Investor Lawyers Blog

SEC Has Lax Revolving Door Policy, Says POGO

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

According to the Project on Government Oversight, the Securities and Exchange Commission has too loose of a revolving-door policy. The independent nonprofit issued a report early this month and is calling on the agency and Congress to “strengthen and simplify” restrictions post-employment.

POGO says that even though the SEC appears to have strict restrictions when it comes to former employees representing entities that the Commission oversees, many ex-employees can start representing clients within days of resigning from the SEC as long as they submit a post-employment statement.

POGO says it reviewed five years of post-employment statements submitted by ex-SEC employees who wanted to represent a client within two years of resigning from the federal agency. Between 2006 and 2010, 789 ex-employees filed post-employment statements noting their plans to represent an outside client before the SEC. 131 employers were named on these statements. The firms that recruited the most ex-SEC employees during this time were ACA Compliance Group, Deloitte & Touche LLP, Ernst & Young, O’Melveny & Myers, LLP, Wilmer Cutler Pickering Hale and Dorr, LLP, DLA Piper, KPMG, LLP, Morrison & Foerster, LLP, FTI Consulting, Inc., Kirkpatrick & Lockhart Preston Gates Ellis, LLP, and Sidley Austin, LLP.

In addition to simplifying and strengthening post employment restrictions, POGO says that SEC and Congress need to:

• Verify the accuracy and completeness of the statements.
• Allow post-employment statements to be made publicly accessible online.
• Publicly disclose the commission’s ethics waivers and recusal database
• Utilize and strengthen ethics enforcement authority.
• Review confidential treatment procedures and Freedom of Information Act Exemptions.
• Make post-employment restrictions also applicable to other financial regulators.

Our securities fraud attorneys represent institutional investors in the US and abroad.

More Blog Posts:

SEC to Up Dollar Thresholds for When an Investment Adviser Can Charge Investors Performance Fees, Stokbroker Fraud Blog, May 24, 2011

Texas Securities Commissioner’s Emergency Cease and Decease Order Accuses Insignia Energy Group Inc. of Misleading Teachers

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

According to the Texas State Securities Board, Insignia Energy Group Inc. and its affiliate IEG Permian Basin LLC have violated state law because they are not registered to sell Texas securities. The Texas Securities Commissioner, which is accusing the Dallas-area emergency company of targeting laid-off teachers in the fraudulent sale of gas and oil interests, has put out an emergency cease and desist order against Insignia. The state is also accusing both companies of issuing misleading statements to potential investors.

Per the order, Insignia and IEG must cease from selling securities until they are registered with the state of Texas. The securities board is also is asking for the cessation of deceptive statements.

The state contends that Insignia is telling Texas school workers, including retired and current teachers, that investing in the oil and gas interests will “replace” income during a period of impending layoffs. Insignia is also allegedly encouraging these potential investors to spend their retirement money on these supposedly “safe” investments that the state’s securities commissioner says are actually very risky.

These prospective clients were offered interests in the Sabine Partnership, which is supposed to develop well prospects in Louisiana. The investors were to receive limited partnership interests that are the equivalent of 10% of the underlying working interest, as well as 7.3% of the underlying net revenue interest in the partnership. The order says that Insignia is claiming that investors who put in $21K will get at least $5K in returns a month, while those who put in $45K will get back a minimum of $15K monthly.

Our Texas securities fraud lawyers are here to help investors recoup their losses.

Related Web Resources:
Energy company targeting teachers in scam, Texas officials say, Yahoo/Reuters, May 16, 2011
Hot air? Oil and gas company allegedly misled teachers, Investment News, May 16, 2011

More Blog Posts:
“Loser Pays” in Texas: A Very Bad Bill for 99% of Republicans!, Stockbroker Fraud Blog, May 17, 2011
Texas-Based AIG’s Largest Private Shareholder Says US Will Likely Sell Its Shares in the Insurer At Lower Price than Expected, Stockbroker Fraud Blog, May 13, 2011
Whistleblower Lawsuit Claims Taxpayers Were Defrauded When Federal Government Bailed Out Houston-Based American International Group in 2008, Stockbroker Fraud Blog, May 5, 2011 Continue Reading ›

Five Ex-Brooke Executive Settle SEC Fraud Charges Accusing Them of Concealing Financial Firm’s Deteriorating Finances

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

Five of the six former Brooke executives accused of securities fraud have settled the charges filed by the US Securities and Exchange Commission. According to the SEC, the defendants misrepresented the deteriorating financial condition of Brooke, which eventually filed for bankruptcy. The agency says they employed “virtually any means necessary” to hide Brooke’s financial state, which included liquidity crises that occurred almost every week. The SEC also contends that Aleritas’s loan losses, which was in the hundreds of millions of dollars, caused a number of regional banks to fail.

Among those that settled are brother Robert and Leland Orr. Robert formerly served as Brooke Corp. chairman, while Leland was chief executive. The other three who settled were former Aleritas executives Michael S. Lowry and Michael S. Hess and former Brooke Capital and Brooke Corp. CFO Travis W. Vrbas. A sixth executive, former Brooke executive Kyle Garst, is contesting the securities fraud allegations.

By agreeing to settle the ex-Brooke executives are not admitting to or denying the allegations. The Orr brothers have consented to disgorge profit and pay fines, but the court has yet to determine the figures. Lowry has agreed to $214,500 in disgorgement, $24,004 in prejudgment interest, and a $175,000 penalty. Hess is to pay a $250,000 penalty. Vrbas has consented to a $130,000 penalty.

The SEC has also accused two Brooke affiliates, insurance agency franchisor Brooke Capital Corp. and lender Aleritas Capital Corp., of securities fraud. The fallout from the alleged fraud has had a “devastating” effect on the livelihood of “hundreds of insurance franchisees.”

Related Web Resources:
Five former Brooke execs settle SEC fraud charges, Reuters, May 4, 2011
Financial Firm Execs Misled Investors,  SEC Contends; Five of Six Settle Charges, BNA Securities Law Daily, May 5, 2011

More Blog Posts:
SEC ALJ Finds Several Brokers Liable for Unlawful Penny Stock Sales, Stockbroker Fraud Blog, May 9, 2011
Texas-Based AIG’s Largest Private Shareholder Says US Will Likely Sell Its Shares in the Insurer At Lower Price than Expected, Stockbroker Fraud Blog, May 13, 2011
Securities Practices of JPMorgan Chase & Goldman Sachs Under Investigation by Federal Investigators, Institutional Investor Securities Blog, May 19, 2011 Continue Reading ›

Securities Practices of JPMorgan Chase & Goldman Sachs Under Investigation by Federal Investigators

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

Federal investigators are taking an even closer took at the securities-related practices of JPMorgan Chase & Co. (JPM) and Goldman Sachs Group Inc. (GS ). In a May 6 Filing with the Securities and Exchange Commission, JPMorgan reported that an investigation into its municipal derivatives securities practices is being conducted by the SEC, the US Justice Department, the Office of the Comptroller of the Currency, the Internal Revenue Service, and a number of state attorneys general. The investment bank and Bear Stearns are under investigation for possible tax, antitrust, and securities-related violations related to “the sale or bidding of guaranteed investment contracts and derivatives to municipal issuers.” The SEC’s Philadelphia office is recommending that the commission file civil charges against JPMorgan.

Meantime, in its May 9 filing to the SEC Goldman Sachs revealed that the Commodity Futures Trading Commission is looking at the clearing-services practices that Goldman subsidiary Goldman Sachs Execution and Clearing LP provided to a broker-dealer. Goldman is also being investigated by the Justice Department over matters “similar” to a European Commission probe into anti-competitive practices involving credit default swap transactions.

Goldman’s filing notes that CFTC staffers verbally notified GSEC that it will recommend that the commission bring charges related to supervision, aiding and abetting, and civil fraud over the financial firm providing a broker-dealer client with clearing services. The charges are being recommended because of allegations that GSEC knew or should have known that subaccounts belonged to the broker-dealer’s customers and were not the client’s “proprietary accounts.”

Related Web Resources:

Wall Street inquiry expands beyond Goldman Sachs, Los Angeles Times, May 14, 2011

Office of the Comptroller of the Currency

Commodity Futures Trading Commission

More Blog Posts:

Motion for Class Certification in Lawsuit Against J.P. Morgan Securities Inc. Over Alleged Market Manipulation Scam Granted in Part by Court, Stockbroker Fraud Blog, July 23, 2010

Ambac Financial Group, Insurers, and Bank Underwriters to Pay $33M to Settle Securities Lawsuits Alleging Concealed Risks Related to its Bond-Insurance Business

Published on: May 18, 2011 | by Shepherd Smith Edwards & Kantas, LLP

Ambac Financial Group Inc. (ABKFQ), a number of its bank underwriters, and its insurers will pay $33 million to settle securities lawsuits accusing the bond insurer of concealing the risks it engaged in when it guaranteed risky mortgage debt. Ambac will pay $2.5 million, four insurance companies will pay $24.5 million, and the banks that will pay $5.9 million include Citigroup Inc. (C), Goldman Sachs Group Inc. (GS), UBS AG (UBS), J.P. Morgan Chase & Co. (JPM), Merrill Lynch Pierce Fenner & Smith Inc. (now part of Bank of America Corp. (BAC)), HSBC Holdings PLC (HBC), and the former Wachovia, (now part of Wells Fargo & Co. ( WFC)). A federal court has to approve the proposed settlement. The lead plaintiffs of the securities fraud case are The Public Employees’ Retirement System of Mississippi, the Public School Teachers’ Pension and Retirement Fund of Chicago, and the Arkansas Teachers Retirement System. The investors covered those that purchased Ambac stock and bonds between October 25, 2006 and April 22, 2008.

It was in 2008 that the housing market crisis revealed the trouble that Ambac, an insurer of instruments related to risky mortgages, was in. Investors had accused Ambac of both giving misleading information to the market to inflate the prices of its securities and concealing the full scope of its involvement in the subprime loan debacle. They claim that the bond insurer and its officials made it appear as if the company was only insuring the transactions that were “safest,” when it was actually looking to profit by guaranteeing billions in high risk collateralized debt obligations and residential mortgage debt, as well as writing credit default swaps to protect investors in the debt against default.

Documents filed in the US Bankruptcy Court in Manhattan reports that the holding company in bankruptcy has $1.6 billion in unresolved debts. Financial guarantee insurer Ambac Assurance Corp., which is its chief asset, has $300 billion in potential exposure.

Related Web Resources:
Ambac, banks settle investor suits for $33 mln, Reuters, May 6, 2011
Ambac Financial In $27.1M Deal To Settle Securities Lawsuits, Dow Jones, May 9, 2011
The Public Employees’ Retirement System of Mississippi

Public School Teachers’ Pension and Retirement Fund of Chicago

Arkansas Teachers Retirement System

More Blog Posts:
Insurer Claims that JP Morgan and Bear Stearns Bilked Clients Of Billions of Dollars with Handling of Mortgage Repurchases, Institutional Investor Securities Blog, February 3, 2011
SEC to Examine Muni Bond Market Issues During Hearings in Texas and Other States, Institutional Investor Securities Blog, February 9, 2011
SEC to Examine Muni Bond Market Issues During Hearings in Texas and Other States, Stockbroker Fraud Blog, February 9, 2011 Continue Reading ›

UBS Financial Reaches $160M Settlement with the SEC and Justice Department Over Securities Fraud, Antitrust, and Other Charges Related to Municipal Bond Market

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

UBS Financial Services Inc. has consented to a $160 million settlement over charges that it took part in anticompetitive practices in the municipal bond market. The Securities and Exchange Commission and the US Justice Department announced the settlement together. 25 state attorneys generals and 3 federal agencies had accused the financial firm of rigging a minimum of 100 reinvestment transactions in 36 states, which placed the tax-exempt status of over $16.5 billion in municipal bonds at peril. Justice officials say that the unlawful conduct at issue, which involved former UBS officials, took place between June 2001 and June 2006.

According to SEC municipal securities and public pensions enforcement unit chief Elaine Greenberg, ex-UBS officials engaged in “secret arrangements,” played various roles, and took part in “illegal courtesy bids, last looks for favored bidders, and money to bidding engagements” in the guise of “swap payments” to “defraud municipalities” and “win business.” The SEC contends that between October 2000 until at least November 2004, the financial firm rigged a minimum of 12 transactions while serving as bidding agents for contract providers, won at least 22 muni reinvestment instruments, entered at least 64 “courtesy” bids for contracts, and paid undisclosed kickbacks to bidding agents at least seven times. The SEC says that UBS indirectly deceived municipalities and their agents with their fraudulent misrepresentations and omissions and rigged bids to make them appear as if they were competitive when they actually weren’t.

UBS, which left the municipal bond market in 2008, says that the “underlying transactions” involved were in a business that is no longer a part of the financial firm and that the employees who were involved don’t work there anymore. Of the $160 million settlement, $47.2 million will go to the SEC, which in turn will give the money to the 100 muni issuers as restitution, about $91 million will go to the states, and $22.3 million will go to the IRS.

Related Web Resources:

United States Justice Department

Internal Revenue Service

Securities and Exchange Commission

More Blog Posts:
UBS Financial Services Fined $2.5M and Ordered to Pay $8.25M Over Lehman Brothers-Issued 100% Principal-Protection Notes, Institutional Investors Securities Blog, April 12, 2011

Securities Fraud Lawsuit Against UBS Securities LLC by Detroit Pension Funds Won’t Be Remanded to State Court, Says District Court, Institutional Investors Securities Blog, January 17, 2011

UBS to Pay $2.2M to CNA Financial Head for Lehman Brothers Structured Product Losses, Stockbroker Fraud Blog, January 4, 2011

Texas-Based AIG’s Largest Private Shareholder Says US Will Likely Sell Its Shares in the Insurer At Lower Price than Expected

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

Bruce Berkowitz, who is the Texas-based American International Group Inc.’s largest private shareholder, says he thinks the US government will sell its shares in the insurer at $27 to $29-that’s lower than the insurer’s “book value” and definitely lower than what he paid for most of his position. Berkowitz, who is the manager of the $17.5 billion Fairholme Fund, is the owner of approximately $1.2 billion in AIG stock. This week, the government said it would sell 300 million AIG shares to the public.

At the end of March, AIG’s book value was approximately $47.66 a share. It’s stock is currently trading at a deep discount to that figure. AIG share prices have gone down as of late-they hit a $50 plus high at the start of the year when warrants that the company issued were factored in-because of anticipation that the Treasury Department would start selling its 92.1% stake in the insurance giant during a large share offering. The US has so many AIG shares because it intervened with a $182 billion bailout after the insurer was hit by the financial crisis in 2008.

The Treasury had paid $47.5 billion for approximately 1.66 billion AIG shares. Break-even price was $27.70/share. If investors are wanting to pay lower than this, the government might decide to share a smaller amount of shares to start. Closing price of AIG shares on Tuesday was $29.62, meaning the US’s 300 million shares were worth approximately $8.89 billion.

If demand for the shares turns out to be high, the US could make a profit. Approximately $4.3 billion in AIG shares are held by investors other than the US government.

Our Texas securities fraud lawyers represent institutional and individual investors throughout the state.

Related Web Resources:
AIG Price: Bad News For A Big Investor, Wall Street Journal, May 10, 2011
Business in Brief: AIG, Inside Bay Area, May 12, 2011

More Blog Posts:
AIG Trying to Get More Investors to Buy Life Settlements, Institutional Investors Securities Blog, April 26, 2011 AIG Reorganizes Property and Casualty Insurer Chartis, Institutional Investors Securities Blog, March 31, 2011 Continue Reading ›

Wells Fargo Advisors LLC Agrees to $1 Million FINRA Fine for Securities Charges Related to Mutual Fund Prospectus Delivery

Published on: May 12, 2011 | by Shepherd Smith Edwards & Kantas, LLP

FINRA is fining Wells Fargo Advisors LLC $1 million over the allegations that the financial firm did not deliver mutual fund prospectuses within the three days (as required by federal securities laws) and delays in the updating of material information about former and current representatives. Wells Fargo has agreed to the fine.

Per FINRA, about 934,000 clients who bought mutual funds two years ago were affected when Wells Fargo did not deliver prospectuses within three days of the transactions. Prospectuses were given to clients anywhere from one to 153 days late. The SRO contends that even after a 3rd provider notified the broker-dealer about the delay, Wells Fargo allegedly did not take corrective action to remedy the problem.

FINRA also says that the financial firm did not abide by the SRO’s rules when it wasn’t prompt in reporting required information about its representatives, both past and present. Securities firms must make sure that the information on their representatives’ applications for registration on Forms U4 are current in FINRA’s CRD (Central Registration Depository). Termination notices, known as Forms U5, must also be updated. Financial firms have 30 days from finding out about a “significant event” to update the forms. Examples of such events are customer complaints, formal investigations, or an arbitration claim against a representative. FINRA says that Wells Fargo did not update 7.6% of its Forms U5 and about 8% of its Forms U4 between 7/1/08 and 6/30/09. This resulted in almost 190 late amendments.

By agreeing to settle, Wells Fargo is not denying or admitting to the securities charges. The broker-dealer has, however, consented to the entry of FINRA’s findings.

Related Web Resources:
FINRA Fines Wells Fargo Advisors $1 Million for Delays in Delivering Prospectuses to More Than 900,000 Customers, FINRA, May 5, 2011
FINRA fines Wells Fargo $1M for prospectus delays, Forbes/AP, May 5, 2011
CRD, Financial Industry Regulatory Authority

More Blog Posts:
AG Edwards & Sons (Wells Fargo Advisors) to Settle Securities Charges it Sold Variable Annuities that Lacked Proper Documentation to Elderly Client, Stockbroker Fraud Blog, May 4, 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
Wells Fargo to Pay $30M in Compensatory Damages to Four Nonprofits for Securities Fraud, Stockbroker Fraud Blog, June 30, 2010 Continue Reading ›

Madoff Trustee Files Securities Lawsuit Against Safra National Bank of New York Seeking to Recover Almost $111.7M for Ponzi Scam Investors

Published on: May 12, 2011 | by Shepherd Smith Edwards & Kantas, LLP

This week, Madoff trustee Irving Picard has filed a securities complaint against Safra National Bank of New York. Picard is seeking to recover about $111.7 millions for the investors who lost money in the Bernard Madoff Ponzi scheme.

The funds he is trying to get back were allegedly transferred to Safra by a number of Fairfield Greenwich Group funds. Fairfield Greenwich was the largest feeder fund to Madoff’s financial scheme, and Picard says that the commercial banking unit should have or knew about the different irregularities involved in investing through Bernard L. Madoff Investment Securities.

In his securities complaint, Picard says that Fairfield Sentry Ltd. made $95.9 million in improper transfers to Safra and that the remaining moneys came from feeder funds Fairfield Sigma Ltd. and two Kingate Management Ltd funds called Kingate Euro Fund Ltd. and Kingate Global Fund Ltd.

In addition to filing the complaint against Safra, which is a unit of a Brazilian private bank, Picard reached a settlement with the liquidators of the Fairfield Greenwich funds, who have agreed to give up claims their investors lost $1 billion. Instead, Picard and the liquidators will join forces to pursue the owners of Fairfield Greenwich. Both parties have agreed to divide future recoveries from an alleged fraud by fund operators and others. Most of the proceeds, however, will go to the Madoff Ponzi scam victims.

Picard has filed over 1,000 securities lawsuits, and he is trying to recover about $100 billion. So far, he has recovered over $7.6 billion, with most of it tied up in litigation.

Related Web Resources:

Safra National Bank of New York Sued For $111 Million By Madoff Trustee, Bloomberg, May 10, 2011

Irving H. Picard, Madoff Trustee

More Blog Posts:
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

Texas Congressmen Seek Answers from SEC Chairwoman Regarding Conflict of Interest Related to Madoff Debacle, Stockbroker Fraud Blog, March 8, 2011

SEC, NASD, FINRA & SIPC: New SEC Report Card on Madoff Catastrophy Further Reveals How Investor Protection Is Severely Flawed!, Stockbroker Fraud Blog, September 3, 2009

Derivative Use by Investment Companies Will be Harder to Oversee in Coming Years, Warns SEC Official

Published on: May 10, 2011 | by Shepherd Smith Edwards & Kantas, LLP

According to SEC official Susan Ervin, fund directors are going to be find it increasingly harder to oversee derivative use by investment companies because the markets will become more differentiated. Ervin is the senior adviser to the SEC’s Division of Investment Management director. She made her statements before the Mutual Fund Directors Forum in Washington on April 28 but noted that the views she was expressing are her own.

Ervin said that in the coming years, derivative contracts could be traded on swap execution facilities, exchanges, or over the counter and that it will be hard for fund advisers to manage these different venues. Because of this, fund directors will have to engage in effective oversight.

Another panelist, ProFunds Group general counsel Amy Doberman, says that this oversight will have to be determined by the complexity and kind of funds and the types of derivatives (and their uses). Doberman, however, did also say that directors need to understand certain basics, such as:

• How derivatives move their funds’ investment objectives forward.
• The monitoring, disclosure, and approval processes for derivative use.
• The types of reports that fund advisers can provide regarding derivative use.
• The internal limits and thresholds regarding derivatives use established by fund advisers.

Currently, the SEC is looking at whether there should be new rules or amendments to regulate fund use of derivatives or whether the 1940 Investment Company Act should continue to suffice.

Related Web Resources:

Mutual Fund Directors Forum

More Blog Posts:
Ex-Employee Accuses Bank of America of Securities Fraud Involving Complex Derivatives Products, Stockbroker Fraud Blog, October 29, 2010

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