Investor Lawyers Blog

Ex-Triton Financial CEO Accused of Using NFL Contacts to Commit $50M Texas Securities Fraud

Published on: February 17, 2011 | by Shepherd Smith Edwards & Kantas, LLP

Kurt Branham Barton, the former CEO of Triton Financial, a financial firm based in Austin, Texas, has been indicted on 33 counts, including Texas securities fraud, money laundering, and wire fraud. Barton allegedly used ex-NFL stars and church contacts in a $50 million Ponzi scam.

The American-Statesman reports that beginning in 2002, Barton accumulated a number of partnerships and companies based around Triton Financial. He even hired ex-NFL stars Chris Weinke and Ty Detmer to persuade clients to invest. Many investors belonged to the Church of Jesus Christ of Latter-day Saints (Barton is also a member).

Court documents contend that Barton got investors to give him over $50 million and that he used the funds to live a lavish lifestyle that included expensive vehicles, flying in private planes, and a luxury box for watching University of Texas football games. He also made money in political campaign contributions.

By 2009, however, several securities fraud complaints had been filed. Investors accused Barton of misleading them about where their money would go. The Securities and Exchange Commission would go on to file a securities fraud lawsuit against Triton Financial and Barton, and the Texas State Securities Board has stripped him of his investment adviser license.

The indictment accuses Barton of lying about his investments to investors regulators and of creating “false, fictitious, and fraudulent limited partnerships. He also allegedly used an E-Trade statement that showed his holdings had a balance of over $3 million even though the actual balance was $3,161.17. Barton is accused of giving regulators “altered and fabricated documents” about his business dealings.

A judge has placed Triton Financial in receivership. Per the receiver’ statement on January 31, 2011, over 600 investors have made $63.3 million in securities fraud claims against the financial firm and its ex-CEO.

Related Web Resources:
Former Triton chief indicted on charges of money laundering and fraud, Statesman, February 15, 2011
Broker indicted in fraud with NFL stars, KXAN, February 16, 2011
Read the Indictment (PDF)

More Stockbroker Fraud Blog Posts:
Texas Securities Act Control Person Claims against Merrill Lynch Pierce Fenner & Smith Inc. is Revived by Appeals Court, Stockbroker Fraud Blog Posts, January 20, 2011
R. Allen Stanford’s Criminal Trial Over $7 Billion Ponzi Scam Delayed So He Can Detoxify from Medication Addiction, Stockbroker Fraud Blog Posts, January 11, 2011
ALJ to Determine Whether to Revoke Registration of STS-Advisors Ltd. and Investment Adviser Representative Richard Lewis Bruce Over Alleged Texas Securities Fraud, Stockbroker Fraud Blog Posts, January 7, 2011 Continue Reading ›

Ex-Goldman Sachs Broker’s Request for SEC Help in Obtaining Documents from Germany Denied by District Court

Published on: February 17, 2011 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. District Court for the Southern District of New York says it will not direct the Securities and Exchange Commission to contact German authorities on behalf ex-Goldman Sachs & Co. (GS) executive Fabrice Tourre, who is seeking to obtain certain documents related to the securities fraud case against him. Per Magistrate Judge Michael Dolinger’s ruling, a discovery request based on Federal Rule of Civil Procedure 34(a) doesn’t “extend” to having a
“government agency make requests to a foreign government under the terms of” a memorandum of understanding between both parties. Dolinger notes that while MOU between the SEC and its German equivalent allows both regulators to help each other in the enforcement of their respective securities laws, “there is no indication” that the MOU is supposed to offer a right or a benefit to a private party, such as allowing a securities fraud litigant to obtain discovery in Germany.

The SEC charged Goldman Sachs and Tourre over alleged misstatements and omissions related to collateralized debt obligations called Abacus 2007-AC1, a derivative product linked to subprime mortgages. The broker-dealer settled its securities case for $550 million. Meantime, Tourre, who is accused of giving Goldman Sachs “substantial assistance” in its alleged efforts to mislead investors, is seeking to have the SEC case against him dismissed. He is pointing to Morrison v. National Australia Bank Ltd., a US Supreme Court decision that was issued two months after the SEC filed charges against him.

This week, his lawyers argued that the SEC was attempting to circumvent the Supreme Court ruling, which limits the reach of civil claims over acts that occurred outside the country. The transactions involving Tourre that are under dispute took place abroad.

Goldman’s Tourre Shouldn’t Face SEC Lawsuit, His Lawyers Say, Bloomberg Businessweek, February 15, 2011

The SEC Complaint (PDF)

Money Market Fund Portfolio and “Shadow NAV” Information Now Available to the Public, Says SEC

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

The Securities and Exchange Commission says that investors can now access detailed data about money market funds, including their portfolio’s market-based price, called its “shadow NAV” (net asset value). The public can now access this information, which will be updated regularly, on the SEC’s website through the Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system.

It was just last year that the SEC adopted a rule that requires money market funds to submit information about their portfolio valuations and holdings. SEC Chairman Mary L. Schapiro says that the Commission believes that the public disclosure of this data will help market analysts and investors in evaluating mutual funds.

Per the new rule, the SEC will make available within 60 days the information that the funds file on new Form N-MFP. Money market funds also must now post current portfolio data on their on Web sites within five business days after the month has ended.

According to a study released last month by the Investment Company Institute, money funds’ market value usually adhere to the stable $1 net asset value unless there are unusual market conditions. ICI is the national association for mutual funds.

ICI report says that per securities laws, money funds can offer shares at a stable $1 NAV as long as per-share values remain within one-half cent of $1. Also, between 2000 and 2010, money funds’ average shadow price shifted between $0.998 and $1.002. During this time, the market underwent significant valuations in asset prices and interest rates. For the money fund’s market value to fluctuate beyond one-half cent of the $1 NAV, certain market condition changes would have to occur, such as investor net redemptions hitting 80% of a fund’s assets, short-term interest rates going up by over 300 basis points in a day, and a 100 basis point rise in interest rates added to investor redemptions of 70% of a fund’s assets.

Related Web Resources:
SEC Releases Money Market Fund Portfolio and “Shadow NAV” Information to the Public, SEC, January 31, 2011
The ICI Report (PDF)

More Blog Posts on Money Market Funds:
SEC is working on issues related to asset-backed securities, credit ratings, and money market mutual funds, says Schapiro, Stockbroker Fraud Blog, January 31, 2011
US Treasury Department Extends Money Market Fund Guarantee Program Through April 2009, Stockbroker Fraud Blog, December 10, 2008 Continue Reading ›

Ex-UBS Employee Can Proceed with Her Whistleblower Claim, Says District Court

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

The U.S. District Court for the District of Connecticut says that ex-UBS (UBS) employee Mary Barker’s whistleblower claim alleging that she was retaliated against for she reporting a purported accounting mistake can move forward. Her Age Discrimination in Employment Act claim, however, was dismissed.

Barker, who used to work UBS’s Stamford, Conn. Office, was given the responsibility of reconciling UBS’s existing exchange seat shares with old company records in December 2006. The valuation had to take place because UBS’s holdings of exchange seat assets were redistributed after the Commodity Exchange Inc. and the New York Mercantile Exchange merged.

Barker allegedly found that some of UBS’s historical exchange seat holdings had either not been accounted for or had been improperly accounted on the financial firm’s balance sheet. UBS went on to realize that about $80 million from the sale of exchange seats had been overlooked.

Barker told her manager about the brokerage firm’s alleged failure to disclose the seat holdings in February 2007. She says that not only did her manager fail to report her findings, which violated federal securities laws, to upper management, but also, her worries were never addressed. She says that her interactions with other UBS officials over the matter were similarly unsatisfying.

Despite getting a “Thank You Award” for her efforts, Barker says that UBS began to take retaliatory action against her. Not only did she get a poor review rating that year and fail to get a salary bump the following year, but also she was passed over for a promotion and her complaints were disregarded. In May 2008, Barker was told that the financial firm was letting her go due to a general reduction in UBS’ workforce.

Related Web Resource:
Barker v. UBS AG

More Blogs on Whistleblower Cases:

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

TD Ameritrade Inc. Settles SEC Securities Fraud Charges Over Reserve Yield Plus Fund Shares for $10M

Published on: February 14, 2011 | by Shepherd Smith Edwards & Kantas, LLP

TD Ameritrade Inc. (AMTD) has settled Securities and Exchange Commission charges that it failed to reasonably supervise its representatives, some who sold shares of the Reserve Yield Plus Fund to clients. As part of the settlement, TD Ameritrade will pay $10 million to eligible customers who are still fund shareholders.

According to the SEC, TD Ameritrade representatives offered and sold Reserve Yield Plus Fund shares to customers before September 16, 2008. The SEC contends that the representatives “mischaracterized” the fund as a money market fund, making it seem as if the fund had guaranteed liquidity while allegedly failing to discloses the risks involved with this type of investment. In September 2008, the fund “broke the buck” when its assets’ value fell lower than the level required to cover each dollar that had been invested in the fund.

The SEC also claims that TD Ameritrade lacked an adequate supervisory system or policies to stop its representatives’ misconduct that led to investors’ losses. Clients eligible to receive money from the settlement should get receive 1.2 cents per share.

The SEC says that it is essential that customers are given adequate information about investment instruments and that broker-dealers must properly train and supervise their representatives to give clients this important information. The SEC said that thousands of TD Ameritrade customers still hold most of the Yield Plus Funds shares. They got approximately 95% of its original investments after the fund liquidated its assets.

By agreeing to settle, the TD Ameritrade Inc. is not denying or admitting to the misconduct.

Related Web Resources:
SEC announces $10M settlement with TD Ameritrade, AP/Yahoo, February 3, 2011
SEC Charges TD Ameritrade for Failing to Supervise Its Representatives Who Sold Shares of the Reserve Yield Plus Fund, SEC, February 3, 2011
Securities Fraud Attorneys

Related Blog Posts on SEC Settlements:
AXA Rosenberg Entities Settle Securities Fraud Charges Over Computer Error Concealment for Over $240M, Stockbroker Fraud Blog, February 10, 2011
Ex-Portfolio Managers to Pay $700K to Settle SEC Charges that They Defrauded the Tax Free Fund for Utah, Stockbroker Fraud Blog, January 22, 2011
Schwab Settles for $119M SEC Charges It Allegedly Misled YieldPlus Fund Investors, Stockbroker Fraud Blog, January 17, 2011 Continue Reading ›

SEC Approves FINRA’s Proposal to Give Investors an All-Public Arbitration Panel Option

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

The Securities and Exchange Commission has approved the Financial Industry Regulatory Authority’s proposal to give investors the choice of having their securities claims against broker-dealers heard by an arbitration panel that doesn’t include any industry members. FINRA says that its Rule 12403, which lets investors choose between a majority-public panel and all-public panel, will go into effect right away. Arbitration cases that began prior to the SEC’s decision to approve the proposal will be notified of this new rule.

Prior to submitting its proposal to the SEC, FINRA tested the idea as a pilot program for more than two years. FINRA says that while investors regularly chose to have nonpublic arbitrators hear their securities case, it became clear that giving them other options improved their perception that the arbitration process was a fair one.

State securities regulators are praising the SEC’s decision. However, they are calling for even more reform.

Optional All Public Panel Rule 12403(d):
FINRA will send the parties three lists. One list will contain the name of 10 non-public arbitrators. The other list will name 10 chair-qualified public arbitrators. The other list will name 10 public arbitrators. Each party will be able to strike up to four arbitrators from the public and chair-qualified lists. Parties can strike the names of all 10 arbitrators from the non-public arbitrator list.

Majority Public Panel Rule 12403(c):
This panel will include one non-public arbitrator, one public arbitrator, and one chair-qualified public arbitrator. The same three lists as the ones mentioned for the All Public Panel will be sent to the parties. Up to four arbitrators from each list can be struck.

Related Web Resources:
Notice to Parties – New Optional All Public Panel Rules, FINRA

SEC Approves FINRA Proposal to Give Investors Permanent Option of All Public Arbitration Panels, FINRA, February 1, 2011

Related Blog Posts:
FINRA Wants to Make All-Public Arbitration Panel for Investors Permanent, Stockbroker Fraud Blog, October 7, 2010
Number of FINRA Arbitration Claims Rose in 2009 Following Market Crisis, Stockbroker Fraud Blog, January 13, 2010
FINRA Says Number of Stockbroker Fraud Arbitration Claims by Plaintiffs is Rising, Stockbroker Fraud Blog, July 14, 2009 Continue Reading ›

Credit Suisse Broker Previously Convicted for Selling High Risk ARS is Barred from Future Securities Law Violations

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

Credit Suisse Securities (USA) LLC (CS) broker Eric Butler is permanently barred from future violations of securities laws. The U.S. District Court for the Southern District of New York granted the Securities and Exchange Commission’s motion for the permanent injunction late last month.

Butler was convicted of criminal charges related to the unauthorized sale of more than $1 billion in subprime-related auction-rate securities to clients. A jury found him guilty of three counts of securities fraud and he was sentenced to five years in prison. Butler is appealing is sentence and conviction.

The SEC’s securities fraud‘s complaint in 2008 against Butler and co-defendant Credit Suisse broker Julian Tzolov accused the two men of engaging in a bait-and-switch approach that left unsuspecting foreign corporate customers with high-risk ARS, rather than the more conservative financial products they had given the defendants permission to buy. The collapse of the ARS market left clients with $800 million in illiquid products.

According to the court, the SEC made a motion for summary judgment against Butler on the grounds of collateral estoppel related to the criminal case against him. The commission also sought to permanently bar him from future violations. Meantime, Butler opposed the injunctive relief and summary judgment on the grounds that the criminal case did not “necessarily” decide the issues in this case, he was not given the fair and complete opportunity to litigate the criminal charges against him, and the SEC was not entitled to injunctive relief. The district court, however, determined that the criminal case did “actually” decide the issues the SEC wanted to establish by collateral estoppel and that given the circumstances “totality,” it was appropriate to permanently bar Butler from future SEC violations.

Related Web Resources:

Ex-Credit Suisse Broker Butler Gets Five-Year Prison Sentence, Bloomberg, January 23, 2011

Related Web Posts:
Judge Gives Lower Sentence to Former Credit Suisse Broker Convicted of Auction-Rate Securities Fraud, Stockbroker Fraud Blog, January 30, 2010

Will Two Former Credit Suisse Group AG Brokers Convicted of Securities Fraud Get More Lenient Sentences Because of Industry’s “Culture of Corruption?”, Stockbroker Fraud Blog, August 21, 2009

Ex-Credit Suisse Broker Who Pleaded Guilty to Securities Fraud for Role in Auction-Rate Securities Scam Knew in Late 2007 that Clients’ Funds Were in Trouble, Stockbroker Fraud Blog, July 29, 2009

AXA Rosenberg Entities Settle Securities Fraud Charges Over Computer Error Concealment for Over $240M

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

AXA Rosenberg Investment Management LLC (ARIM), AXA Rosenberg Group LLC (ARG), and Barr Rosenberg Research Center LLC (BRRC) have agreed to pay over $240 million to settle administrative securities fraud charges that they hid an important error in the computer code of the quantitative investment model used for managing client assets. The Securities and Exchange Commission says the error resulted in investor losses worth $217 million. As part of the settlement, the three Axa Rosenberg entities will repay the investors who sustained financial losses, as well as a $25 million penalty.

The SEC says that the institutional money manager’s concealment of “material error in its computer code” from investors was a violation of federal securities laws. The commission also claims that the three entities made material misrepresentations, such as failing to disclose the error or its effect and did not properly represent “the model’s ability to control risks.”

Per the charges, the error, which was discovered by ARG and BRRC senior managers in June 2009, disabled a key risk-management component. Instead of fixing the problem right away, senior management told others not to reveal the error, which they did not remedy at the time.

The SEC says that quantitative investment managers have been known to “isolate their complex computer models from the firm’s compliance and risk management function” in an attempt to protect trade secrets.” The SEC also claims that BRRC failed to implement and adopt compliance procedures and policies to make sure the model would work as intended. Although the error was eventually remedied, ARG’s Global CEO was not notified of it until five months after its discovery.

As of last December, Axa Rosenberg Group LLC said that as “the specialist active global equity investment management firm” managed over $31 billion in assets. ARG is the holding company of investment advisers ARIM, which used the investment model to manage client portfolios, and BRRC, which developed the quantitative investment model’s code.

Related Web Resources:
SEC Charges AXA Rosenberg Entities for Concealing Error in Quantitative Investment Model, SEC, February 3, 2011
Read the corrected SEC order (PDF)

More Blogs on SEC Enforcement:
Ex-Portfolio Managers to Pay $700K to Settle SEC Charges that They Defrauded the Tax Free Fund for Utah, Stockbroker Fraud Blog, January 22, 2011
Schwab Settles for $119M SEC Charges It Allegedly Misled YieldPlus Fund Investors, Stockbroker Fraud Blog, January 17, 2011
Broker Settles SEC Charges He Defrauded Elderly Nuns, Stockbroker Fraud Blog, January 13, 2011 Continue Reading ›

CalPERS Files Securities Fraud Lawsuit Against Lehman Brothers

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

The California Public Employees’ Retirement System is suing Lehman Brothers Holdings Inc., its ex-executives, and a number of bond underwriters for fraud and of making materially false statements about mortgage-backed securities losses. CalPERS, a $229 billion public pension fund, owned about $700 million Lehman bonds and 3.9 million shares of Lehman bonds when Lehman filed for bankruptcy in September 2008. Because of the economic crisis, CalPERS funds lost $100 billion in value from September 2008 and March 2009.

In its securities fraud complaint, CalPERS accused Lehman of “dramatically” borrowing to fund its real estate investments from 2004 to 2007—high-risk activity that investors were not told about. Other defendants include ex-Lehman Chief Executive Richard S. Fuld Jr., ex-Lehman Chief Financial Officers Erin Callan and Christopher O’Meara, 9 Lehman directors, and 33 others firms, including Wells Fargo Securities, Citigroup Global Markets Inc., and Mellon Financial Markets. The defendants allegedly failed to disclose not just Lehman’s exposure to Alt-A lending and subprime, but also its mortgage-related assets’ true value.

This securities complaint is CalPERS second action against members of Wall Street that sold mortgage-backed securities. In July 2009, CAlPERS sued Standard & Poor’s, Moody’s Investors Services Inc., and Fitch Inc. The complaint accused the financial rating companies of giving top grades to bonds that ended up sustaining huge financial losses when the subprime mortgage securities market collapsed.

Also, CalPERS has a shareholder lawsuit against Bank of America Corp. (BAC) over its Merrill Lynch acquisition. The pension fund also has a case against BofA’s Countrywide Financial.

Related Web Resources:

CalPERS suit accuses Lehman Bros. of fraud, Los Angeles Times, February 9, 2011

CalPERS

SEC to Examine Muni Bond Market Issues During Hearings in Texas and Other States

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

The Securities and Exchange Commission is expecting to accelerate its regulatory and enforcement activity over the $2.8 trillion municipal bond market. The SEC will be holding hearings in a number of US states, including Texas, to go over Muni bond market issues.

Among the issues likely to receive attention from the SEC:
• “Conduit” financing, which involves bonds sold by municipal entities for third parties, including private companies and colleges.
• The need for practical, applicable guidance for state and local officials that is more specific than the prohibitions provided under Section 17(a) of the 1933 Securities Act and Section 10(b) of the 1934 Securities Exchange Act.

Although municipal securities issuers are exempt from SEC registration, reporting, and disclosure requirements-per the 1934 Act’s Tower Amendment-they still have to abide by the commission’s antifraud provisions. The SEC has also sent compliance messages to issuers, improved disclosures, and discouraged bid-rigging, pay-to-play and other bad conduct.

Among its recent enforcement efforts, the SEC is investigating bond issuances in Rhode Island. It is also is looking into disclosures over Illinois’ funding of pension plans.

SEC Commissioner Elisse Walter will lead the hearings in Texas, Florida, Illinois, and Alabama this year. Staff will then put together a report that will include recommendations for legislative and regulatory changes and “best practices.”

Related Web Resources:
Second SEC Municipal Market Hearing Continues to Raise Disclosure, Tower Amendment Issues, NCSHA, December 15, 2010
SEC Sets Field Hearings on State of Municipal Securities Markets, SEC, September 7, 2010