Investor Lawyers Blog

Ameriprise to Sell Securities America Even as it Finalizes Securities Settlement with Investors of Medical Capital Holdings and Provident Royalties Private Placements

Published on: April 26, 2011 | by Shepherd Smith Edwards & Kantas, LLP

In its first quarter earnings report, Ameriprise Financial (NYSE: AMP) says it intends to sell Securities America. The news comes while the financial firm is still in the process of finalizing its securities fraud settlement with investors accusing the brokerage unit of selling allegedly fraudulent private placements of Medical Capital Holdings and Provident Royalties.

Investors sustained about $400 million in losses after taking part in Medical Capital Holdings-sponsored debt sales and shale gas investments with Provident Royalties. Although originally Securities America had about $400 million in outstanding obligations, the proposed settlement is worth $150 million. The independent broker-dealer unit is accused of failing to do proper due diligence on millions of dollars in investments that it sold, which later proved to be worthless.

Investors who filed securities arbitration cases against Securities America will receive $70 million. Those who are seeking to get back their losses through a class action securities lawsuit will get $80 million. The financial firm could be facing over $300 million more in arbitration claims over the fraudulent placements.

There is speculation over why Ameriprise’s decision to sell comes now. Does this mean that the financial firm has other issues of concern, beside the securities allegations, with Securities America? The sale may also mean that Ameriprise has decided to focus on its core business.

Per the earnings report, Securities America entered into the settlement agreements last month. This has resulted in a $118 million pre-tax charge for Ameriprise during 2011’s first quarter, as well as the $40 million pretax charge it incurred during last year’s fourth quarter.

Related Web Resources:
Securities America Agrees To Settlement With Investors-Sources, The Wall Street Journal, April 13, 2011
Ameriprise profit up, selling Securities America, AP/Bloomberg Businessweek, April 25, 2011
Ameriprise profit up, selling Securities America, Bloomberg Business Week, April 25, 2011

More Blog Posts:
Texas Securities Fraud: Three FINRA Cases Against Securities America Over Sale of Private Placements Halted, Stockbroker Fraud Blog, February 22, 2011
Securities America Inc. to Pay $1.2M in Compensatory and Punitive Damages Over Allegedly Fraudulent Medical Capital Notes, Stockbroker Fraud Blog, January 6, 2011
Securities America & Ameriprise Financial Inc. Sued For Selling Allegedly Faulty Private Settlements, Stockbroker Fraud Blog, November 10, 2009 Continue Reading ›

AIG Trying to Get More Investors to Buy Life Settlements

Published on: April 26, 2011 | by Shepherd Smith Edwards & Kantas, LLP

American International Group Inc. (AIG) is trying to get credit-ratings firms and investors to get behind the sale of life settlements, which are securities backed by the life insurance polices of older people. Per the insurer’s recent proposal, a subsidiary of AIG’s Chartis property casualty unit would collateralize notes valued at $900 million with 1,157 policies. AIG would like to sell $250 million to outside investors.

So far, AIG’s efforts have been met with resistance. It doesn’t help that Standard & Poor’s won’t rate the securities, which could help rally investors. In fact, S & P’s March report emphasizes the securities “unique risks.” It doesn’t help that some critics call these securities “collateralized death obligations,” “blood pools,” or “death bonds” because they pay off upon the insured’s death.

Investors who buy life settlements are betting that the benefits they get upon the insured’s death will be greater than the cash they’ve paid for both the policy and its premiums. However, due to the 2008 credit crisis or because some of the insured ended up living longer than expected, many life settlement investors have lost money on these securities. Securities lawsuits have followed and the market has stayed depressed. AIG says that as of the end of 2010, it has paid over $177.8 million to settle 479 claims. In exchange, it received the policies. Per AIG’s financial filings, the insurer has about $18 billion in anticipated death benefits. That’s more than 1/3rd of the approximately $45 billion in these benefits that have changed hands in the last decade.

The Wall Street Journal reports that generally, life insurers consider investor ownership of policies—especially involving those betting on someone’s death—as not good for the industry. There are even some insurance companies that have gone to court claiming that they were misled buy buyers who said they wanted policies for estate planning when, in fact, they actually wanted to flip them for investors.

Our institutional investment fraud law firm are dedicated to helping investors recoup their losses.

AIG Tries to Sell Death-Bet Securities, The Wall Street Journal, April 22, 2011

Seniors Beware: What you should know about life settlements, FINRA

Life Settlement Securitizations Present Unique Risks, Standard and Poor’s

More Blog Posts:
Texas Lawyer Pleads Guilty to Involvement in Alleged $100M Life Settlement Scheme, Stockbroker Fraud Blog, December 7, 2010

Life Settlements or Viaticals should be Considered “Securities,” Recommends the SEC to Congress , Stockbroker Fraud Blog, August 5, 2010

Securitization of Life Insurance Settlements Might Lead to Next Financial Crisis, Say Lawmakers, Stockbroker Fraud Blog, September 27, 2009

Morgan Keegan Ordered by FINRA to Pay RMK Fund Investors $881,000

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

A Financial Industry Regulatory Authority arbitration panel is ordering Morgan Keegan to pay a group of investors $881,000 for losses they sustained in Morgan Keegan’s proprietary funds that were concentrated in high-risk subprime mortgage assets. Customers lost about $2 billion.

The Morgan Keegan funds that investors had placed their money in included the:
• RMK High Income Fund
• RMK Multi-Sector High Income Fund
• RMK Advantage Income Fund
• RMK Select Intermediate Bond Fund
• RMK Strategic Income Fund

The claimants alleged misrepresentations and omissions, unsuitable investments, breach of fiduciary duty, failure to supervise, negligence, vicarious liability, breach of contract, FINRA rule violations, and Securities and Exchange Act violations. The FINRA panel found Morgan Keegan liable to the claimants on a number of the claims and ordered the financial firm to pay the following in compensatory damages:

• $33,382 to Palmer and Kathy Albertine • $105,844 to Jon Albright • $254,642 to Susan and Sam Davis • $458,625 to Kendall and Peter Tashie
FINRA also ordered Morgan Keegan to pay $26,850 for all of the forum fees for the arbitration against the financial firm, $28,500 for the Claimaints’ expert witness fee, and $600 for the portion of the filing fee that is non-refundable. Morgan Keegan is a Regions Financial Corporation subsidiary.

Related Web Resources:
FINRA Rules

Securities and Exchange Act of 1934, Cornell University Law School
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
Morgan Keegan to Pay $9.2M to Investors in Texas Securities Fraud Case Involving Risky Bond Funds, Stockbroker Fraud Blog, October 6, 2010
Morgan Keegan & Co., Inc., Morgan Asset Management, and Two Employees Face Subprime Mortgage Securities Fraud Charges by SEC, Stockbroker Fraud Blog, April 8, 2010 Continue Reading ›

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