Investor Lawyers Blog

SEC ALJ Finds Several Brokers Liable for Unlawful Penny Stock Sales

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

A Securities and Exchange Commission administrative law judge has found several brokers liable for their alleged involvement in the unlawful sale of penny stocks to investors. In re Bloomfield, the SEC had filed securities charges against Robert Gorgia, Ronald S. Bloomfield, Victor Labi, John Earl Martin Sr. and Eugene Miller. Labi, Martin, and Bloomfield were Leeb Brokerage Services registered representatives, while Miller and Gorgia were president and chief compliance officer. Leeb is no longer in operation.

The SEC contends that the defendants let customers regularly deliver blocks of privately obtained penny stocks shares into their Leeb accounts. The clients would then sell the securities to the public through unregistered securities transactions.

While Martin, Labi, and Bloomfield allegedly did not conduct reasonable inquiry prior to allowing the public sale of the stock and violated securities law registration requirements, the other two men are accused of failing to reasonably supervise the registered representatives. The SEC claims that the men let the unlawful penny stock sales occur without doing enough to investigate whether they were “facilitating illegal underwriting.” As a result, the defendants allegedly caused Leeb’s failure to submit Suspicious Activity Reports that are mandated under the Bank Secrecy Act.

ALJ Brenda P. Murray noted that the securities fraud resulted in significant financial losses for the investing public. She ordered the three stockbrokers to pay $1.39M in disgorgement. The three brokers were also ordered to pay a $100,000 civil penalty and cease and desist from future misconduct. Miller, who settled the securities charges against him last year, has agreed to supervisory suspension, a cease and desist order, and a $50,000 penalty.

Related Web Resources:
SEC Litigation (PDF)

Brokers Found Liable on Charges They Aided Unlawful Penny Stock Sales, BNA – Securities Law Daily, Alacra Store, April 28, 2011

More Blog Posts:
FINRA Orders Charles Schwab to Pay $18M to Fair Fund for YieldPlus Investors, Stockbroker Fraud Blog, March 12, 2011
Texas Securities Fraud: SEC Halts Alleged Ponzi Scheme in the Dallas-Fort Worth Area, Texas Stockbroker Fraud Blog, March 2, 2011
SEC Securities Settlements Often Don’t Come with Admission, Institutional Investor Securities Blog, March 29, 2011 Continue Reading ›

Commodity Options Fraud Charges by CFTC Prompts District Court to Freeze Assets and Records of 20/20 Trading Co. Inc. & 20/20 Precious Metals Inc.

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

Following the Commodity Futures Trading Commission’s decision to charge 20/20 Precious Metals Inc. and 20/20 Trading Co. Inc. with commodity options fraud and other violations, the U.S. District Court for the Central District of California has frozen the assets and records of the defendants. The commission contends that since 2006, the defendants defrauded prospective clients and customers of at least $4M.

Also named as defendants are Bharat Adatia, Todd Krejci, and Sharief McDowell. They and 20/20 Precious Metals are accused of unlawfully offering, entering, or confirming leveraged copper and palladium transactions. The three employees and 20/20 Trading allegedly committed fraud related to purported leveraged metals transactions.

The CFTC also claims that from 1/1/2006 through 10/2009, 20/20 Trading, McDowell, and Adatia made fraudulent solicitations to the public to sell and buy commodity options through 20/20 Trading while failing to disclose that the complex trades they were recommending made the chances of profit not likely if not impossible. Of the nearly $3.8M that 20/20 customers are said to have lost, about 63% of that went to 20/20 Trading commissions. Over $1.9M was lost by almost half of 20/20 Trading customers, who used individual retirement account funds to open accounts.

After 20/20 Trading closed in October 2009, Adatia established 20/20 Precious Metals. The CFTC says that Adatia closed 20/20 Trading after finding out that the National Futures Association was looking at the company for possible NFA rule violations. The agency says that as customers deposited over $1 million, 20/20 Precious Metals made over $400,000 in commissions.

More Blog Posts:
Commodities Industry Fears being held to Regulatory Standards of Securities Industry, Stockbroker Fraud Blog, February 4, 2011
CFTC Files Charges in Alleged California Ponzi Scam Involving the Fraudulent Solicitation of $14 million in Commodity Futures, Stockbroker Fraud Blog, January 18, 2011
Texas Securities Fraud: M25 Investments Inc., M37 Investments LLC, and Two Individuals Must Pay $16.2M Over Alleged Forex and Ponzi Scams, Stockbroker Fraud Blog, November 8, 2010 Continue Reading ›

Whistleblower Lawsuit Claims Taxpayers Were Defrauded When Federal Government Bailed Out Houston-Based American International Group in 2008

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

Last week, a whistleblower lawsuit claiming that taxpayers were defrauded when the federal government bailed out American International Group was unsealed. The complaint accuses the Houston-based AIG and two banks of taking part in speculative and fraudulent transactions that resulted in losses worth billions of dollars. They then allegedly convinced the Federal Reserve Bank of New York to bail them out with two rescue loans for AIG that were used to unwind hundreds of failed loans.

The complaint focuses on the two emergency loans of about $44 billion that AIG received in October 2008 (The remaining $138 that it got in bailout funds are not part of this case). The money went toward settling trades involving complex, mortgage-linked securities. Some of the AIG-guaranteed securities were underwritten by Goldman Sachs and Deutsche Bank. Both financial institutions join AIG as defendants in this case. The two loans were extended to buy the troubled securities and place them in Maiden Lane II and Maiden Lane III, both special-purpose vehicles, until AIG’s crisis subsided.

The plaintiffs, veteran political activists Nancy and Derek Casady, contend that the rescue loans were improper because the government made them without obtaining a pledge of high-quality collateral from AIG. They maintain that the Fed board does not have the authority to “cover losses of those engaged in fraudulent financial transactions.”

Their whistleblower lawsuit was filed under the False Claims Act. This federal law lets private citizens sue on behalf of government agencies if they know of a fraud that occurred. Plaintiffs are able to attempt to recover money for the government and its taxpayers. Plaintiffs usually receive a percentage if their claim succeeds.

According to the New York Times, senior fed officials have admitted to taking unusual actions in 2008 because the global financial system was on the verge of falling apart.

Related Web Resources:
Claiming Fraud in A.I.G. Bailout, Whistle-Blower Lawsuit Names 3 Companies, The New York Times, May 4, 2011
False Claims Act, Cornell University Law School

Related Web Resources:
Texas Commodity Trading Advisor FIN FX LLC Now Subject to NFA Emergency Enforcement Action, Stockbroker Fraud Blog, April 27, 2011
Texas Securities Fraud: FINRA Suspends Pinnacle Partners Over Failure to Comply with Temporary Cease and Desist Order Involving “Boiler Room” Operation, Stockbroker Fraud Blog, April 19, 2011
SEC is Finalizing Its Whistleblower Rules, Says Chairman Schapiro, Stockbroker Fraud Blog, April 28, 2011 Continue Reading ›

Lancer Management Group LLC Hedge Fund Manager Acquitted of Charges He Ran Market Manipulation Scam

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

A jury has acquitted Lancer Management Group LLC hedge fund manager Michael Lauer of securities fraud charges accusing him of running a stock-pricing scheme believed to cost investors of more than $200 million. After over three days of deliberation, Lauer was found not guilty of conspiracy in connection with the alleged scam and the charge of wire fraud.

The government had accused Lauer and an associate of buying restricted stock of shell companies as far back as 1999 and telling brokers to purchase a smaller quantity of shares from the same company at higher, open-market prices so that a targeted price could be hit. Lauer allegedly would then falsely value the firm’s securities at higher closing prices. Prosecutors said this would artificially inflate the investment returns of the funds, resulting in lucrative fees for fund officials as new investors were drawn in. Lauer was also accused of creating bogus portfolios of the securities that Lancer Group held and getting falsely inflated appraisals of the shell companies. He and others allegedly made over $40 million.

In 2008, the Securities and Exchange Commission was granted summary judgment in its civil case against Lauer over related alleged misconduct. The court ordered him to pay about $62 million in disgorgement plus prejudgment interest. That securities fraud case is under appeal.

Lauer has always maintained that it was a shady consultant that damaged the hedge fund. Also acquitted of related criminal charges was Lancer manager Martin Garvey.

Related Web Resources:
Lancer Group Founder Michael Lauer Acquitted of Stock Fraud in Hedge Funds, Bloomberg, April 27, 2011

Lancer Founder Wins Acquittal, Hedgefund.net, April 27, 2011

Michael Lauer to Pay More Than $62 Million in Hedge Fund Fraud Case, SEC, May 8, 2009

More Blog Posts:
Juno Mother Earth Asset Management LLC and Its Founders Face SEC Securities Fraud Lawsuit Over Alleged $1.8M Looting of Hedge Fund Assets, Institutional Investors Securities Blog, March 23, 2011

Trueblue Strategies LLC Owner Settles SEC Charges that He Hid Investor Trading Losses in Hedge Fund Case, Institutional Investor Securities Blog, December 18, 2010

Allegations Against Goldman Sachs in $56M Securities Fraud Lawsuit Meet Morrison Standard, Says Australian Hedge Fund, Institutional Investor Securities Blog, September 14, 2010

AG Edwards & Sons (Wells Fargo Advisors) to Settle Securities Charges it Sold Variable Annuities that Lacked Proper Documentation to Elderly Clients

Published on: May 4, 2011 | by Shepherd Smith Edwards & Kantas, LLP

Missouri Secretary of State Robin Carnahan says that A.G. Edwards & Sons LLC will pay $755,000 to settle charges over improper annuity sales. The financial firm allegedly sold variable annuities without the necessary documentation to elderly clients. The Missouri’s Securities Division, AG began its investigation because an 18-year-old Missouri resident reported noticing irregularities after the liquidation of a variable annuity.

Per the investigation’s findings, AG Edwards, now known as Wells Fargo Advisors after Wachovia Corp. acquired it and the latter was later acquired by Wells Fargo & Co. (WFC), sold the annuities to elderly clients but failed to maintain proper records of transactions. This lack of proper documentation prevented the annuity sales, which occurred between July 2006 and June 2007, from being in compliance with company policy and state law.

At least 31 Missouri investors were affected by this oversight. They will receive $381,993. The Missouri Investor Education and Protection Fund will get $375,000. The Missouri’s Securities Division will be reimbursed the $50,000 it cost to probe the investor complaint.

In a release issued last month, Carnahan said that she appreciated AG Edwards’s willingness “to work with my office.” She also reminded investors that if they believe their investment is at risk, they can always contact her office for help. Meantime, Wells Fargo Advisors says it is pleased that these “legacy issues” have been resolved.

More Blog Posts:
Protect Yourself from Texas Securities Fraud by Making Sure that the Company or Agent that Sells You Annuities Has a Valid Insurance License, Stockbroker Fraud Blog, March 13, 2010
Market Timing Violations Against AG Edwards & Sons Inc. Supervisors and Broker Upheld by the SEC, Stockbroker Fraud Blog, October 17, 2009 Continue Reading ›

Morgan Stanley & Co. and TD Ameritrade Inc. to Repurchase Over $338M in Auction Rate Securities from New Jersey Investors

Published on: May 4, 2011 | by Shepherd Smith Edwards & Kantas, LLP

Morgan Stanley & Co. Inc. (MS) and TD Ameritrade Inc. (AMTD) will buy back over $338 million in auction rate securities from New Jersey investors. The repurchase is to settle securities allegations by the state’s attorney general that the financial firms did not adequately disclose the risks involved with investing in ARS.

Per the settlement, Morgan Stanley (the ARS underwriters) will repurchase $322.27 in ARS that it sold to retail investors and pay civil penalties of $1.56 million. The New Jersey Bureau of Securities claims that not only did the financial firm fail to tell investors of the risks involved in the financial instruments—even after knowing the ARS market was in trouble—but Morgan Stanley also failed to adequately train financial advisers and brokers about the possible illiquidity that could impact ARS.

TD Ameritrade (the ARS distributor) will buy back $16.1 million in ARS. The bureau claims that the broker-dealer’s registered representatives failed to inform clients of the risks involving ARS.

In a release issued late last month, Thomas R. Calcagni, Acting Director of the Division of Consumer Affairs, said that efforts have led to financial firms either buying back or offering to repurchase over $2.7 billion in ARS. The settlements with Morgan Stanley and TD Ameritrade are the ninth and tenth ones that the Division has reached with firms that sold ARS to investors. Earlier this year, UBS agreed to buy back $1.5 billion in ARS from New Jersey investors.

Morgan Stanley Consent Order (PDF)

TD Ameritrade Consent Order (PDF)

More Blog Posts:
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, Institutional Investor Securities Blog, April 21, 2011

Class Auction-Rate Securities Lawsuit Against Raymond James Financial Survives Dismissal, Stockbroker Fraud Blog, September 27, 2010

Tribune Bondholders Can Sue Shareholders for Over $8.2B

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

A bankruptcy court judge has cleared the way for Tribune Co. (TRBCQ) bondholders to file securities complaints in state court against ex-shareholders who made money from the 2007 leveraged buyout that is thought to have caused the media giant’s demise. They contend that for real estate magnate Sam Zell to raise the money to pay off the shareholders and gain control of the Tribune, the company ended up taking on level of debt that it could not sustain and which resulted in bankruptcy in 2008.

The bondholders claim that the 2007 buyout was made at their expense and they want to get back the over $8.2 billion that was paid out to ex-shareholders. Unfortunately, seeing as there are billions of dollars in secured debt, it is not likely that bondholders will recover all of the over $2 billion in notes that the media giant issued before the buyout unless creditors prevail in their lawsuits against shareholders, Zell, lenders, and other parties.

The bondholders needed to get permission to file their lawsuits outside the bankruptcy court. Led by Aurelius Capital Management, they say the action was necessary because the statute of limitations for pursuing such claims under state laws in Illinois and Delaware ends in June, when it will have been four years since the buyout. The bondholders are worried that Tribune, which is based in Illinois, won’t get out of bankruptcy by then. Possible securities lawsuit targets are the Robert R. McCormick Foundation, which sold $1.5 billion in company stock for a $963 million profit for the buyout and Stark Investments, a hedge fund that invested in Tribune.

Related Web Resources:

Bondholders Can Sue Over Tribune, The Wall Street Journal, April 27, 2011

More Blog Posts:

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

Lincoln Financial Advisors Corp. Ordered by FINRA to Pay Wright Family Trust $1.6M

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

A Financial Industry Regulatory Authority arbitration panel says that Lincoln Financial Advisors Corporation must pay the Wright Family Trust $1.6M over securities claims related to investments that were made in a number of funds. Andrew and Blenda Wright, the claimants, alleged fraud, negligent misrepresentation, intentional misrepresentation, breach of fiduciary duty, failure to supervise, elder abuse, unauthorized and unsuitable transactions, and breach of contract. Other respondents named in the claim are Rollance Vekennis and John Marshall.

The claims are related to the investments made in:
• Rye Select Broad Market Fund, which is a Bernard L. Madoff Investment Services LLC feeder fund
• Johnston Asset Management International Equity Fund
• Mount Yale Large Cap Growth Fund
• Mount Yale Mid Cap Growth Qualified Fund
• Mount Yale Large Cap Value Qualified Fund
• Mount Yale Small Cap Qualified Fund
• Kinetics Advisers Institutional Partners Fund

The claimants had sought $1.5 million in compensatory damages.

The FINRA panel has ordered the respondents to pay $1.17 million in compensatory damages, including 10% annual interest between the date of the award and the time it is paid. Lincoln Financial must also pay another $590,000 in compensatory damages (also with 10% yearly interest until paid), the $600 initial filing fee, $22,800 in hearing session fees, and $8,550 in member fees.

Related Web Resources:

FINRA

More Blog Posts:
SEC Approves FINRA’s Proposal to Give Investors an All-Public Arbitration Panel Option, Stockbroker Fraud Blog, February 12, 2011

Linsco Private Ledger Clients File FINRA Arbitration Claims Accusing Former Financial Adviser Raymond Londo of Running Multi-Million Dollar Ponzi Scam, Stockbroker Fraud Blog, April 13, 2010

SEC is Finalizing Its Whistleblower Rules, Says Chairman Schapiro

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

In an interview with AdviserOne, Securities and Exchange Commission chairman Mary Schapiro spoke about the agency’s new Whistleblower Office. The office was created per a Dodd-Frank mandate that entitles individuals who voluntarily give the Commission original information leading to an SEC enforcement action and other related actions a reward.

Schapiro says that the SEC is in the process of “finalizing” its whistleblower rules. She also noted that the agency’s newly acquired whistleblower authority is increasing the quantity of quality tips it is receiving, which should allow for better enforcement. The SEC receives thousands of tips annually.

Schapiro says that under a new Tips, Complaints, and Referral System, tips can all be placed in one database that will allow the information to be shared throughout the agency. She said that the previous inability to share information was a factor in the Madoff Ponzi scam that bilked investors of billions.

Prior to Dodd-Frank, the SEC could only award whistleblowers in insider trading cases. There was, however, a cap of 10% of the penaliteis collected in the action.

Whisteblower Awards
To be considered for an award, a whistleblower will have to provide information that results in successful enforcement action or an administrative one that leads to monetary sanctions of over $1 million. The whistleblower could receive 10-30% of the total sanctions collected. The amount awarded will depend on the type of help the whistleblower provided and the significance of the information given.

Also, the information from the whistleblower needs to either have led to a new investigation or examination, or if the alleged misconduct was already under investigation, then the whistleblower needs to have provided information that couldn’t have been obtained otherwise and was key to the action’s success.

Our securities fraud law firm represents victims of investment fraud and other financial scams.

More Blog Posts:
Ex-UBS Employee Can Proceed with Her Whistleblower Claim, Says District Court, Institutional Investor Securities Blog, February 15, 2011 Why Whistleblowers Should Act Quickly and Consult Competent Legal Counsel, Stockbroker Fraud Blog, December 18, 2010
Whistleblower Sues Moody’s Investors Service for Defamation, Stockbroker Fraud Blog, September 15, 2010 Continue Reading ›

Texas Commodity Trading Advisor FIN FX LLC Now Subject to NFA Emergency Enforcement Action

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

The National Futures Association has taken an emergency enforcement action against FIN FX LLC (FINFX) and its principal Leon L. Wolmarans. FIN FX LLC is a Texas Commodity Trading Advisor.

According to NFA, FIN FX LLC and Wolmarans used misleading and false information to solicit customers. The advisor even allegedly published deceptive performance claims on its company Web side and not cooperating with the NFA during the latter’s examination of the financial firm.

NFA’s Executive Committee has issued an Associate Responsibility Action (ARA) and a Member Responsibility Action (MRA) against Wolmarans and FIN FX LLC. The two are also suspended from NFA membership and are not allowed to solicit or accept money from investors or customers or solicit investments from investment vehicles. They also cannot transfer or disburse funds from any commodities, securities, forex, or any other accounts without NFA approval first. The enforcement actions will stay in effect until FIN FX and its principal show that they are now in compliance with NFA requirements.

If you are someone who suffered financial losses because a financial adviser gave you misleading information, you may be the victim of investment adviser fraud. Our Texas securities fraud lawyers know how upsetting it can be to lose money after placing your trust in someone who should have been helping you make decisions that are in your best financial interests. Fortunately, there may be a way to recoup your losses.

Related Web Resources:
NFA takes emergency enforcement action against Texas CTA FIN FX LLC and its principal, ForexMagnates, April 26, 2011
National Futures Association

More Blog Posts:
Texas Securities Fraud: FINRA Suspends Pinnacle Partners Over Failure to Comply with Temporary Cease and Desist Order Involving “Boiler Room” Operation, Stockbroker Fraud Blog, April 19, 2011
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 Continue Reading ›