporting requirements. Hanks says that comments made by lawmakers and SEC Chairman Mary Schapiro indicate congressional intent to loosen the requirements, as well as “regulatory momentum.” Such changes could happen in the next couple of years.

Restricted securities are securities that did not go through the SEC’s registration and public processes. Requirements don’t allow issuers of nonpublic offerings relying on Section 4(2) of the 1933 Act or its safe harbor—Rule 506 of Regulation to use advertising or general solicitation to draw investors to their placements. The 1934 Securities Exchange Act’s Section 12(g) mandates that an issuer register securities “held of record” by at least 500 individuals and if the issuer’s total assets are over $10 million.

It was just recently that it became known that the SEC was investigating Goldman Sachs Group Inc.’s (GS)’s reselling of Facebook-issued securities to investors. Earlier this year, the investment bank made the decision to limit the offering to offshore investors over concerns that the degree of media attention might result in a violation of US securities laws. According to The Wall Street Journal, although Facebook executives had to restructure the deal, the private offering of up to $1.5 billion in Facebook shares stayed on track. As of January, more than $7 billion in orders came through from foreign investors.

JPMorgan Chase to Pay $211M to Settle Charges It Rigged Municipal Bond Transaction Bidding Competitions

Published on: July 9, 2011 | by Shepherd Smith Edwards & Kantas, LLP

JPMorgan Chase & Co. will pay $211 million to settle charges that its JP Morgan Securities LLC Division rigged dozens of bidding competitions for reinvesting the proceeds from municipal bond transactions to win business from local and state governments. The settlement is for complaints that the US Securities and Exchange Commission, the Justice Department, the Internal Revenue Service, 25 state attorneys general, and bank regulators had filed against the investment bank. JPMorgan has also agreed to give back approximately $129.7 million to the municipalities that were harm.

JP Morgan Securities is accused of making at least 93 secret deals with companies that take care of the bidding processes in 31 states. The arrangement let the investment bank see competitors’ offers.

According to regulators, between 1997 and 2005, members of JPMorgan’s municipal derivatives desk made misrepresentations and omissions in the secret deals, which impacted the prices the governments ended up paying while jeopardizing the tax-exempt position of billions of dollars worth of securities in the billions. This alleged misconduct also undermined JP Morgan’s competitors, who, along with the financial firm, are supposed to offer cities and states the opportunity to bid for competitive interest rates when they invest their tax-exempt proceeds from municipal bonds in municipal reinvestment products. JPMorgan is accused of also sometimes turning in nonwinning bids on purpose to meet tax requirements.

While The New York Time reports that by agreeing to settle JPMorgan Chase is not denying or admitting to wrongdoing, Yahoo reports that the financial firm has admitted to the illegal conduct and agreed to cooperate with the Justice Department’s probe as long as it wasn’t prosecuted. JPMorgan, however, did blame the illegal activity on ex-employees at a division that is no longer in operation.

To settle, JPMorgan will pay $51.2 million to the SEC, $35 million to the Office of the Comptroller of the Currency, $50 million to the IRS, and $75 million to a number of state attorneys general. It also reached a settlement with the Federal Reserve Bank of New York.

Related Web Resources:
JPMorgan Settles Bond Bid-Rigging Case for $211 Million, NY Times, July 7, 2011
JPMorgan pays $211M to settle bid-rigging charges, Yahoo, July 7, 2011

More Blog Posts:
JP Morgan Chase Agrees to Pay $861M to Lehman Brothers Trustee, Stockbroker Fraud Blog, June 28, 2011
Citigroup Ordered by FINRA to Pay $54.1M to Two Investors Over Municipal Bond Fund Losses, Stockbroker Fraud Blog, April 13, 2011
UBS Financial Reaches $160M Settlement with the SEC and Justice Department Over Securities Fraud, Antitrust, and Other Charges Related to Municipal Bond Market, May 16, 2011 Continue Reading ›

Securities Fraud Plaintiffs Don’t Have to Show Loss Causation to Obtain Class Action Status, Rules US Supreme Court

Published on: July 9, 2011 | by Shepherd Smith Edwards & Kantas, LLP

In Erica P. John Fund Inc. v. Halliburton Co., the US Supreme Court said that securities fraud plaintiffs don’t have to demonstrate loss causation to receive class certification. The unanimous ruling reinstated claims made by investors that defendant Halliburton Inc. (HAL) made material misrepresentations and misstatements.

In its securities complaint, Archdiocese of Milwaukee Supporting Fund Inc.—now known as Erica P. John Fund Inc.—wanted to certify as a class all investors who had obtained Halliburton stock between June 3, 1999 and December 7, 2001. The plaintiff contends that investors in the proposed class lost money because of securities fraud committed by the defendant, including making material misstatements about litigation expenses, a merger’s benefits, and accounting methodology changes, making misrepresentations in order to up Halliburton stocks’ price rise, and making corrective disclosures to make the price fall.

The district court, however, refused to give class certification on the ground that the plaintiff did not demonstrate loss causation regarding the claims it made. The U.S. Court of Appeals for the Fifth Circuit affirmed that ruling.

The Supreme Court, however, said that even though private securities plaintiffs must show that the defendant’s misconduct was the cause of their economic loss, loss causation does not have to be demonstrated to obtain class certification. Chief Justice John G Roberts authored the decision, which also said that the court didn’t have to address questions related to its in 1988 ruling Basic Inc. v. Levinson, 485 U.S. 224.

Related Web Resources:
Erica P. John Fund Inc. v. Halliburton Co. (PDF)

More Blog Posts:
Securities Fraud: Mutual Funds Investment Adviser Cannot Be Sued Over Misstatement in Prospectuses, Says US Supreme Court, Stockbroker Fraud Blog, June 16, 2011

Number of Securities Class Action Settlements Reached in 2010 Hit Lowest Level in a Decade, Says Report, Stockbroker Fraud Blog, March 31, 2011

Sonoma Valley Bank Shareholders File Both a Class Action Lawsuit and An Insurance Claim Seeking to Recoup Millions, Institutional Investor Securities Blog, June 30, 2011

Two Years of Wall Street Executives’ Pay To Be Seized For Role Played in a Financial Firm’s Collapse, Says FDIC

Published on: July 8, 2011 | by Shepherd Smith Edwards & Kantas, LLP

Federal regulators have approved a plan that would make Wall Street executives forfeit two years’ pay if it was discovered that he/she played a part in a major financial firm’s collapse. Executives who are considered “negligent” and “substantially responsible” are subject to this rule, which clarifies that “negligence,” rather than “gross negligence,” is the standard.

Banks had complained that an earlier version of the rule, which said that any executive who had made strategic decisions could be found responsible for a financial firm’s failure. They were worried that key executives would quit upon initial signs of trouble rather than risk their pay.

The provision is part of a Federal Deposit Insurance Corporation rule, which is supposed to help retain stability within the economy by unwinding beleaguered firms in a manner that is less disruptive than major bankruptcies and taxpayer-financed bailouts. The rule lets the government take over a failing financial company, break it apart, and sell it off.

The liquidation authority is a significant part of the Dodd-Frank financial oversight law. It also designates the order that creditors will be paid whenever a government liquidates a large financial firm. For example, FDIC or the receiver that carried part of the expense of taking over a firm, administrative costs, and employees that are owed money for benefits are among those that would top the list. General creditors fall lower down in order of priority.

It is not enough that a Wall Street executive pay the government or other entities for any misconduct that caused a financial firm to fail. There are also the investors who sustained financial losses as a result of his/her negligence. Here is where our securities fraud attorneys step in. We are committed to helping institutional investors recoup their money.

Related Web Resources:

Federal Deposit Insurance Corporation

More Blog Posts:

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

SEC is Finalizing Its Whistleblower Rules, Says Chairman Schapiro, Stockbroker Fraud Blog, April 28, 2011

Former Texas Securities Regulator Says Self-Regulation of Securities Industry Does Not Work

Published on: July 6, 2011 | by Shepherd Smith Edwards & Kantas, LLP

According to Ex-Texas State Securities Board Denise Voigt Crawford, giving oversight of nearly 12,000 investment advisers to the Financial Industry Regulatory Authority to cut costs is a bad idea and one for which investors will end up paying the price. FINRA is Wall Street’s self-funded regulator. Already charged with overseeing brokers, it is now pushing to take over the U.S. Securities and Exchange Commission’s role as adviser regulator.

Crawford says that having FINRA oversee the industry’s activities doesn’t make sense when FINRA is the industry. She also points out that since the SRO was established in 2007, it hasn’t been successful in protecting investors, while imposing fines that are usually a fraction of the damages they sustained from securities fraud and other misconduct. Last year, FINRA fined members just $43 million while the SEC imposed over $1 billion in penalties.

Also, according to U.S. Securities and Exchange Commission data, investors who received FINRA arbitration awards usually got under half of what they initially sought. In 2010, FINRA ordered that harmed investors get $6 million in restitution, while the SEC ordered that investors recover $1.82 billion. However, through May of this year, FINRA had already ordered that investors who sustained losses get recoup $9.8 million. The SRO believes that it is ideally suited to do the job for a number of reasons, including its technological capabilities and resources and the fact that most advisers are already affiliated with broker-dealers.

Allstate Files Mortgage-Backed Securities Fraud Lawsuit Against Morgan Stanley

Published on: July 6, 2011 | by Shepherd Smith Edwards & Kantas, LLP

Allstate Insurance Co., which bought over $104M in residential mortgage-backed securities in 6 offerings from Morgan Stanley between ‘05 and ’07 is suing the broker-dealer for securities fraud. The insurer claims that the financial firm sold it RMBS under the assurances that they were in alignment with “conservative” underwriting standards and that the properties had received accurate appraisals when, actually, Morgan Stanley RMBS did not meet these standards and had come from originators that Allstate categorizes as among “worst” in the subprime lending:

• New Century Financial Corp.
• Decision One Mortgage Co.
• WMC Mortgage Corp.
• First NLC Financial Services
• Wilmington Finance Inc.
• AIG Federal Savings Bank

Allstate says that leading up to the financial collapse, it had acquired $2.78 billion in mortgage-backed securities. It bought RMBS from Morgan Stanley because of the “central role” the financial firm made in creating and selling the securities, the latter’s assurances that it had done its due diligence on the mortgages backing the securities, and because of the prospectuses, registration statements, and other documents. Now, the insurance company believes that the brokerage firm either knew that the lenders were putting forth risky loans that did not conform to standards or recklessly disregarded the facts.

Allstate is seeking unspecified compensatory and/or “recessionary” damages and is asking for a jury trial. This is not the first RMBS that the insurance company has filed. Allstate has already sued several other brokerage firms for MBS fraud including:

• Merrill Lynch (a Bank of America unit)
• Countrywide (also a Bank of America units)
• Citigroup Inc.
• JP Morgan Chase & Co.
• Deutsche Bank AG
• Credit Suisse Group AG

Related Web Resources:
Morgan Stanley Sued by Allstate Over Mortgage Securities Fraud Claims, Bloomberg, July 6, 2011

Allstate adds Morgan Stanley to RMBS litigation pool, Housing Wires, July 6, 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 Investors 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 Investors Securities Blog, June 23, 2011

Morgan Keegan Settles Subprime Mortgage-Backed Securities Charges for $200M, Stockbroker Fraud Blog, June 29, 2011

Most Investors Ignore Prospectus for Variable Annuities, Reports IRI

Published on: July 5, 2011 | by Shepherd Smith Edwards & Kantas, LLP

According to the Insured Retirement Institute, the majority of consumers don’t read the prospectus that accompanies a variable annuity purchase. IRI, which issued its report last week, also found that:

• 94% of consumers would like to get a prospectus summary that is shorter and is available either online or per their request. Most variable annuity prospectuses are 100 to 300 pages long.

• 59% of consumers said they would more likely discuss the product with their investment adviser if they were given a prospectus that was shorter and easier to understand.