Investor Lawyers Blog

Securities Lawsuits Expected to Reach Record High in ’11, Says Advisen Ltd. Report

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

Per Advisen Ltd’s latest quarterly report on securities litigation, the number of securities lawsuit filings will likely set a new record high for yet another year in a row. Records were set in 2008, 2009, and 2010 following the credit crisis. Advisen’s quarterly report was sponsored by ACE.

John Molka III , the report’s author, says that even with the credit crisis has eased up, the submission of securities lawsuits has not. 1,293 securities lawsuits were filed in 2010. Now, Advisen is saying that based on the number of securities complaints filed during the first quarter of 2011, you can expect the number of lawsuits for this year to beat that number. Molka speculates that this “elevated level of filings” could be the “new normal.”

During Q1 2011, 362 securities lawsuits were filed—a 47% jump from the number of complaints that were submitted in Q1 2010. Compare this first quarter to last year’s last quarter when 342 securities complaints were filed. Also, with 1,448 new filings as this year’s first quarter annualized rate, that’s already12% more than last year’s total filings. The complaints include those for breach of fiduciary duty, shareholder derivative cases, securities fraud, and securities class actions.

Although securities fraud complaints comprised the greatest portion of filings for the first quarter, breach of fiduciary duties lawsuits, which include merger objection complaints, are the real cause of securities lawsuit growth. Meantime, 18% of new filings were securities class action complaints, which in the past made up over 1/3rd of securities lawsuits. Securities class action lawsuits, however, still make up for the majority of the largest settlements. During this first quarter, the average securities class action case settled for $54.6 million.

More Blog Posts:

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

Securities Fraud Lawsuit Against Calamos Investments Filed on Behalf of Calamos Convertible Opportunities and Income Fund Shareholders, Stockbroker Fraud Blog, September 17, 2010

Citigroup Chair Says Bank’s Crisis is Over

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

At the financial firm’s annual shareholder meeting, Citigroup chairman Richard D. Parsons says that even though there will be challenges this year, the investment bank is “clearly through the crisis.” Parsons statement reflects a significant shift for Citibank from last April when the financial firm made its first profit since the 2007 financial collapse and the government was still in possession of a large ownership stake. Citigroup, which received three government bailouts, has since paid back the Treasury Department and reported profits for five quarters in a row. Most recently, the investment bank has just reported a $3 billion profit.

The New York Times says that unlike in recent years when Citigroup shareholders that attended the annual meeting would complain about board members or former US Treasury Secretary Robert E. Rubin, this year, the shareholders that did show up primarily complained that Citi’s stock price would have to hit almost $600 for them to break even on shares.

The bank’s shares, which used to trade at over $50 each, now trade at under $5 dollars. After the reverse share split, share prices will rise to approximately $45. Each investor’s total, however, will go down by 90%.

Over 95% of shareholders had approved the stock split. At the meeting, Citi’s chief executive Vikram S. Pandit explained that while the share count was changing the value of ownership position was not. He also spoke of the benefits of drawing in institutional investors who couldn’t buy shares of companies that had stock that traded under $10. Pandit said there was potential for short-sellers to beat down the stock.

Related Web Resources:
Citi’s Annual Meeting Ceases to Be a Battleground, New York Times, April 21, 2011
Citi CEO tries to shed bank’s “survivor” image, Reuters, April 21, 2011

More Blog Posts:
Citigroup Ordered by FINRA to Pay $54.1M to Two Investors Over Municipal Bond Fund Losses, Stockbroker Fraud Blog, April 13, 2011

Ex-Smith Barney Adviser Pleads Guilty to Securities Fraud In $3.25M Scam to Bilk Citibank and Firm Clients, Stockbroker Fraud Blog, December 13, 2010
Securities Fraud Lawsuit Against Citigroup Involving Mortgage-Related Risk Results in Mixed Ruling, Institutional Investor Securities Blog, November 30, 2010 Continue Reading ›

Auction-Rate Securities Investigations by SEC and NY Attorney General Are Ongoing

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

The Securities and Exchange Commission and the New York Attorney General’s office are still investigating whether auction-rate securities market participants knew they were misleading investors about the complexity and liquidity of debt instruments leading up to the market collapse in 2008. Officials for both agencies told BNA about the ongoing probes last month.

It was these misrepresentations to investors that prompted the Financial Industry Regulatory Authority to issue a concept proposal that, should it become a rule, would hold research analysis and reports that analyze debt securities accountable to FINRA requirements. A federal regulator told BNA that the SRO is concerned about misrepresentations that may have been made to retail investors as early as in late 2007 when, even as institutional investors were buying less ARS-causing the market to lose liquidity-ARS sellers were being pushed by underwriters to get retail clients to buy the securities under the guise that the bonds were very liquid and like cash. Also, underwriters and others allegedly knew that the market conditions were headed toward illiquidity despite their claims that the instruments were highly liquid.

The New York Attorney General’s office reported that says that as of last month, financial institutions have agreed to repurchase $60 billion of the ARS. The financial firms have also agreed to pay about $597 million in fines. Among the investment banks that the SEC has reached settlement agreements with are Citigroup Inc. (C), Wachovia Securities LLC, Royal Bank of Canada subsidiary RBC Capital Markets Corp., UBS AG, Merrill Lynch & Co., TD Ameritrade Online Holding Corp. (AMTD, Bank of America Corp. (BAC), and Deutsche Bank AG.

Related Web Resources:
SEC, New York Continuing ARS Probes; Retail ARS Risk Behind FINRA Proposal, BNA, March 23, 2011
Auction Rate Securities, SEC

More Blog Posts:
Class Auction-Rate Securities Lawsuit Against Raymond James Financial Survives Dismissal, Stockbroker Fraud Blog, September 27, 2010
Securities Fraud Lawsuit Against Calamos Investments Filed on Behalf of Calamos Convertible Opportunities and Income Fund Shareholders, Stockbroker Fraud Blog, September 17, 2010
Raymond James Must Pay $925,000 Over Auction-Rate Securities Dispute, Institutional Investor Securities Blog, September 1, 2010 Continue Reading ›

Anschutz Corp.’s Securities Fraud Lawsuit Against Deutsche Bank and Credit Rating Agencies Over Their Alleged Mishandling of Auction-Rate Securities Can Proceed, Says District Court

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

The U.S. District Court for the Northern District of California says that the auction securities fraud lawsuit filed by Anschutz Corp. against Deutsche Bank Securities Inc. and a number of credit rating agencies can proceed. Anschutz bought DBSI ARS between July 206 and August 2007 through Credit Suisse. The plaintiff is seeking damages and other relief related to the ARS it bought that was underwritten by DBSI, which also served as its broker-dealer.

Anschutz contends that it bought the securities believing that they were liquid because of the DBSI’s deceptive and manipulative activities. The plaintiff claims that by serving as market maker, DBSI ensured that the auctions would be successful as long as it kept supporting the bids. To make the ARS appear liquid, DBSI also allegedly “manipulated the market” by putting in support bids for every auction that the securities were involved in as well as for other ARS for which it was the lead or sole broker-dealer. When DBSI stopped making bids in July 2007, the auctions failed the following month. Anschutz contends that not only did DBSI know this would happen, but also, by acting as the only broker-dealer that could take part in certain securities’ auctions, the financial firm made it seem as if there was enough third-party demand and was able to lower the auctions’ interest rates.

Regarding its claims against rating agencies, Anschutz says that the latter relaxed their rating system to get DBSI’s business. The plaintiff contends that the AAA ratings that the agencies issued were misleading and false but knew that was the way to get paid. Anschutz also says that the agencies should have known or knew that DBSI was creating an artificial market for the ARS.

More Blog Posts:
Akamai Technologies Inc’s ARS Lawsuit Against Deutsche Bank Can Proceed, Institutional Investor Securities Blog, March 4, 2011

Credit Suisse Broker Previously Convicted for Selling High Risk ARS is Barred from Future Securities Law Violations, Institutional Investor Securities Blog, February 12, 2011

NASAA Says Investors with Frozen Auction-Rate Securities Should Ask Investment Firms About Buyback Opportunities, Stockbroker Fraud Blog, November 19, 2008

Investments Advisers Told to Look at Recent SEC Enforcement Actions When Preparing for Exams

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

Securities and Exchange Commission’s Office of Compliance Inspections and Examinations deputy director Norm Champ says that when preparing to be examined, investment advisers should look at recent SEC enforcement actions stemming from problems found during previous exams at other advisers. Champ made this suggestion last month at an American Law Institute-American Bar Association-organized investment adviser conference in New York. Champ says that his views were his own and that he wasn’t speaking for the SEC.

Two cases that he cited as ideal examples were SEC v. Venetis and In re AXA Rosenberg Group LLC. Champ said that three AXA Rosenberg entities ended up paying over $240 million over SEC administrative proceedings because of a key computing error in the Venetis case, which involved a multi-million dollar fraud scam over the sale of bogus promissory notes. Although senior management discovered the mistake, they decided not to tell the SEC. The commission suspected there was a problem when its examiners were prohibited from entering certain rooms.

Champ is suggesting that before an exam, investment advisers should figure out their risk areas and review compliance and control procedures. He says that the SEC chooses which advisers to examine based on complaints, tips, referrals, prior exam history, third party data (including information from regulators), commission filing data, affiliated business activity, firm size, disciplinary history, pay arrangements, and time between exams. Exam teams study the investment adviser’s control environment, engage with senior management, pay attention to interactions within the financial firm, and look at conflicts of interest, valuations, portfolio management, advertising, trade allocations, and custody of assets.

Our stockbroker fraud attorneys are dedicated to helping investors recoup their financial losses caused by investment adviser fraud.

Related Web Resources:
Securities and Exchange Commission

Office of Compliance Inspections and Examinations

More Blog Posts:
AXA Rosenberg Entities Settle Securities Fraud Charges Over Computer Error Concealment for Over $240M, Stockbroker Fraud Blog, February 10, 2011 FINRA Will Customize Oversight to Investment Adviser Industry if Chosen as Its SRO, Stockbroker Fraud Blog, April 8, 2011
Custodial Firms Get Tougher About Registered Investment Adviser Compliance, Institutional Investor Securities Blog, December 28, 2010 Continue Reading ›

Texas Securities Fraud: FINRA Suspends Pinnacle Partners Over Failure to Comply with Temporary Cease and Desist Order Involving “Boiler Room” Operation

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

The Financial Industry Regulatory Authority says it is has suspended San Antonio adviser Pinnacle Partners Financial Corp. and its president, Brian K. Alfaro. Both are accused of not complying with a temporary cease and desist order that barred fraudulent misrepresentations.

FINRA issued the temporary order last January over Pinnacle and Alfaro’s alleged written and oral misrepresentations related to their offer and sale of oil and gas joint interests. In December, the SRO filed a complaint accusing Alfaro and Pinnacle of running a boiler room involving brokers who made thousands of calls each week to solicit investments in these ventures, which Alfaro either controlled or owned.

In its Texas securities fraud complaint, FINRA claims that Pinnacle raised over $100 million from over 100 investors and that Alfaro used some of that money for his personal expenses and unrelated business. Some of the funds that Alfaro allegedly misused came from customers that he convinced to let him move their money into fraudulent offerings. He is even accused of collecting over $500,00 in subscription costs for a well that was never drilled.

FINRA contends that Alfaro and Pinnacle grossly inflated natural gas prices, estimated gross returns and monthly cash flows, projected natural gas reserves, and purposely tried to mislead investors by giving them doctored maps that didn’t include dry, abandoned, or plugged wells and getting rid of unfavorable information in well operator reports.

Related Web Resources:
FINRA Suspends Pinnacle Partners and its President Brian Alfaro, FINRA, April 19, 2011
FINRA Suspends San Antonio Advisory Firm for Operating a “Boiler Room”, Financial Planning, April 19, 2011
Read the Cease and Desist Order (PDF)

More Blog Posts:
Texas Securities Fraud Lawsuit Against MetroPCS Communications is Dismissed, Stockbroker Fraud Blog, April 11, 2011
Texas Securities Fraud: SEC Charges Talk Radio “MoneyMan” Over Promissory Note Offerings, Stockbroker Fraud Blog, April 4, 2011
Motion to Dismiss SEC Lawsuit Accusing Dallas Billionaire Brothers of $500,000 Securities Fraud Denied, Stockbroker Fraud Blog, April 1, 2011 Continue Reading ›

Ex-Goldman Sachs Board Member Accused of Insider Trading with Galleon Group Co-Founder Seeks to Have SEC Administrative Case Against Him Dropped

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

Our securities fraud attorneys had previously reported on the Securities and Exchange Commission’s case against Rajat Gupta, an ex-Goldman Sachs board member accused of passing on confidential information to Galleon Group Co-Founder Raj Rajaratnam about Berkshire Hathaway Inc.’s $5 billion investment in Goldman Sachs. Rajaratnam is accused of making $45 million from the scheme, which has been the target of what is being called one of the largest insider trading crackdowns involving a hedge fund. As part of its Galleon probe, the SEC has filed insider trading lawsuits against at least two dozen businesses and individuals.

The SEC is accusing Gupta of sharing with Rajaratnam details about the respective quarterly earnings of the investment bank and Proctor and Gamble, where Gupta also served as a director. Last month, agency filed its charges insider trading allegations against Gupta in administrative forum—a move that he is contesting.

On March 18, the ex-Goldman Sachs board member filed a lawsuit against the SEC denying the insider trading allegations and asking the federal court to block the SEC’s administrative claims and grant him a jury trial. Gupta contends that the SEC allegations took place at least a year and a half before the Dodd-Frank Wall Street Reform and Consumer Protection Act gave regulators permission to file such an action.

The Dodd-Frank Act has given the SEC the authority to use administrative proceedings to get monetary penalties from all individuals, regardless of whether or not they are connected to regulated entities. The SEC’s administrative trial in the Gupta case is scheduled for July 18. Gupta is the only defendant in the Galleon case that the SEC is pursuing administratively. He is a non-regulated person.

Related Web Resources:
Gupta Says U.S. Judge in New York Should Handle Suit to Block SEC’s Action, Bloomberg, April 11, 2011

Ex-Goldman director charged with insider trading, CBS News, March 1, 2011

Gupta v. Securities and Exchange Commission, Justia Docket Filings

U.S. v. Rajaratnam, SD New York 2011

More Blog Posts:
A Texan is Among Those Arrested in Insider Trading Crackdown Involving Apple Inc., Dell, and Advanced Micro Devices’ Confidential Data, Stockbroker Fraud Blog, December 16, 2010

3 Hedge Funds Raided by FBI in Insider Trading Case, Stockbroker Fraud Blog, November 23, 2010

Ex-Goldman Sachs Associate Will Serve Nearly Five Years in Prison for Insider Trading, Stockbroker Fraud Blog, January 10, 2008

SEC Charges Subprime Auto-Loan Provide Inofin Inc. with Securities Fraud

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

The U.S. Securities and Exchange Commission has filed securities fraud charges against Inofin Inc. and three of its executives. The SEC contends that they diverted millions of investor funds’ for their personal use and misled investors. For example, the agency contends that Kevin Mann and Michael Cuomo used about third of the investors’ money to start several real-estate property developments and open four used car dealerships.

The agency claims that Mann, Cuomo, & Melissa George acted illegally when the raised $110 million from hundreds of investors in the District of Columbia and 25 states. They allegedly did this with unregistered notes that they told investors were going to be used only for funding subprime auto loans. Meantime, the subprime auto-loan provider’s clients were told that 9-15% returns could be expected because Inofin charged 20% interest rates on average to subprime borrowers.

Inofin is accused of misrepresenting its financial performance between 2006 and 2010, while its executives allegedly prepared and submitted false financial statements to the Massachusetts Division of Banks. SEC says that Inofin’s worsening financial state was caused by the company’s failure to disclose its business activities and because management decided to sell part of its auto loan portfolio at a considerable discount to deal with cash shortages. Meantime, Inofin and its key officers kept selling Inofit securities while allowing investors to keep believing that it was a profitable business and a solid investment.

The SEC has also charged two sales agents, Thomas K. (Kevin) Keough and David Affeldt, because they allegedly offered to sell company securities even though they were not SEC-registered broker-dealers. The agency says that between 2004 and 2009 the men were unjustly enriched by referral fees of over $500,000.

Related Web Resources:
SEC Charges Subprime Auto Loan Lender and Executives with Fraud, SEC, April 14, 2011
Mass. auto lender, executives charged with fraud, Businessweek/Bloomberg, April 14, 2011
Massachusetts Division of Banks

More Blog Posts:
FINRA Orders UBS Financial Services to Pay $8.25M for Misleading Investors About Security of Lehman Brothers Principal Protected Notes, Stockbroker Fraud Blog, April 15, 2011
Wells Fargo Settles SEC Securities Fraud Allegations Over Sale of Complex Mortgage-Backed Securities by Wachovia for $11.2M, Institutional Investor Securities Blog, April 7, 2011 Continue Reading ›

“Skin in the Game” Mortgage Rule Announced by Federal Regulators

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

Federal regulators are proposing new risk retention rules geared toward reducing risky low mortgage lending. The ‘skin in the game” rule was articulated in the Dodd-Frank Consumer Protection Act, which mandates credit risk sharing and for mortgage-backed securities (MBS) sponsors and those of other asset classes to align their interests with investors.

Under the new qualified residential mortgage rules, lenders would have to retain 5% of the risk, known as “skin in the game,” for non-qualifying loans that they make rather than selling all of them to investors. The loans would likely include higher mortgage costs. Loans sold to Freddie Mac or Fannie Mae, however, would be exempt from the rules as long as they remain in government conservatorship. Loans through the Federal Housing Administration would also be exempt.

A qualified residential mortgage (QRM) is a mortgage that regulators consider to be a loan that offers a low risk of default. Some of the requirements for qualifying for a QRM loan:

• Placing at least a 25% down if you are buying a house.
• Having at least 25% equity to refinance.
• Having at least 30% equity for cash-out refinancing.
• No 60-day delinquencies over the past two years.
• Not being able to get a loan with interest only payments, negative amortization, or “significant interest rate increases.”

Our securities fraud lawyers represent institutional investors who have lost money from investing in mortgage-backed securities or other investments.

Related Web Resources:

Bankers pleased with ‘skin in the game’ rule, Marketwatch, March 29, 2011

More Blog Posts:
Goldman Sachs Group Made Money From Financial Crisis When it Bet Against the Subprime Mortgage Market, Says US Senate Panel, Institutional Investors Securities Blog, April 15, 2011

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

Citigroup’s $75 Million Securities Fraud Settlement with the SEC Over Subprime Mortgage Debt Approved by Judge, Stockbroker Fraud Blog, October 23, 2010

FINRA Orders UBS Financial Services to Pay $8.25M for Misleading Investors About Security of Lehman Brothers Principal Protected Notes

Published on: April 15, 2011 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority is ordering UBS Financial Services to pay $8.25 million in restitution and a $2.5 million fine for misleading investors about Lehman Brothers principal protected notes (PPNs). The SRO says that the financial firm presented the investments in a way that caused clients to think that the notes came with 100% principal protection. Many brokers said that the notes, which were a hybrid financial product made up of currencies, bonds, stocks, commodities, and derivatives, were low-risk investments even though they knew (or should have known) that Lehman Brothers was in financial trouble. Also, investors did not know that the notes were only protected to the extent that Lehman Brothers was capable of paying. When Lehman Brothers filed for bankruptcy in September 2008, the PPNs became virtually worthless.

FINRA claims that UBS issued statements and made omissions that did not stress that the PPN’s were unsecured obligations of Lehman Brothers. The SRO is also questioning whether UBS fully understood the complexity of the notes and if this caused some of their mistakes when selling the financial product. FINRA says that not only did UBS lack the adequate supervisory system to overseee its financial advisers that were handling the Lehman notes, but also, the investment firm did not have appropriate suitability procedures to determine whether certain investors could handle the risks involved with the PPNs.

Numerous individual securities fraud arbitration claims and lawsuits have been submitted for investors over the Lehman Brothers structured notes. There was also a UBS class action complaint filed for all Lehman brothers PPN investors in 2008.

Our stockbroker fraud law firm want to remind you that filing your individual claim through FINRA arbitration increases your chances of recovering more than if you were a member of a securities class action case. If you sustained financial losses after investing in Lehman Brothers Principal Protected Notes, do not hesitate to contact Shepherd Smith Edward and Kantas, LLP and ask for your free case evaluation.

UBS Financial Services Fined $2.5M and Ordered to Pay $8.25M Over Lehman Brothers-Issued 100% Principal-Protection Notes, Institutional Investor Securities Blog , April 12, 2011
UBS to Pay $2.2M to CNA Financial Head for Lehman Brothers Structured Product Losses, Stockbroker Fraud Blog, January 4, 2011
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, 2010 Continue Reading ›