Investor Lawyers Blog

$750,000 Arbitration Award Against Stone & Youngberg LLC Confirmed by District Court

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

A district court has confirmed an arbitration panel’s $750,000 award to the Kay Family Revocable Trust in its securities case against Stone & Youngberg LLP. The trust sustained financial losses when its money was invested in the FutureSelect Prime Advisor II, which had most of its capital invested with Ponzi scam mastermind Bernard Madoff.

In its arbitration claim, Kay Family Revocable Trust claimed that S & Y failed to perform its requisite due diligence before recommending that the trust invest in the fund. S & Y rejoined with the argument that the trust had not succeeded in proving a causal link between the Madoff scheme and any alleged lack of due diligence. S & Y also argued it shouldn’t have to be responsible for the harm that the Trust suffered as a result of Madoff’s financial fraud. The brokerage firm even pointed to a federal district court ruling of a professional malpractice claim that concluded that “a simple ‘but for’ relationship between the claimed negligence and the injury” will not back up a finding of legal causation. S & Y also cited a decision by a federal appeals court that said it was up to a securities fraud plaintiff to prove that the loss it sustained was a foreseeable outcome of the alleged misrepresentation.

The U.S. District Court for the Northern District of California, however, concluded that the panel’s decision to confirm the award in favor of the investor and against S & Y was not manifest disregard of the law, but rather the application of the law to the facts the way it found them.

STONE & YOUNGBERG, LLC v. KAY FAMILY REVOCABLE TRUST UAD 02-07-90 FBO LENORE BLEADON UNDER TRUST A, Leagle.com, June 22, 2011

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Raymond James Must Pay $925,000 Over Auction-Rate Securities Dispute, Institutional Investor Securities Blog, September 1, 2010 Continue Reading ›

Sonoma Valley Bank Shareholders File Both a Class Action Lawsuit and An Insurance Claim Seeking to Recoup Millions

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

Sonoma Valley Bank shareholders have submitted a class action complaint accusing the financial institution’s chief financial officer, chief executive officer, and six corporate directors of mismanaging over $40 million in loans. The plaintiffs are placing most of the blame for this alleged financial negligence, and the bank’s collapse, on bank CEO Sean Cutting.

The class action complaint will cover any shareholder (except for the defendants) that owned shares in the bank as of August 25, 2010. Shareholders, most of them from Sonoma Valley, saw their stock drip in price from $31/share in 2007 to under a penny in 2010 when the bank was seized. $71 million was lost and the federal government says it lost $20 million because of the closure.

Per the class action complaint, the bank’s demise can be attributed in great part to the approval of loans worth over $40 million to Marin County developer Bijan Madjlessi’s companies and his business partners. Some $35 million in loans were never paid back. State regulators have arrested Madjlessi for alleged insurance fraud. He pleaded not guilty to felony insurance fraud.

Shareholders also recently filed an insurance claim with Progressive Casualty Insurance Co. seeking to recover $20 million in equity that they lost when the financial institution collapsed. Under the insurance policy, some $20 million is designated to protect the leadership of the bank from such a lawsuit as the one that was just filed.

“Many people have asked: Where are the convictions over the financial mess? Finally, someone goes to jail, but who’s heard of Colonial BankGroup? I guess it was just not too big to fail,” says Shepherd Smith Edwards and Kantas founder and stockbroker fraud lawyer William Shepherd.

Related Web Resources:
Sonoma Valley Bank shareholders file lawsuit blaming CEO, PressDemocrat.com, June 29, 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

Class Members of Charles Schwab Corporation Securities Litigation Can Still Opt Out to File Individual Securities Claim, Stockbroker Fraud Blog, December 6, 2010

Class Action Securities Fraud Lawsuit Accuses SEC of Gross Negligence Related to Bernard Madoff Ponzi Scam, Institutional Investors Securities Blog, November 23, 2010

Morgan Keegan Settles Subprime Mortgage-Backed Securities Charges for $200M

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

According to the SEC, FINRA, and state regulators, Morgan Keegan & Company and Morgan Asset Management have consented to pay $200 million to settle subprime mortgage-backed securities-related charges. Also agreeing to pay penalties over their alleged misconduct are Morgan Keegan comptroller Joseph Thompson Weller and ex- portfolio manager James C. Kelsoe Jr.

The two men were accused of causing the false valuation of subprime mortgage backed securities in five Morgan Asset Management-related funds. Per the SEC’s administrative order, Kelsoe directed the fund accounting department to arbitrarily execute price adjustments to the fair values of certain portfolio securities. These adjustments disregarded the lower values for the same securities that outside broker-dealers provided as part of the pricing process. Kelsoe’s directives and the actions that were taken as a result would sometimes cause Morgan Keegan to not price the bonds at current, fair value.

The SEC also says that Kelsoe screened and affected at least one broker-dealer’s price confirmations. That broker-dealer had to provide interim price confirmations that were below the value that the funds were valuing certain bonds at but greater than the initial confirmations that the broker-dealer meant to provide. The interim price confirmations allowed the funds to not mark down the securities’ value to reflect current fair value. Kelsoe is also accused of getting the broker-dealer to withhold price confirmations in certain instances where they would have been significantly lower than the funds’ current valuations of the relevant bonds. The SEC says that Kelsoe fraudulently kept the Navs of funds from being reduced when they should have gone down when the subprime securities market deteriorated in 2007.

Of the $200 million, Morgan Keegan must pay a $75 million penalty to the SEC, $25 million in disgorgement, and $100 million to a state fund that would then pay investors.

Morgan Keegan to Pay $200 Million to Settle Fraud Charges Related to Subprime Mortgage-Backed Securities, SEC, June 22, 2011
Morgan Keegan Entities to Pay $200M In Settlement Over Subprime MBS Valuations, Law 360, June 22, 2011

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Morgan Keegan Ordered by FINRA to Pay RMK Fund Investors $881,000, Stockbroker Fraud Blog, April 24, 2011
Morgan Keegan & Co. Inc. Must Pay $250K to Couple that Lost Investments in Hedge Fund with Ties to Bernard L. Madoff Investment Securities, Stockbroker Fraud Blog, March 16, 2011
Morgan Keegan to Pay $9.2M to Investors in Texas Securities Fraud Case Involving Risky Bond Fund, Stockbroker Fraud Blog, October 6, 2010 Continue Reading ›

Washington Mutual Bank Bondholders’ Securities Fraud Lawsuit Against J.P. Morgan Chase & Co. is Revived by Appeals Court

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

The D.C. Circuit Court of Appeal has revived a securities fraud lawsuit filed by bondholders of the now failed Washington Mutual Bank against JP Morgan Chase & Co. (JPM.N). The plaintiffs had accused the investment bank of causing them to suffer financial losses because it purchased the thrift’s assets at a “fire sale” price.

Per the securities complaint, insurers American National Insurance Co., Farm Family Life Insurance Co., American National Property and Casualty Insurance Co., National Western Life Insurance Co., and Farm Family Casualty Insurance Co. are accusing JP Morgan of exerting pressure on the U.S. Federal Deposit Insurance Corp. so it would force the $1.9 billion sale of Washington Mutual. They contend that as a result, what used to be the biggest savings and loan in the country with $307 billion in assets was “drastically undervalued,” which allowed the financial firm to pick out the best assets at the expense of the plaintiffs, whose bond investments lost their value.

The appeals court panel’s decision reverses a federal district judge’s ruling last year dismissing the complaint. The judge had said that the bondholders need to have pursued all administrative revenues before filing their securities fraud lawsuit, which is one of a number of complaints stemming from the FDIC’s seizure of WaMu in 2008. WaMu’s holding company immediately filed for bankruptcy and is still waiting for a judge to grant the permission required to allow it to give creditors $7 billion.

The appeals court’s decision came just one day after the WaMu bankruptcy reorganization plan was challenged by Aurelius Capital Management. The hedge fund said that WaMu was denied access to approximately $4 billion that JP Morgan was improperly holding. Aurelius claims that as a result, this settlement is currently of greater value to JP Morgan than WaMu.

Related Web Resources:
Aurelius withdraws support of WaMu bankruptcy plan, Bloomberg Businessweek/AP, June 23, 2011

Court revives WaMu bondholder suit vs JPMorgan, Reuters, June 24, 2011

American National Insurance Co.

Farm Family Life Insurance Co.

National Western Life Insurance Co.

Farm Family Casualty Insurance Co.

More Blog Posts:
JP Morgan Chase Agrees to Pay $861M to Lehman Brothers Trustee, Stockbroker Fraud Blog, June 28, 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, June 23, 2011

JP Morgan Chase Agrees to Pay $861M to Lehman Brothers Trustee

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

A bankruptcy settlement has been reached between JP Morgan Chase & Co. and the trustee of Lehman Brothers. Per the agreement, JP Morgan will pay $106 million in securities and $755 million in cash-that’s $861 million. This will go to the customers of the now defunct Lehman Brothers Holding. The settlement comes after a two-year probe by trustee James Giddens in the Securities Investor Protection Act liquidation proceedings.

Lehman Brothers Holdings Inc., which is Lehman Brothers Inc.’s parent company, filed for bankruptcy in 2008. JP Morgan served as its clearing bank. Some 125,000 customers have filed claims worth about $180 billion total, of which about $130 billion are resolved. The claims that are left include those involving Lehman Brothers Holdings, Lehman Brothers International, and a number of hedge funds. JP Morgan and Lehman Brothers Holdings are still involved in two multibillion-dollar lawsuits.

Per court papers, the majority of the trustee’s claims against JP Morgan come from securities that the bank held but failed to liquidate following the collapse of Lehman brothers. While JP Morgan did not agree with all of the trustee’s findings, they consented to turning over the majority of the funds to resolve the dispute.

Lehman Brothers Holdings claims that JP Morgan Chase abused its role as a clearing house firm when it forced the former to surrender $8.6 billion in cash collateral. Lehman believes that if it could have held on to the funds, it wouldn’t have needed to file for bankruptcy and that even if it still had to shut down, it could have done so in a more orderly fashion.

Judge Clears $861 Million J.P. Morgan-Lehman Settlement, Wall Street Journal, June 23, 2011
JP Morgan to Pay Lehman Brokerage $861 Million in Bankruptcy Court Settlement, FNN, June 23, 2011
Securities Investor Protection Act , US Courts

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Lehman Brothers Lawsuit Claims Its Bankruptcy Was In Part Due to JP Morgan Chase’s Seizure of $8.6 Billion in Cash Reserves, Stockbroker Fraud Blog, June 14, 2011 Continue Reading ›

Ex-Colonial Bank Chairman is Sentenced to 30 Years in Prison Over $2.9B Bank Fraud

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

A federal judge has sentenced ex- Taylor, Bean & Whitaker chairman Lee Farkas to 30-years behind bars for heading up a $2.9 billion financial scheme that led to the downfall of both mortgage lender Taylor Bean and Colonial Bank. The bank fraud cheated the government and investors of billions.

Farkas, who was convicted by a jury of numerous criminal counts, conspiracy to bank fraud, wire fraud, and securities fraud, is accused of making $40 million from the scam. He must now turn over about $35 million.

Also paying a price for her involvement in the fraud is ex-Colonial Bank senior vice president Catherine Kissick. The 50-year-old former head of Colonial’s’ mortgage-warehouse lender pleaded guilty to one count of conspiracy to commit bank fraud, wire fraud, and securities fraud.

The SEC is accusing Kissick of enabling the sale of impaired and bogus securities and mortgage loans to Taylor Bean. She also is accused of mischaracterizing the securities as liquid, quality assets to investors.

Assistant Attorney General Lanny Breuer has said that not only did Kissick assist in the execution of the largest bank fraud ever, but also she used her position at Colonial to purchase hundreds of million dollars in assets from TBW that were worthless to fool investors, shareholders, and regulators. Kissick is sentenced to 8-years in prison.

Several others have pleaded guilty to the financial scam, including Teresa Kelly, a former operations supervisor who worked under Kissick. Kelly, who pleaded guilty to the same charge as Kissick, is sentenced to three months behind bars. She is accused of abusing her access to the accounting systems at Colonial Bank to perpetuate the fraud.

Others who have pleaded guilty for their involvement are ex-Taylor Bean president Raymond E. Bowman and former firm treasurer Desiree Brown. Former chief executive Paul Allen was sentenced to 40 months for his participation in the bank scam.

Related Web Resources:
Mortgage Executive Receives 30-Year Sentence, The New York Times, June 30, 2011

Ex-Colonial Bank Executive Kelly Admits to Conspiracy in Taylor Bean Fraud, Bloomberg, March 16, 2011

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

Texas Securities Fraud: Planmember Securities Corp. Registered Representatives Accused of Improperly Selling Life Settlement Notes, Stockbroker Fraud Blog, June 27, 2011

Texas Securities Fraud: Planmember Securities Corp. Registered Representatives Accused of Improperly Selling Life Settlement Notes

Published on: June 27, 2011 | by Shepherd Smith Edwards & Kantas, LLP

Brokers Kris Bradford Rhoden and Jimmy Wayne Freeman Jr. are accused of Texas securities fraud and of bilking investors of millions. The two registered representatives allegedly took part in the improper sale of life settlement notes. They are also accused of lying to their employer, PlanMember Securities Corp, about the sales. Now, Texas State Securities Board says the two men are facing $100,000 fines and license revocation.

Between June 2008 and February 2009, the two men allegedly sold note agreements that were supposedly backed by life insurance policies and a 10% simple-interest return guarantee over five years. They also are accused of selling an Immediate Income Investment Plan, which was purported to have been backed by life insurance policies and a five-year, fixed biweekly income account. National Life Settlements LLC, which was shut down by Texas securities cops in 2009 after it sold $30M in bogus promissory notes, was the issuer both products. (A judge later ordered that the investors it defrauded get back about $20 million.)

Now, state regulators are saying that Rhoden and Freeman did not comply with PlanMember’s supervisory procedures, which doesn’t allow private-securities transactions and requires that the broker-dealer approve any securities transactions occurring outside the regular course of business. The two brokers allegedly told Planmember on their compliance questionnaire that they did not sell such products. They are also accused of using their personal email accounts to let PlanMember clients know about the investments, as well as of failing to update their U-4 forms in a timely manner to show that they were marketing the life settlement notes.

Related Web Resources:
Corpus Christi investment advisers face license hearings, fines, Caller.com, June 24, 2011
Two reps could lose securities licenses for selling life settlement notes, Investment News, June 24, 2011
Texas Stockbroker Fraud

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Texas Lawyer Pleads Guilty to Involvement in Alleged $100M Life Settlement Scheme, Stockbroker Fraud Blog, December 7, 2010
Three Houston Men Accused of $103 Million Texas Securities Fraud Involving Life Insurance Scam that Victimized at Least 800 Investors, Stockbroker Fraud Blog, September 7, 2010
Life Settlements or Viaticals should be Considered “Securities,” Recommends the SEC to Congress, Stockbroker Fraud Blog, August 5, 2010 Continue Reading ›

Mortgage-Backed Securities Lawsuit Against Bank of America’s Merrill Lynch Now a Class Action Case

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

Merrill Lynch, a unit of Bank of America Corp. (BAC) is now the defendant of a class action securities fraud lawsuit filed on behalf of at least 1,800 investors. A federal judge certified the class status, which involves all investors in mortgage-backed securities that were sold beginning February 2006 through September 2007.

The named plaintiffs of the MBS lawsuit are the Connecticut Carpenters Annuity Fund, the Wyoming state treasurer, Mississippi Public Employees’ Retirement System, the Connecticut Carpenters Pension Fund, and the Los Angeles County Employees Retirement Association. The investors are accusing Merrill of misleading them in the offering documents for $16.5 billion of certificates.

While including yourself as a class action plaintiff may seem like an easy way to recoup your losses, Shepherd Smith Edwards & Kantas LTD LLP founder and stockbroker fraud attorney William Shepherd says, “On average, victims with securities class action claims usually get back a net recovery of about 8% of their losses.” Such claims often face numerous obstacles. Also, only federal securities claims can be brought in class action cases, and these can be challenging to prove. “Some securities class action complaints end up settled but with the terms favoring the defendants and with large fees going to the investors’/victims’ attorneys,” notes Shepherd. Many consider the investor class the losers when such a case is concluded. ** It is important, however, to note that our securities fraud law firm has no information at this time to suggest that this is going to be the result in this matter.

One alternative you should explore is filing your own, individual claim. While many securities class action cases have very short “opt out” dates, if you “opt out” of the class in a timely manner, you can file an individual case ( claims under state law are often easier to prove). Our securities fraud law firm has represented many investors who have done both.

Merrill Must Face Class Action Over Mortgage Securities, Bloomberg, June 20, 2011

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Class Action Plaintiffs Dispute Bank of America’s $137M Settlement with State Attorney Generals Over Municipal Derivatives, Institutional Investor Securities Blog, December 31, 2010 Continue Reading ›

Bank of America Cop. (BAC)’s Merrill Lynch a Defendant of Class-Action Mortgage-Backed Securities Lawsuit Against at Least 1,800 Investors

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

U.S. District Judge Jed S. Rakoff has ruled that Merrill Lynch must face a class action securities fraud lawsuit over mortgage-backed securities. The class of at least 1,800 investors consists of the buyers of 31 tranches of MBS in 18 different offerings that were sold between February 2006 and September 2007. Merrill Lynch is a unit of Bank of America Corp. (BAC).

The investors, who filed their litigation in 2008, are accusing Merrill of misleading them in the offering documents for certificate valued at $16.5 billion and of falsely claiming that the underlying mortgages were in compliance with underwriting guidelines. Plaintiffs include the Los Angeles County Employees Retirement Association, the Mississippi Public Employees’ Retirement System, the Wyoming state treasurer, the Connecticut Carpenters Annuity Fund, and the Connecticut Carpenters Pension Fund. The class action certification lets the investors put their claims together into one lawsuit rather than having to individually push their cases through.

Meantime, Bloomberg.com is reporting that in a separate securities fraud lawsuit, also against Bank of America, U.S. District Judge William Pauley in Manhattan consolidated three cases accusing the investment bank of hiding the risks involved in mortgage-backed securities and of not using appropriate controls in processing foreclosures. The lead plaintiff in this case is Pennsylvania Public School Employees’ Retirement System.

Securities Class Actions
“The average net recovery for victims in securities class action claims is about 8% of their losses because such claims face many problems,” says Shepherd Smith Edwards and Kantas founder and securities fraud attorney William Shepherd. “For example, only federal securities fraud claims can be made in such cases, which are often difficult to prove. However, investors who “opt out” of the class in a timely manner can file their own individual claims, including under state law claims often easier to prove. Our stockbroker fraud lawyers has represented many investors who have opted-out of securities class actions.”

Shepherd continues, “Unfortunately, many securities class action claims are filed with very short “opt out” dates and some of these cases are later settled on terms that arguably favor the defendants while large payments end up going to the lawyers representing the investor/ victims in the class. Many believe the true losers in such cases are the members of the investor class who suffered the losses. [We have no information at this time to suggest such a result in this matter.] ”

Related Web Resources:
Merrill Must Face Class Action Over Mortgage Securities, Bloomberg, January 20, 2011

More Blog Posts:
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

MBIA Can Sue Morgan Stanley Over Alleged Misrepresentation of MBS Risks, Says US New York Supreme Court, Institutional Investor Securities Blog, June 14, 2011

Dow Corning Corp.’s $165M Securities Fraud Lawsuit Against Merrill Lynch & Co. Can Proceed, Says District Court Judge, Stockbroker Fraud Blog, April 7, 2011

Bill Funding SEC at $1.185B for Fiscal Year 2012 Approved by House Committee

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

The House Appropriations Committee has voted to approve an appropriations bill to bill fund the Securities and Exchange Commission for fiscal year 2012 at $1.185 billion. The appropriations level is equivalent to what the SEC was given for FY 2011. However, it is $222 million less than what the White House requested for the next fiscal year. The bill also would bar the funding of the SEC’s “reserve fund,” which the committee believes would work as a “slush fund” for the SEC for programs that Congress has not approved.

According to committee chairman Rep. Hal Rogers (R-Ky.), the House Appropriations Committee has taken steps to funding for programs that are “ineffective and unproven” and stop taxpayer money from going toward waste and redundancy. The committee, however, also reports that it continues to be troubled by the way the SEC handles its funds and is “reticent” to give the commission more funding until it deals with the efficiencies noted in the Boston Consulting Group’s (BCG) report, which recommends important structural and operational improvements at the Commission. It remains worried about the SEC’s ability to successfully handle Ponzi scams and has concerns that a proposed rulemaking to register municipal advisors may be too broad.

Says Shepherd Smith Edwards & Kantas LTD LLP Founder and Securities Fraud Attorney William Shepherd, “At one time, the SEC was one of the few agencies that actually produced revenues for our government (along with the IRS and the Interior Department, which leases federal minerals, etc.). It seems to me that this agency could be self-funding again if it simply imposed heavy fines for actions such as short-selling rule violations. An interesting statement by the committee is ‘we have cut funding for ineffective and unproven programs.’ Judging by the SEC’s recent performances, why would this not include virtually all the Commission’s programs”?

Appropriations Committee Approves Fiscal Year 2012 Financial Services Appropriations Bill, US House of Representatives Committee on Appropriations, June 23, 2011

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MSRB Seeks Public Comment on New Fiduciary Duty Rule for Municipal Advisors, Institutional Investors Securities Blog, February 21, 2011 Continue Reading ›