Investor Lawyers Blog

UBS, JP Morgan, Lehman, Bank of America, and Other Banks Included on List of Co-Conspirators in CDR Bid-Rigging Scam

Published on: March 31, 2010 | by Shepherd Smith Edwards & Kantas, LLP

Over two dozen bankers at Wall Street investment firms have been listed as co-conspirators in a bid-rigging scheme to pay lower than market interest rates to the federal and state governments over guaranteed investment contracts. The banks named as co-conspirators include JP Morgan Chase & Co, UBS AG, Lehman Brothers Holdings Inc., Bear Stearns Cos., Bank of America Corp, Societe General, Wachovia Corp (bought by Wells Fargo), former Citigroup Inc. unit Salomon Smith Barney, and two General Electric financial businesses.

The investment banks were named in papers filed by the lawyers of a former CDR Financial Products Inc. employee. The attorneys for the advisory firm say that they “inadvertedly” included the list of bankers and individuals and asked the court to strike the exhibit that contains the list. The firms and individuals on the co-conspirators list are not charged with any wrongdoing. However, over a dozen financial firms are contending with securities fraud complaints filed by municipalities claiming conspiracy was involved.

The government says that CDR, a local-government adviser, ran auctions that were scams. This let banks pay lower interests to the local governments. In October, CDR, and executives David Rubin, Evan Zarefsky, and Zevi Wolmark were indicted. They denied any wrongdoing. This year, three other former DCR employees pleaded guilty.

While the original indictments didn’t identify any investment contract sellers that took part in the alleged conspiracy, Providers A and B were accused of paying kickbacks to CDR after winning investment deals that the firm had brokered. The firms were able to do this by allegedly paying sham fees connected to financial transactions involving other companies.

Per the court documents filed in March, the kickbacks were paid out of fees that came out of transactions entered into with Royal Bank of Canada and UBS. The US Justice Department says the kickbacks ranged from $4,500 to $475,000. Financial Security Assurance Holdings Ltd divisions and GE units created the investment contracts that were involved.

Approximately $400 billion in municipal bonds are issued annually. Schools, cities, and states use money they get from the sale of these bonds to buy guaranteed investment contracts. Localities use the contracts to earn a return on some of the funds until they are needed for certain projects. The IRS, which sometimes makes money on the investments, requires that they are awarded on the basis of competitive bidding to make sure that the government gets a fair return.

Related Web Resources:
JPMorgan, Lehman, UBS Named in Bid-Rigging Conspiracy, Business Week, March 26, 2010
U.S. Probe Lays Out Bid Fixing, Bond Buyer, March 29, 2010
Read the letter to District Judge Marrero (PDF)
Continue Reading ›

Most Bloomberg National Poll Participants Think the US Government Should Punish Bankers that Caused Recent Market Collapse

Published on: March 29, 2010 | by Shepherd Smith Edwards & Kantas, LLP

According to the Bloomberg National Poll, most of the people who were interviewed don’t like banks, Wall Street, and insurance companies. They also wish that the government would punish those responsible for the financial meltdown. 1,002 US adults took part in the March 2010 poll, which has a margin of error of approximately 3.1%.

Per the poll:

• 57% of Americans have a negative view of Wall Street.
• 67% of poll participants don’t think highly of Congress.
• 56% support the government in either limiting the compensation paid to the parties that helped cause the economic clause or completely banning them from the industry.
• 58% think that big financial companies are more committed to making themselves richer even if it means that regular people end up suffering.
• 40% of pollsters think that financial companies are key to fostering economic growth.
• Over 40% of participants think the government has exceeded its role with actions it has taken to repair the financial industry.
• 37% think the government can do more.
• Nearly 60% think Wall Street should do more to protect itself in the event of future financial disasters.

70% of those surveyed favor current banking regulation over President Obama’s proposal that an independent agency be established for consumer protection.
Americans seem wary of the setting up of a new federal agency that would be in charge of making consumer protection rules for credit cards and mortgages. Instead, they would rather increase the powers of our current regulators.

However, President Barack Obama is determined to keep pushing for a Consumer Financial Protection Agency that he says “will finally set and enforce clear rules… across the financial marketplace.” According to New York Times Columnist Bob Herbert, Obama’s efforts are not making the financial industry and big-money interests very happy.

Regardless of what type of regulatory system oversees the financial markets, our stockbroker fraud law firm is determine to make sure that victims of securities fraud recoup their losses.

Related Web Resources:
Wall Street Despised, Most Want Oversight, Poll Shows (Update1), Bloomberg/Business Week, March 24, 2010
Derailing Help for Consumers, The New York Times, March 26, 2010
Consumer Financial Protection Agency, Los Angeles Times, August 2, 2009 Continue Reading ›

More on YieldPlus Mutual Fund: Charles Schwab Corp. Tries to Dissuade SEC From Filing Securities Claims

Published on: March 24, 2010 | by Shepherd Smith Edwards & Kantas, LLP

Charles Schwab Corp. doesn’t want the Securities and Exchange Commission to file securities claims over the YieldPlus mutual fund. Schwab contends that it never misrepresented the fund when it compared it to money market funds. The brokerage firm also says that it did not mislead investors, give certain ones more information than others, or let other Schwab funds cause financial harm to Charles Schwab YieldPlus Funds investors.

While the SEC has yet to file YieldPlus-related claims against Schwab, it did send the brokerage firm a Wells notice last year notifying that it may sue. Schwab had switched about half of its assets in the YieldPlus fund into mortgage-backed securities without shareholder approval. Following the housing market collapse, what was once the largest short-term bond fund in the world fund, with $13.5 million in assets in 2007, lost 35% before dividends. As of February 28, Bloomberg data shows that the mutual fund had $184 million in assets.

Even though the Investment Company Act of 1940, Section 13(a) states that a shareholder vote must take place before a company can do other than what its policies allow when it comes to which industries investments can be concentrated in, Schwab says it didn’t need approval because although the fund changed how mortgage-backed securities were categorized, it did not change its fundamental concentration policy.

Senate Bill 1551 Allows Securities Fraud Lawsuits Against Those Accused of Aiding and Abetting Primary Violators

Published on: March 23, 2010 | by Shepherd Smith Edwards & Kantas, LLP

Our stockbroker fraud law firm is hoping that Senate Bill 1551, introduced last July by Senator Arlen Specter, will resurface in the upcoming regulatory reform bill. If passed into law, the “Liability for Aiding and Abetting Securities Violations Act of 2009” would allow secondary actors that aided and abetted the primary violators of securities laws to also be sued for securities fraud.

The bill is trying to overturn the US Supreme Court rulings Stoneridge Investment Partners v. Scientific-Atlanta and Central Bank of Denver v. First Interstate Bank. Both decisions held that a private plaintiff cannot file a securities fraud claim against secondary actors. Under current law, only the US Congress has the sole authority to bring such claims with the US Securities and Exchange Commission.

With Senate Bill 1551, the Securities Exchange Act of 1934’s Section 20 would be amended so that anyone that recklessly or knowingly gave substantial help to a party that violated securities law could be held liable through a civil lawsuit to the same extent as the primary actor. Accountants, securities analysts, investment banks, law firms, credit rating agencies, and private companies are some of the possible secondary actors that could be sued as securities fraud defendants.

Related Web Resources:
Liability for Aiding and Abetting Securities Violations Act of 2009, Govtrack.us
Securities Exchange Act of 1934 (PDF)

Stoneridge Investment Partners v. Scientific-Atlanta, Oyez.org
Central Bank of Denver v. First Interstate Bank
Continue Reading ›

Claims for Losses at Lehman Brothers and in Investments into Lehman Brothers Financial Instruments Gain New Life as Court Uncovers Stunning New Evidence

Published on: March 21, 2010 | by Shepherd Smith Edwards & Kantas, LLP

Lehman Brothers filed for bankruptcy protection in 2008. Now, a report by a court-appointed examiner provides 2,200 pages of details on the investment firms demise, as well as more leads into further inquiries that may need to be made. (The US Justice Department assigns examiners to bankruptcy cases to probe allegations of misconduct and wrongdoing. The examiners are there to help determine whether creditors can recover more funds and if additional regulatory action needs to occur.) Already, a number of top Lehman officials have been named defendants in securities fraud lawsuits over their alleged misconduct.

For example, examiner Anton R. Valukas appears to have found evidence of “actionable balance sheet manipulation, including use of Repo 105, an aggressive accounting practice that allowed Lehman to conceal the full extent of its financial problems. While no US law firm would sign off on this practice, Linklaters, a British law firm, did.

According to Valukas, as long as the repos took place in London through the bank’s European arm and the firm did what was necessary to make the transactions look as if they were sales, then regulatory disapproval was unlikely. Also, even after a whistleblower warned that accounting improprieties were occurring at at Lehman, Valukas says that Ernst & Young continued to certify Lehman’s financial statements.

If your account at Lehman Brothers was mismanaged or if you invested into Lehman Brothers stocks, hedge funds, notes, or other Lehman financial products that were sold by other firms, please contact our stockbroker fraud law firm immediately. Shepherd Smith Edwards & Kantas, LLP is committed to helping investment fraud victims throughout the US recoup their financial losses.

Related Web Resources:
Findings on Lehman Take Even Experts by Surprise, NY Times, March 10, 2010
Read the Examiner Report (PDF)
Continue Reading ›

LC Wegard Clients that Purchased Relevant Securities May Be Entitled to Distribution from Litigation Estate

Published on: March 18, 2010 | by Shepherd Smith Edwards & Kantas, LLP

If you are a LC Wegard & Co, Inc. customer who bought any of the securities listed below from the firm between October 1, 1991 and September 30, 1994, you may be entitled to distribution from the Litigation Estate.

Relevant Securities (includes Common Stock, Zero Coupon Subordinated Debentures, Warrants, Subordinated Pay in Kind Debentures, Subordinated Convertible Debentures):

• Chefs International Inc.
• AGP & Co.
• Diamond Entertainment Corp.
• Consolidated Technology Group, Ltd.
• Futurebiotics, Inc.
• Great American Recreation, Inc.
• Gates/FA Distributing Inc.
• Gentner Communications Corp.
• Immunotherapies Corp.
• Linkon Corp.
• Lafayette Industries Inc.
• Metalclad Corp.
• Primedex Health Systems Inc.
• Nacoma Cosolidated Industries, Inc.
• Officeland Inc.
• Non-Invasive Monitoring Systems Inc.
• PDK Lambs, Inc.
• Process Equipment, Inc.
• US Transportation Systems, Inc.
• Sanyo Industries, Inc.
• Site Holdings, Inc.

All LC Wegard clients that bought any of these securities during the Relevant Period have to submit the original, signed proof of claim and any supporting or accompanying documents to:

Claims Administration C/O Donald F. Conway Receiver PO Box 8329 Princeton, New Jersey 08543-8329
Deadline: The Claims administration must receive your claim by 5pm EST on May 4, 2010. Failure to meet this deadline will result in a perpetual bar from receiving any distribution.

Our stockbroker fraud attorneys represent investment fraud victims throughout the US.

Related Web Resource:
Proof of Claim Form (PDF)
Continue Reading ›

Five Years Later Ex- Knight Securities Supervisors are Exonerated? Just Call it “Par for the Course.”

Published on: March 16, 2010 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority’s National Adjudicatory Council has dismissed the charges against former Knight Securities, L.P. CEO Ken Pasternak and John Leighton, the investment firm’s ex- Institutional Sales Desk head. The two men were accused of supervisory failures over allegedly fraudulent sales. Specifically, they allegedly inadequately supervised Leighton’s brother Joseph Leighton, who, at the time, was the firm’s top institutional sales trader. Regulators had accused Joseph of inflating the price of securities when selling them to institutional clients and keeping the extra profit.

The National Association of Securities Dealers found that the two former executives failed to take reasonable steps to make sure that Joseph was in compliance with industry standards. He settled with NASD and the Securities and Exchange Commission in 2005.

A lower FINRA panel had also ruled against two men. Pasternak was suspended from supervisory positions for two years and John was barred from supervisory roles. Both men were each ordered to pay $100,000.

Now, however, NAC is disagreeing with the lower panel, claiming that FINRA failed to establish that Joseph Leighton violated regulatory and market standards. The council also found that John Leighton did enforce Knight’s compliance procedures and that there was evidence that does not support allegations accusing Pasternak of not responding properly to “red flags” that surfaced over the way that Joseph handled his institutional client orders. However, institutional clients have come forward to testify that the pricing they received was fair. Also, in 2008, a federal judge threw out similar charges that the SEC filed against Pasternak and Joseph Leighton.

“This is another case at FINRA of the soldiers getting punished while the officers in charge ultimately get a walk,” said Shepherd Smith Edwards and Kantas founder and securities fraud lawyer William Shepherd. “The primary regulator of brokerage firms may have recently changed its name to the ‘Financial Industry Regulatory Authority’ but it remains a ‘National Association of Securities Dealers’ – a non-profit private corporation (similar to a country club) with a vested interest in seeing to it that favored members do not have to answer for misdeeds. After all, a precedent of fines or sanctions for the bosses might affect the treatment of other bosses in the future.”

Related Web Resources:
COMPLIANCE WATCH: Complying As Your Brother’s Keeper, The Wall Street Journal, March 5, 2010
National Adjudicatory Council, FINRA Continue Reading ›

Protect Yourself from Texas Securities Fraud by Making Sure that the Company or Agent that Sells You Annuities Has a Valid Insurance License

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

If you are going to buy annuities in Texas, it is important that you make sure that your agent is licensed with the state and also has a Financial Industry Regulatory Authority license. You should also make sure that the annuity you purchased is legitimate and in compliance with Texas standards and laws.

If you buy an unauthorized annuity, you may pay an inadequate return or put your money at risk. You can also become the victim of Texas securities fraud.

What is an Annuity?
This financial insurance contract can grow in value and provide constant income over an extended time period. They are good for growing your retirement, saving for your children’s schooling, setting up a trust fund, or bequeathing money to loved ones. Texas Department of Insurance regulates annuities and keeps an update list of companies and agents that are allowed to sell them in the state.

Three Kinds of Annuities:
Variable Annuities: Higher risk than fixed annuities, variable annuities rely on the stock market’s performance. They usually invest in different financial instruments, including money market funds, equity indexes, mutual funds, and government securities. These annuities let buyers decide how to distribute their accumulated value within the contract’s selected investments.

This kind of annuity doesn’t come with any guarantee of earnings and you can lose your original investment. Because variable annuities rely so much on the stock market, the Securities and Exchange Commission considers them securities.

Fixed Annuities: The most conservative type of annuity. They make earnings at an annually set current interest rate. Although the rate can change, a guaranteed minimum rate must be established. These annuity contracts usually invest in non-stock market, conservative investments. Buyers usually don’t have any say in how the funds are managed.

Equity-Indexed Annuities: EIA’s have traits that can be found in both variable annuities and fixed annuities. They pose a greater risk than fixed annuities and are less risky than variable annuities. Their returns are affected by changes in money, bond, and stock markets, and they come with a guaranteed minimum interest rate.

It is important to remember that annuities are not the best investment for everyone-especially if your financial goals are in the short-term. Your agent should apprise you of any risks and make sure that if you do choose to buy annuities, that they are the right choice for you.

Related Web Resources:
Understanding Annuities, Texas Department of Insurance
SEC Tips for Preventing Annuities Fraud, SEC.gov Continue Reading ›

Stifel, Nicolaus, and Co. to Pay Back $78,000 to Missouri Investors for Broker Fraud

Published on: March 11, 2010 | by Shepherd Smith Edwards & Kantas, LLP

Stifel, Nicolaus and Co. Inc. has reached an agreement with Missouri Secretary of State Robin Carnahan over the broker fraud committed by former Stifel securities broker Girard Munsch. As part of the deal, the three Missouri investors will get back $78,000 in commissions that they paid and the broker-dealer will pay over $130,000 in payments, penalties, and costs.
Over three years, Munsch made over 500 trades in accounts owned by three Missouri investors. He has admitted that during some of the transactions, he was the only one to benefit. One investor, Marie Ganninger, says that she started investing with the former Stifel broker after her husband passed away. She chose to go with Munsch because he was the broker of one of her relatives. She will be getting back the commissions she paid.
The state of Missouri went after Stifel for failing to properly supervise Munsch and neglecting to notice or take action when he made unsuitable recommendations and excessive trades.
In 2007, the former Stifel broker entered into a consent order. He was ordered to pay $50,000 in investor restitution for broker misconduct, and his license was suspended. He retired and can no longer work as a broker in Missouri.
Please do not despair if you lost money because of broker fraud. There are legal remedies available that can allow you to recoup your investment losses.
Stifel to return $78,000 to investors, pay $130,000 in penalties, St. Louis Business, March 11, 2010
Consent order in the matter of Girard Augustus Munsch, Jr., State of Missouri Continue Reading ›

“America’s Prophet” Psychic Accused of Multimillion-Dollar Investment Fraud

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

According to the US Securities and Exchange Commission, Sean David Morton has bilked more than 100 investors of over six million dollars as the mastermind of an alleged offering fraud scheme. The man who calls himself “America’s Prophet” never professed to have a financial background. However, he is accused of promising prospective investors that he would use his psychic gifts to predict the movements of the stock market and advise his investing team.

The SEC claims Morton told investors he would use their funds to trade in foreign currencies and that profits would be distributed pro rata among them. The federal agency says that Morton, who describes himself as an intuitive consultant and trained Remote Viewer, lied to these investors about having a successful track record for being able to predict when the market will rise and crash. He also allegedly lied about how their money would be used, fund liquidity, and that profits were audited and certified.

Morton allegedly invested only half of the investors’ money in foreign currency trading firms. He is accused of diverting the rest, including at least $240,000 into his Prophecy Research Institute, a nonprofit religious group. Morton also allegedly commingled investors’ funds among the different entity accounts. The SEC contends that the defendant did not seek accreditation status from Delphi Investment Group investors.

Morton, Vajra Productions LLC, Magic Eight Ball Distributing, Inc., 27 Investments LLC, and Delphi Investment Group are the defendants in the SEC’s investment fraud lawsuit. Morton’s wife, Melissa, and Prophecy Research Institute are named relief defendants. The Mortons controls the entity defendants.

Federal regulators continue to warn investors that they must make sure that anyone they entrust with investing their funds is properly licensed. Unfortunately, many people are misled into investing in securities scams that end up costing them their hard-earned money and financial security.

Related Web Resources:
Investment ‘Psychic’ Accused of Financial Fraud, ABC News, March 8, 2010
Read the SEC Complaint, SEC.gov Continue Reading ›