Investor Lawyers Blog

Texas Securities Fraud: SEC Charges Talk Radio “MoneyMan” Over Promissory Note Offerings

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

The Securities and Exchange Commission has charged Daniel Frishberg, a Houston businessman and the host of Business Radio Network’s “The MoneyMan” show, with fraudulent conduct related to promissory note offerings that his investment advisory firm made to clients. Frishberg, who founded BizRadio and heads up Daniel Frishberg Financial Services (DFFS), has agreed to settle the Texas securities fraud charges with a $65,000 penalty. By settling, Frishberg is not denying or admitting to the alleged wrongdings. He has, however, agreed to an entry of permanent injunction and consented to a bar from associating with certain registered entities, including other investment advisers.

DFFS allegedly advised clients to invest in notes that BizRadio had issued. Some $11 million promissory notes were put out. The offering reportedly generated approximately $5.5 million between April 2008 and September 2009.

According to the SEC, Frishberg did not tell clients that his media company was in poor financial health or that the note offerings helped pay his salary at BizRadio. Instead, he allegedly approved high risk recommendations without properly disclosing the conflicts and risks. Frishberg also “personally benefited” from these investments.

Also offering the notes was Kaleta Capital Management, whose owner, Albert Fase Kaleta, jointly controls BizRadio with Frishberg. In 2009, Kaleta and his financial firm were charged with securities fraud. Frishberg is accused of knowing that prior complaints had been made about Kaleta and his handling of sales representations related to other investments yet still opting to have him recommend the promissory notes.

The SEC contends that Frishberg has violated the Investment Advisers Act of 1940’s Section 206(2). He also allegedly abetted and aided violations of Sections 206(1) and 206(2) of the Advisers Act.

Related Web Resources:
SEC Charges Houston-Area Businessman and Talk Radio “MoneyMan” for Fraudulent Conduct at Advisory Firm, SEC, March 25, 2011
SEC charges radio personality with fraud, Investment News, April 5, 2011
The Money Man Report

Investment Advisers Act

More Blog Posts:
Motion to Dismiss SEC Lawsuit Accusing Dallas Billionaire Brothers of $500,000 Securities Fraud Denied, Stockbroker Fraud Blog, April 1, 2011
FBI Arrests Texas Leader of Pump-and-Dump Scheme, Stockbroker Fraud Blog, March 23, 2011
Dallas-Based Southwest Securities Settles for $500,000 FINRA Charges It Improperly Used Paid Consultants, Stockbroker Fraud Blog, March 17, 2011 Continue Reading ›

Motion to Dismiss SEC Lawsuit Accusing Dallas Billionaire Brothers of $500,000 Securities Fraud Denied

Published on: April 1, 2011 | by Shepherd Smith Edwards & Kantas, LLP

A district court has denied Charles and Samuel and Wyly’s motion to dismiss the SEC lawsuit accusing them of insider trading and running a 13-year securities fraud that generated $550 million in undisclosed gains. U.S. District Judge Shira Scheindlin says that the SEC did an adequate job of alleging the Texas billionaire brothers’ liability for fraud. She also said the federal agency adequately pled the concealment of sales in Michaels Stores Inc, Sterling Software, Scottish Annuity & Life Holdings Ltd., and Sterling Commerce Inc.

Last year, the SEC accused the brothers of setting up sham offshore trusts in the Cayman Islands and the Isle of Man to hide 13 years of stock sales, valued at over $750 million, in four companies that they founded.

The allegations were made following a six-year investigation. The SEC contends that with their improper gains, the brothers were able to acquire almost $100 million of real estate, purchase tens of millions of dollars in jewelry, art, and collectibles, and donate a great deal of money to charity. The agency also claims that the brothers either knew or were reckless if they didn’t know what their legal obligations were as public company owners directors and beneficial owners who owned more than 5%. Under the law, such persons have to report trading and holdings in their companies securities on Form 4 and Schedule 13D to the SEC. The SEC says that the brothers either knew or should have known that such disclosures are used by the investing public to get a sense of how a public company’s shareholders and insiders feel about prospects and financial conditions and that they depend on these disclosures to make investment decisions.

Judge Scheindlin also said that the SEC can pursue a claim accusing Dallas-based brothers of making $31.7 million from the alleged insider trading that they engaged in after they decided to sell Sterling Software in 1999.

Related Web Resources:
Billionaire Wyly Brothers Lose an Effort to Dismiss Insider-Trading Charges, NY Times, April 1, 2011
Wyly brothers lose bid to dismiss SEC fraud suit, Reuters, March 31, 2011
SEC Charges Corporate Insider Brothers With Fraud, SEC, July 29, 2010
Billionaire Brothers Samuel and Charles Wyly Charged With $550 Million Fraud, Daily Finance, July 30, 2010

More Blog Posts:
FBI Arrests Texas Leader of Pump-and-Dump Scheme, Stockbroker Fraud Blog, March 23, 2011
Dallas-Based Southwest Securities Settles for $500,000 FINRA Charges It Improperly Used Paid Consultants, Stockbroker Fraud Blog, March 17, 2011
Texas Securities Fraud: SEC Halts Alleged Ponzi Scheme in the Dallas-Fort Worth Area, Stockbroker Fraud Blog, March 2, 2011 Continue Reading ›

Number of Securities Class Action Settlements Reached in 2010 Hit Lowest Level in a Decade, Says Report

Published on: March 31, 2011 | by Shepherd Smith Edwards & Kantas, LLP

Per a new study by Cornerstone Research Inc., 86 securities class action settlements were approved in 2010-that’s significantly less than the 101 securities class action settlements that the courts approved in 2009. The settlements for last year’s cases totaled $3.1 billion. In 2009, the settlements reached $3.8 billion.

One reason for this may be that some securities class action lawsuits, including a number of complaints related to the 2007 – 2009 financial collapse, are taking a longer time to settle because they are likely more complex. Close to 200 securities class actions related to the credit crisis have been filed. Largest settlements under consideration include:

$624M – Countrywide Financial Corp.

AIG Reorganizes Property and Casualty Insurer Chartis

Published on: March 31, 2011 | by Shepherd Smith Edwards & Kantas, LLP

American International Group Inc. is reorganizing Chartis, its property and casual insurer, into two global groups—one consumer and one commercial. AIG executive vice president, finance, risk and investments Peter D. Hancock has been named Chartis’s chief executive officer, while current Chartis CEO Kristian P. Moor is to become vice chairman.

John Q. Doyle, who was formerly Chartis US’s CEO will head the global commercial business, while current chief administrative officer Jeffrey L. Hayman will be in charge of the global consumer business group. Both men will report to Hancock. The reorganization will section Chartis into four regions: U.S./Canada, Europe, Growth Economies, and Far East.

It was just this February that Chartis had to put aside $4.2 billion for loss reserve increases. According to AIG CEO Robert Benmosche, strengthening claims management, underwriting, risk management, and reserving so that the right risk-adjusted returns are earned remain top priorities. Benmosche promised to rebuild businesses needed to pay back the firm’s $182.3 billion government rescue. Benmosche, who is undergoing treatment for cancer, intends to step down in 2012.

Chartis has over 45 million clients internationally located in over 160 nations. Last year, the insurer wrote $31.6 billion in net premiums. Meantime, AIG’s stock performance has been less than stellar with a 26% drop since the start of the year.

Related Web Resources:
AIG Revamps Chartis, Makes Hancock Head After Reserve Boost, Bloomberg, March 31, 2011

Venezuelan Workers Fall Victim to Francisco Illarramendi’s Ponzi Scam

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

Our Stockbroker Fraud Blog and our Institutional Investor Securities Blog have been following the story of Michael Kenwood Capital Management, LLC principal Francisco Illarramendi, who recently pleaded guilty to securities fraud, investment adviser fraud, and conspiracy to obstruct justice, and wire fraud. Now, news that the Ponzi scam, which targeted clients overseas, may be impacting workers in Venezuela.

Illarramendi is Venezuelan-American. According to National Public Radio/AP, he was in charged of investing hundreds of millions of dollars from a state oil workers’ pension fund. Now, the Venezuelan government is attempting to recover what it can from the employee retirement fund for Petroleos de Venezuela, which put forth about 90% of the investment. Rafael Ramirez, Venezuela’s oil minister, says that any pension fund losses would be made up by the oil company. Per The Wall Street Journal, officials from the petroleum workers union are claiming that about $500 million was invested.

The monetary scope of the Ponzi scheme has not been verified. The Securities and Exchange Commission, however, has said that at one point Illarramendi gave over a bogus letter from an accountant in Venezuela in an effort to verify some $275M in nonexistent assets.

Prosecutors claim that Illarramendi transferred money between investment accounts without notifying clients, as well as falsified documents to fool his clients.
While all his investors are located abroad, the financial fraud scam has impacted startup technology companies in the US that depended on Investments from Illarramendi’s group.

If convicted, Illarramendi could end up serving up to 70 years behind bars.

Venezuelan Workers Caught Up In Conn. Ponzi Scheme, NPR/AP, March 30, 2011
Venezuela Oil Min: Working With US To Recover Pension Fund Money, The Wall Street Journal, March 27, 2011

Related Web Resource:
Petroleos de Venezuela

More Blog Posts:
Michael Kenwood Capital Management, LLC Principal Pleads Guilty to Securities Fraud Involving Ponzi Scam, Institutional Investors Securities Blog, March 17, 2011
Order to Freeze Assets in $53M Fund Fraud Allegedly Involving Michael Kenwood Asset Management LLC Obtained by SEC, Stockbroker Fraud Blog, February 21, 2011 Continue Reading ›

Impartiality of SEC Report by Boston Consulting Group Questioned by Key House Republicans

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

Rep. Randy Neugebauer (R-Texas), who is the Financial Services Oversight Subcommittee chairman, and Rep. Spencer Bachus (R-Ala.), the House Financial Services Committee chairman, have sent a letter to US Securities and Exchange Commission Chairman Mary Schapiro asking her about Boston Consulting Group Inc.’s recent report on the recent report on SEC reform. Even though BCG is an independent consultant, the two GOP members are questioning the report’s impartiality.

In their letter, they asked Schapiro to disclose what (if any) editorial input the SEC provided on the content of the BCG report. They also want to see any earlier drafts that BCG may have sent the SEC Chairman. Neugebauer and Bachus said that given the regulatory failures from the 2008 economic collapse, it was important that BCG was allowed compete independence to do its job and that the report did not undergo any editorial deletions, review, or insertions by the SEC.

Dodd-Frank Wall Street Reform and Consumer Protection Act’s Section 967 had directed the SEC to retain the services of an independent consultant to analyze the agency’s structure and operation, as well as suggest reforms. BCG issued its report on March 10. Among its recommendations: for the SEC:

• Hire staff with “high-priority” skills
• Invest in key technology systems,
• Improve oversight over SROs (self-regulatory organizations)
• If Congress determines that the SEC cannot fulfill expectations by further optimizing its resources, the lawmaking body should “relax” funding constraints

BCG has said that it stands by the report’s “integrity and independence.” Meantime, Schapiro has said that the report confirms her own worries that the SEC lacks the resources to do all that it is expected to accomplish.

Our institutional investment fraud lawyers have successfully represented clients throughout the US.

Related Web Resources:
Integrity of report on SEC questioned, Washington Post, March 18, 2011

Statement From Chairman Schapiro on Independent Consultant Report of SEC Organization and Operations, SEC, March 10, 2011

Read the BCG Report (PDF)

SEC Needs to Keep a Closer Eye on FINRA, Says Report, Stockbroker Fraud Blog, March 15, 2011

SEC Securities Settlements Often Don’t Come with Admission of Wrongdoing

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

As Bloomberg News columnist Ann Woolner points out, in most US Securities and Exchange Commission where a settlement is reached, the defendant usually ends up not having to admit to doing anything wrong. Instead, the securities fraud agreement is accompanied by the boilerplate caveat that says that by settling, the plaintiff is doing so without “without admitting or denying” wrongdoing.

Granted, there are certain cases where a conviction or guilty plea in a related criminal case makes it clear that a wrongful action did take place. One might also say that by agreeing to settle and pay a huge financial sum, the plaintiff is admitting to the wrongdoing without actually admitting to doing anything wrong. However, as Woolner points, not all defendants of US Securities and Exchange Commission cases are also charged in criminal court over the alleged securities fraud. Even when a settlement is reached, without an admission, the exact nature of the fraud is often left unclear.

SEC spokesperson John Nestor says that of the over 600 securities lawsuits filed every year, only about 20 of them ever go to trial. Nestor notes that the SEC’s primary objective in any civil case is to secure the proper sanctions against wrongdoers and not making them admit wrongdoing is a way to get this done. Many violators will give up a great deal to avoid being held liable in civil court. They also have little incentive to confess because this could help the securities fraud lawsuits of plaintiffs.

U.S. District Judge Jed Rakoff says that letting securities defendants get away with not admitting what they have done is a “disservice to the public.” Meantime, SEC commissioner also says that he wants defendants to “take accountability” and “issue mea culpas.” He also wants companies to stop putting out press releases suggesting that the SEC overreacted.

Related Web Resources:
Uncle Sam Wants Your Cash, Not Confession: Ann Woolner, Bloomberg, March 24, 2011

US Securities and Exchange Commission

More Blog Posts:
Bank of America to Pay $137M Over Alleged Investment Scam To Pay Municipalities Low Interest Rates on Investments and $9M Over Alleged Bid-Rigging Scheme to Nonprofits, Institutional Investors Securities Blog, December 16, 2010

NJ Settles Municipal Bond Offering Fraud Charges with SEC, Institutional Investors Securities Blog, September 30, 2010

Federal Judge to Approve Citigroup’s $75M Securities Settlement with SEC Over Bank’s Subprime Mortgage Debt Reporting to Investors, Institutional Investors Securities Blog, September 29, 2010

FINRA Panel Orders Wedbush Securities to Pay $233,000 in Securities Fraud Damages

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

A Financial Industry Regulatory Authority (FINRA) arbitration panel says Wedbush Securities Incorporated must pay Karen E. Ray $233,000 in damages. Ray had accused the brokerage firm of numerous causes of action, including negligence, purposely negligent misrepresentations, and violating FINRA Rules of Fair Practices.

Rays case isn’t the first one against the broker-dealer. FINRA’s broker report on the financial firm noted that Wedbush has been at the center of a number of customer complaints and over 40 regulatory inquiries brought by the Securities and Exchange Commission, FINRA (previously NASD), the NYSE Division of Enforcement, as well as regulatory bodies in Colorado, Washington, New Jersey, Georgia, Idaho, and Oregon.

Among the allegations are those involving supervisory failures and market timing. The broker report also noted that Wedbush had received over 40 securities arbitration claims by customers alleging unsuitability, negligence, excessive margin, churning, misrepresentation, and/or breach of fiduciary duty. Their cases involved different kinds of securities, such as mutual funds, bonds, stocks, municipal securities, annuities, and options.

Prison Term for Broker Accused of Investment Fraud Affirmed by 7th Circuit Even Though Sentence Exceeds Guidelines

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

The U.S. Court of Appeals for the Seventh Circuit has affirmed broker Scott Schlueter’s 48-month prison sentence even though it exceeds sentencing guidelines. Schlueter is accused of conducting an investment scam that resulted in over $300,000 in financial losses for investors, who also happened to be friends of his.

Schlueter has admitted that rather than placing investors’ money in no-risk investments, he kept the funds while paying out interest from time to time. He has pleaded guilty to securities fraud, wire fraud, and mail fraud.

Although sentencing guidelines call for 33 to 41 months behind bars, the district court judge sentenced Schlueter to 48 months. The judge contends that the serious impact of the rogue broker’s actions was not accounted for in the sentencing guideline range and that an above-range sentence was “more than adequate” considering that Schlueter not just bilked investors of money they needed during “critical stages of their lives,” but he also took advantage of his friendships with investors to defraud them.

For example, one 75-year-old man ended up having to go back to work. Another investor, a widow, had to get a second job after she lost her insurance money.

Schlueter, who argued that he should only sentenced for two year because he had a tough childhood and suffered from alcoholism, contested the above-range sentenced. The appeals court, however, turned down his request down and affirmed the four-year sentence.

More Blog Posts:
Wall Street Targeting Older Investors With Structured Product Sales, Reports AARP, Stockbroker Fraud Blog, March 11, 2011
Increase of Structured Notes with Derivatives Sales Seduces Retirees, Reports Bloomberg, Stockbroker Fraud Blog, September 25, 2010
Combatting Elder Financial Fraud: SEC, NASAA, & FINRA Update Their Best Practices to Protect Senior Investor, Stockbroker Fraud Blog, August 29, 2010 Continue Reading ›

FINRA Wants Amerivet Securities Inc.’s Lawsuit Seeking to Inspect the SRO’s Records Dismissed

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

The Financial Industry Regulatory Authority wants the District of Columbia Court of Appeals to reverse the D.C. Superior Court’s decision to not dismiss Amerivet Securities Inc.’s lawsuit against the SRO. The broker-dealer wants to inspect FINRA’s records and books.

Amerivet Securities filed its complaint in August 2009 under the Delaware General Corporation Law’s Section 220, which lets a shareholder examine a company’s records and books for “any proper purpose.” The broker-dealer says it needs to inspect FINRA’s books and documents in order to expose the corporate wrongdoing related to the SRO’s 2008 investment losses and and allegedly inflated executive pay practices.

When our securities fraud attorneys covered this case more than a year ago, we noted that Amerivet had accused FINRA of failing to supervise and regulate a number of its larger member firms, including Lehman Brothers, Merrill Lynch, Bernard L. Madoff Investment Securities Inc., Bear Stearns and Co, and Stanford Financial Group. The broker-dealer also claimed that FINRA recklessly pursued high-risk investment strategies that were not appropriate for preserving capital. (Read our previous Stockbroker Fraud Blog post to find out more.) Last month, Judge John Mott ruled in favor of Amerivet and noted that pursuant to Section 220, the broker-dealer had asserted a proper purpose for wanting to make its inspection.