Investor Lawyers Blog

Schwab Must Pay SSEK Client $604,094 Over California Yield Plus Fund Investments, Says FINRA Arbitration Panel

Published on: April 22, 2010 | by Shepherd Smith Edwards & Kantas, LLP

Our stockbroker fraud law firm is happy to announce that a Financial Industry Regulatory Authority panel has awarded one of our clients her entire principal loss of $604,094 for her securities fraud claim related to the Schwab California Tax-Free Yield Plus Fund. The award is not part of Schwab’s $200 million class action settlement.

Like Schwab’s Yield Plus fund, SWYCX was marketed as an ultra short-term bond fund and an alterative to money market holdings or cash. In fact, not only were the securities illiquid, hard to value, untested, thinly traded, and highly vulnerable to market changes, but the fund was exposed to variable-rate bonds that were pegged to the London Interbank Offering Rate.

Phone conversations recorded by Schwab with our client confirm the investor’s desire for safety of principal for her assets. During such exchanges, Schwab represented SWYCX as a better investment to Treasuries and Money Market and told the client that instead of holding such a large position in money market or cash for an extended time period it was better to place “cash” investments in the Yield Plus fund. Our securities fraud lawyers have other Schwab clients that were offered similar representations.

National Securities Corp., Independent Financial Group LLC, & Centaurus Financial Inc. among broker-dealers sought by Massachusetts securities regulators over private placements

Published on: April 19, 2010 | by Shepherd Smith Edwards & Kantas, LLP

The Massachusetts Securities Division is requesting information from six broker-dealers regarding the sales of two private-placements that were marketed by Provident Royalties, LLC and Medical Capital Holdings Inc. The investment firms that have been subpoenaed are Centaurus Financial Inc., Investors Capital Corp., Independent Financial Group LLC, CapWest Securities Inc., National Securities Corp., and QA3 Financial Corp.

According to a statement issued last month by Secretary of the Commonwealth William Galvin, Provident and Medical Capital put forth billions in securities that were purchased from the brokerage firms. Now, the state’s securities regulators want information from the broker-dealers regarding suitability data, due-diligence efforts, and promotional materials involving the private placement sales.

The six broker-dealers have expressed surprise that they received the subpoenas. Financial Group claims that the brokerage firm never approved the sale of any offerings from Provident Royalties or Medical Corp. Centaurus Financial is also claiming that it never approved any offerings that were bought from either company.

Investors Capital’s president and CEO, Tim Murphy, says the broker-dealer has never had a selling agreement with Medical Capital, while CapWest CEO Dale Hall says that the brokerage firm has just one client in Massachusetts. QA3 says that two of its clients in Massachusetts purchased $175,000 in Provident offerings but that the brokerage firm did not sell any Medical Capital offerings to investors in the state.

The Massachusetts Securities Division has been intensifying its efforts to examine private placement sales made by independent broker-dealers. Earlier this year, regulators in the state filed a securities fraud lawsuit against Securities America accusing the broker-dealer of misleading investors that bought risky private placements, which included $7.2 million in promissory notes.

Related Web Resources:
Broker-dealers dumbfounded by private-placement subpoenas, Investment News, March 23, 2010
Massachusetts Securities Division
Continue Reading ›

The Truth about the Financial Reform Bill Proposed by the Majority Leaders

Published on: April 15, 2010 | by Shepherd Smith Edwards & Kantas, LLP

The Restoring American Financial Stability Act, a bill on financial reform, is expected to go to the Senate floor for a vote in a few weeks. Introduced by Senate Banking Committee Chairman Chris Dodd, the bill cleared that panel during a party-line vote.

The bill would set up safeguards against financial system collapses, put into place an independent and new consumer financial protection unit at the Federal Reserve, and consolidate significant regulatory agencies. Certain aspects of the bill, such as funding for system-critical companies and procedures for liquidation, are still under debate.

Yesterday, Senator Dodd spoke on the US Senate Floor. He said the bill “ends bailouts.” He noted that for the first time someone would be tasked with monitoring the financial system and can warn of any risks before a meltdown results. Dodd said that Wall Street companies that create the risks will have to contend with tougher standards.

According to Shepherd Smith Edwards and Kantas founder and stockbroker fraud attorney William Shepherd, “This bill does exactly the opposite of what its critics are saying it does. This bill provides for NO taxpayer bailouts. If a financial institution is failing, no matter how large, it will be taken over by the FDIC, which is that agency’s current role. The FDIC is financed by membership dues from all FDIC insured banks, which will be increased. Similar to the manner in which smaller banks are taken over by the FDIC, almost weekly, this is the process: The mega institution fails, its executives are fired, its shareholders get nothing and its assets are sold to other financial institutions. That is no bailout!”

Related Web Resources:
Financial services regulatory reform bill heads to Senate, Business Insurance, April 14, 2010
Restoring American Financial Stability Act of 2010 (PDF)
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Former Delphi Executive’s Motion for Summary Judgment in SEC Securities Fraud Case is Denied

Published on: April 14, 2010 | by Shepherd Smith Edwards & Kantas, LLP

A district court judge has denied James Blahnik’s motion for summary judgment in the United States Securities and Exchange Commission’s securities fraud cause against Delphi Corporation, a number of its senior officers, other employees, and an individual who worked for a third party.

The SEC had accused the defendants of misstating its operating results and financial condition in its offering documents and SEC filings. A number of the defendants have already settled with the SEC, leaving Blahnik, Paul Free, Paul Free, Catherine Rozanski, and Milan Belans to request summary judgment.

During a February 3 hearing, Blahnik’s lawyer said his client, who formerly served as a Delphi Treasurer before being promoted to Vice President of Treasury, Mergers and Acquisitions, intended to depend on the argument that he could not be held primarily liable for violating § 10(b) of the Securities and Exchange Act or Rule 10b-5 because he did not directly issue false statements to the investing public. The Court told Blahnik to make his case in a letter. Yet even after letters were exchanged Blahnik and the SEC, his motion for summary judgment was denied.

The SEC has accused the former Delphi executive of being involved in the following schemes: European Factoring, the PGM Transaction with Bank One, and the Cores and Batteries Transaction with BBK. The SEC contends that a number of Blahnik’s activities resulted in false statements made in the company’s 2001 and 2003 offering documents, 2000 Form 10-K, 2002-2004 Forms 8-K, and the incorporation of the 2000 Form 10K.

The Court noted that Blahnik, in his letters, failed to persuade that he can’t be held primarily liable under the law for the theory put forth by the SEC. The matter must therefore be resolved during trial.

Linsco Private Ledger Clients File FINRA Arbitration Claims Accusing Former Financial Adviser Raymond Londo of Running Multi-Million Dollar Ponzi Scam

Published on: April 13, 2010 | by Shepherd Smith Edwards & Kantas, LLP

A number of FINRA arbitration claims have been filed accusing former Linsco Private Ledger (LPL) financial advisor Raymond Londo of running a multi-million dollar Ponzi scheme to defraud investors. The claims allege fraud, conversion, misrepresentation and omissions, and negligence. LPL is accused of failing to supervise, discover, and stop the investment fraud scheme within a reasonable amount of time even though there were numerous signs, such as red flags and customer complaints, to indicate that Londo should have been more closely supervised or even fired.

Per the FINRA statement of claim, for nearly 10 years Londo accepted funds from LPL clients. He told them that he was investing their money in an LPL account where he could help them avail of exclusive investment opportunities. The former LPL financial adviser would then take the money he was supposed to invest and used it to support his lavish lifestyle and gambling addiction.

Linsco finally fired Londo in March 2008, but by then funds belonging to 95% of the victims had been stolen. Londo’s victims, located in different parts of the US, included his own neighbours, family members, and fellow country club members.

Soon after the Ponzi scam was discovered, Londo died.

LPL is one of the largest brokerage firms in the US. The alleged Ponzi scam surrounding Londo is not the first time the broker-dealer has been linked to securities fraud allegedly committed by one of its employees. In 2002, FINRA awarded more than $500,000 to an investor who claimed investment losses because LPL did not properly supervise one of its independent brokers.

In 2008, LPL Financial and Michael McClellan, one of its ex-brokers, lost a $1.8 million arbitration claim accusing them of securities fraud, violation of securities laws, unauthorized tradings, breach of fiduciary duties, and other violations.

Stockbroker Fraud?: Extent of Main Street Natural Gas Bonds’ Tie to Lehman Brothers May Not Have Been Disclosed to Investors

Published on: April 10, 2010 | by Shepherd Smith Edwards & Kantas, LLP

Investors of Main Street Natural Gas Bonds are claiming that not only did brokers fail to disclose the risks associated with investing in them, but they also failed to inform their clients that the bonds could be affected by the financial health of Lehman Brothers. Wall Street firms had marketed and sold Main Street Natural Gas Bonds as conservative, safe municipal bonds when, in fact, they were Lehman Brothers-backed complex derivative securities. As a result, when the investment bank filed for bankruptcy in 2008 the bonds’ trading value dropped.

If you were an investor who lost money because you invested in Main Street Natural Gas Bonds that you were told were safe, conservative investments, please contact our stockbroker fraud lawyers immediately to request your free case evaluation. You may have grounds for a securities fraud claim.

Main Street Natural Gas

Morgan Keegan & Co., Inc., Morgan Asset Management, and Two Employees Face Subprime Mortgage Securities Fraud Charges by SEC

Published on: April 8, 2010 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission has filed claims against Morgan Keegan & Co, Morgan Asset Management and employees James C. Kelsoe, Jr. and Joseph Thomas Weller for securities fraud that allegedly involved inflating the value of subprime mortgage-backed securities.

According to investors and a number of state regulators, RMK Funds (RMK Advantage Income Fund, RMK High Income Fund, RMK Multi-Sector High Income Fund, RMK Select High Income Fund, RMK Strategic Income Fund, and the RMK Select Intermediate Fund) were marketed and recommended as funds that would provide a consistent income level while the actual risks involved were misrepresented and the funds’ net asset value pricing was manipulated.

The SEC’s enforcement division is accusing Morgan Keegan of failing to put into place reasonable procedures to internally price the portfolio securities in five funds, and as a result, being unable to accurately calculate the funds’ “net asset values.” These inaccurate daily NAVs were published while investors bought shares at inflated prices.

The enforcement division is also accusing fund portfolio manager Kelsoe of acting arbitrarily when he told Morgan Keegan’s Fund Accounting department to adjust prices in a manner that would make certain portfolio securities’ fair value go up. He had his assistant send about 262 “price adjustments” to Fund Accounting between at least January and July 2007.

On numerous occasions, adjustments were arbitrary, disregarded lower values that other dealers had quoted for the same securities, and neglected to reflect fair value. They were entered into a spreadsheet to determine the funds’ NAVs-even though there were no supporting documents. Kelsoe also is accused of regularly telling Fund Accounting to disregard broker-dealers’ month-end quotes that should have been used to validate the prices Morgan Keegan had assigned to the securities in the funds, as well as manipulated pricing quotes he received from at least one broker-dealer.

The Division of Enforcement is accusing Weller, a CPA who belonged to the Valuation Committee and served as the Fund Accounting Department head, of failing to fix the deficiencies in the valuation procedures, as well as not ensuring that fair-valued securities were accurately priced or that NAVs were correctly calculated.

Related Web Resources:
SEC Charges Morgan Keegan and Two Employees With Fraud Related to Subprime Mortgages, SEC.gov, April 7, 2010
SEC Order (PDF)

Morgan Keegan, 2 Employees Face SEC Fraud Charges, The Wall Street Journal, April 7, 2010 Continue Reading ›

US Supreme Court Won’t Review Texas Securities Fraud Case of Investment Adviser Barred from Industry by SEC

Published on: April 6, 2010 | by Shepherd Smith Edwards & Kantas, LLP

The US Supreme Court says it will not review the decision by a federal appeals court affirming the US Securities and Exchange Commission’s decision to bar investment adviser David Disraeli from the securities industry. The SEC accused the Texan of a number of violations, including broker misconduct (such as the making of material misrepresentations when selling and offering securities).

The SEC had concluded that David Henry Disraeli and his company Lifeplan Associates Inc. violated federal securities law antifraud proscriptions when they omitted and misrepresented material facts related to a private offering by Lifeplan, which the investment adviser then presented and sold to numerous clients.

The agency also found that Disraeli did not maintain appropriate and accurate records and books. The SEC says that when he registered as an investment advisor he was not qualified for the position and he included material misrepresentations in his applications.

In light of the Texas securities fraud case, the SEC has taken away Disraeli’s investment adviser registration, barred him from the securities industry, and told him to pay a civil money penalty of $85,000, plus a disgorgement of $84,300 and prejudgment interest.

The Texas investment adviser filed a certiorari petition last year. Disraeli claimed that the agency did not come up with “compelling reasons for the issuance of the death penalty,” as well as for why other sanctions weren’t sufficient. He also said that if the case was allowed to stand, the circuit court would have lowered the bar for what is required to prevent him from belonging in the securities industry and deprive him of his livelihood.

Disraeli says that the appeals court should have taken into consideration his lengthy relationships with his shareholders and the fact that he had accomplished his business plan’s “main objectives.”

Related Web Resources:
Adviser Fails to Gain High Court Review Of Ruling Affirming SEC Industry Bar Order, BNA Securities Law, March 23, 2010
Read the Appeals Court Decision (PDF)
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Credit Suisse Group AG Must Pay ST Microelectronics NV $431 Million Auction-Rate Securities Arbitration Award

Published on: April 5, 2010 | by Shepherd Smith Edwards & Kantas, LLP

U.S. District Judge Deborah Batts says that Credit Suisse Group AG must pay STMicroelectronics NV the rest of the $431 million arbitration award owed for unauthorized auction-rate securities-related investments. FINRA had issued the securities fraud award last year.

STMicroelectronics NV says that Credit Suisse invested in high risk securities, including ARS with collateralized debt obligations, for the company when the investment bank was only supposed to invest in student loans backed by the US government. The European-based semiconductor maker sued Credit Suisse when the ARS’ value dropped. STMicro accused the broker-dealer of securities fraud, unjust enrichment, breach of contract, failure to supervise, and breach of fiduciary duty.

A FINRA panel ruled in favor of STMicro, awarding the company $400 million in compensatory damages, $3 million in expert witness and legal fees, and $1.5 million in financing fees, while directing Credit Suisse to pay 4.64% on the illiquid ARS in STMicro’s account until the fees and damages were paid.

Credit Suisse sought to vacate the FINRA award and argued that a panel arbitrator had been prejudicial toward the investment bank. The broker-dealer also accused the panel of disregarding the law. The court, however, decided that Credit Suisse’s claims were meritless. The remaining balance owed to STMicroelectronics is approximately $354 million, including $23 million in interest.

Earlier this year, Credit Suisse broker Eric Butler received a 5-year prison sentence for selling subprime securities to investors. His fraudulent actions cost them over $1.1 billion.

Since the ARS market meltdown in February 2008, at least 19 broker-dealers and underwriters have been sued. Regulators forced some of them to repurchase billions of dollars worth of auction-rate securities.

Our Shepherd Smith Edwards and Kantas founder and Stockbroker fraud lawyer William Shepherd says, “One issue which investors face when they are required to arbitrate is that they have little hope of appealing the arbitrators’ award if he/she lose. However, this works both ways: It is also very difficult for the brokerage firm to appeal as well, and few even try. Thus, an investor can finish a case, win, and get paid in about a year. In court, the process can drag out for 5 years or more.”

STMicroelectronics Sues Credit Suisse Over Securities, NY Times, August 7, 2008
FINRA Awards STMicroelectronics $406 Million Against Credit Suisse Securities (USA) LLC, STMicroelectronics, February 16, 2009 Continue Reading ›

Texas Securities Fraud: SEC Sues Two Individuals For Allegedly Running Multi-Million Dollar Scheme Involving Viaticals

Published on: April 2, 2010 | by Shepherd Smith Edwards & Kantas, LLP

In the U.S. District Court for the Southern District of Texas, the US Securities and Exchange Commission is suing Kelly Gipson and Charles Jordan for allegedly orchestrating a multi-million dollar viaticals scam (in the secondary market for life insurance). On March 22, the agency said the court had granted its request for a temporary order to freeze the defendants’ assets.

Also, a receiver has been appointed to take charge of their business, American Settlements Association LLC, and their assets. The SEC is seeking preliminary and permanent injunctions, civil penalties, disgorgement plus prejudgment interest.

Per the agency’s complaint, Gipson and Jordan made at least $2.3 million from March to December 2007 by selling interests in a life insurance policy to over 50 investors in 10 states. They told them they would spend the funds on future premium payments so that the policy wouldn’t lapse. Instead, Gipson and Jordan mixed investors’ money with their funds and diverted it toward their personal spending, including travel, jewelry, entertainment, and casinos.