Investor Lawyers Blog

SEC Securities Fraud Lawsuit Accuses Beverly Hills Money Manager Stanley Chais of Leading Investors Into Madoff Ponzi Scam

Published on: June 24, 2009 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission is suing Beverly Hills money manager Stanley Chais for securities fraud related to his alleged involvement in the Bernard Madoff Ponzi scam. The SEC alleges that Chais and four others worked collectively to raise billions of dollars from investors to fund the $65 billion scheme-the largest Ponzi scam in US history.

Chais investors’ accounts were worth almost $1 billion when the Ponzi scam finally collapsed. Chais, 82, is accused of collecting almost $270 million in investor fees. The Beverly Hills money manager, his family members, and associated entities are also accused of withdrawing almost $546 million in ill-gotten profits. The SEC is seeking financial penalties and the return of ill-gotten gains to investors.

The SEC complaint contends that Chais portrayed himself to his clients as an “investing wizard” and did not let them know that Madoff was actually in charge. The SEC says that Chais either knew that Madoff was running a Ponzi scam or was reckless for not knowing about the scheme. For example, Madoff never reported even one loss on thousands of “purported” stock trades on Chase’ accounts from 1999 to 2008. This alone should have been an indicator that Madoff’s reports were bogus.

Many of Chais’s investors have suffered as a result of the money manager’s alleged misconduct. For instance, the Los Angeles Times reports that Mark Peel, who is part owner and executive chef of Campanile, claims he lost $6 million from investments that Chais is accused of secretly making with Madoff. Peel had to sell his Hancock Park home because of the investment losses he sustained and almost all of his children lost their college funds.

Chais’s attorney denies that his client did anything wrong, did not know that Madoff was bilking investors, and was also a victim of the Madoff scam. Chais, 82, had over 40 accounts with Madoff for himself, family members, and other entities.

In another Madoff-related securities fraud case, the SEC has also filed a lawsuit against Cohmad Securities Corp, Chairman Maurice J. Cohn, executive Robert M. Jaffe, and COO Marcia B. Cohn over allegations that they ignored evidence that Madoff was engaged in a Ponzi scam and actively marketing opportunities with him.

Related Web Resources:
Beverly Hills money manager Stanley Chais accused of fraud, Los Angeles Times, June 23, 2009
Stanley Chais Accused Of Fraud – Raised Billions For The Bernie Madoff Ponzi Scheme, The Post Chronicle, June 22, 2009
Read the SEC Complaint (PDF)
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Raymond James and RBC Capital Markets Fined $1.4 Million in Total Over Improper Stock Lending Activities

Published on: June 22, 2009 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority says that RBC Capital Markets Corp., Raymond James & Associates, Inc., and an RBCCMC head trader have settled charges over alleged broker misconduct connected to stock loan improprieties. RJF is to pay a $1 million fine, while RBC Capital Markets will pay $400,000.

Meantime, RBCCMC Stock Loan Department head trader Benedict Patrick Tommasino has agreed to a $30,000 fine, a 20-month suspension from working for a securities firm, and another two-month suspension from acting in a principal role.

According to FINRA, RJF allegedly executed payments that were improper and unjustified to finder firms even though the companies didn’t provide services to locate the securities and they weren’t involved in the stock loan transactions for which they were receiving payments. For example, in March and 2004, Raymond James paid two finder firms for 11 transactions even though they didn’t perform a service. A Raymond James loan trader’s son was employed at one of the finder firms.

FINRA is also accusing the two broker-dealers of allegedly letting Dennis Palmeri, Sr. perform stock loan functions. Only registered individuals are allowed to perform this role.

Palmeri is a non-registered person that had been barred from the securities industry. He was previously convicted of federal securities law violations in 1994. Following his conviction, the SEC barred him from working for an investment advisor, a broker dealer, or an investment company. While Palmeri can act as a non-registered finder, he cannot perform roles requiring that the individual be registered.

Susan Merrill, the FINRA enforcement chief, says the two firms exposed the market to an individual that was non-registered, unqualified, unsupervised, and was not allowed to work in the securities industry. FINRA also claims that the two broker-dealers failed to reasonably supervise their Stock Loan Departments. By agreeing to settle, Tommasino and the two broker-dealers are not denying or admitting misconduct.

Related Web Resources:
FINRA Fines Raymond James, RBC Capital Markets Corporation, Stock Loan Trader for Improper Stock Loan Practices, FINRA, June 17, 2009
FINRA fines Raymond James, RBC Capital Markets, Forbes, June 17, 2009 Continue Reading ›

JP Turner & Co., Legent Clearing, LLC, Park Financial Group Inc. & Four Individuals to Pay More than $1.25 Million in FINRA Fines for Alleged Penny Stock Violations

Published on: June 18, 2009 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority is accusing Park Financial Group Inc., JP Turner & Co., and Legent Clearing LLC of inadequate anti-money laundering procedures. The broker-dealers and four persons connected to them have consented to pay more than $1.25 million for failing to detect and report suspect penny-stock transactions.

JP Turner & Co. will pay $525,000, Park Financial will pay $400,000, and Legent Clearing will pay $350,000. By agreeing to pay the fines, the broker-dealers are not admitting or denying wrongdoing. Also:

• Park Financial equity trader David Farber received a $30,000 fine and a 30-day suspension.
• JP Turner’s ex-AML compliance officer S. Cheryl Bauman received a $30,000 fine and a suspension barring her for 18 months from acting as a securities firm principal.
• Former JP Turner branch manager Robert Meyer received a 1-month suspension from acting as a principal. He also must pay a $5,000 fine.
• JP Turner equity trader John McFarland and former Park Financial CEO and AML compliance officer Gordon Charles Cantley have agreed to be permanently barred from the industry.

According to Susan Merrill, FINRA’s enforcement chief, the firms allowed suspicious trades to be processed even though there were notable red flags. Suspect trades included the liquidations and deposits of penny stocks connected to parties with histories of stock manipulation or securities fraud.

FINRA claims the broker-dealers neglected to set up and put into action proper procedures to identify and report suspect trading involving low-priced securities and that this failure resulted in the risk that the securities could be used by “unscrupulous” parties,” including those involved in securities fraud, money laundering, or market manipulation.

For example, FINRA says although Park Financial had clients with histories of securities-related violations, the broker-dealer failed to note the “red flags” that might indicate the customers could be involved in risky activities, including depositing millions of low-priced securities shares and making millions of dollars by liquidating the shares and sending the proceeds to bank accounts in the US and offshore.

FINRA is accusing JP Turner of neglecting to identify, probe, and file Suspicious Activity Reports over a number of possibly suspect transactions, such as those involving numerous accounts under one name or clients using multiple names for no business-related reason. FINRA contends that Legent Clearing has an AML program that doesn’t consider the company’s business risks and fails to properly consider money laundering risks presented by some of its correspondent firms that had extensive disciplinary histories and were engaged in penny stock liquidations and other high-risk business activities.

Related Web Resources:
FINRA Fines Three Firms Over $1.25 Million for Failing to Detect, Investigate and Report Suspicious Transactions in Penny Stocks, FINRA, June 4, 2009
Penny Stocks, SOS.Mos.gov Continue Reading ›

Ex-Morgan Keegan Adviser Pleads Guilty to Stealing from Senior Investor

Published on: June 15, 2009 | by Shepherd Smith Edwards & Kantas, LLP

A former Morgan Keegan adviser has pleaded guilty to charges that he stole from an elderly investor. Charges included investment adviser fraud and making and subscribing a bogus tax return. Now, Harold “Hal” Blondeau could be facing up to eight years in prison. He also may have to pay restitution to his victim. Martha B. Capps is now 83.

Blondeau received power of attorney over the senior investor’s accounts as she was experiencing the beginning stages of Alzheimer’s. She wanted him to keep her inheritance away from her husband. Large sums were taken out of Capps’ accounts.

The former Morgan Keegan adviser is accused of using some of the stolen funds to pay for personal expenses, including a beach house and $24,000 in wine. The beach house, purchased in Capps’ name, would have gone to Blondeau upon her death.

Almost $3 million was taken from the account of Martha B Capps. In 2007, attorneys for the elderly woman filed a lawsuit against Blondeau, his son Neal Knight, and Knight’s two daughters. The complaint contends that the group stole money from Capps. Blondeau and Knight are accused of establishing a non-profit foundation in the name of Capps’ father and donating the money to different organizations to enhance their own images. Capps’ money was also used for the college education of the two men’s children.

In 2007, Blondeau was let go from Morgan Keegan because he failed to disclose a loan that was obtained from a client. To date, Blondeau is the only one out of the four civil lawsuit defendants that is facing criminal charges in federal court.

Taking advantage of an elderly investor is a crime and can be grounds for an investor fraud lawsuit. Unfortunately, senior investors-especially those that have inherited money or have retirement savings are easy targets of investor fraud.

Related Web Resources:
Raleigh investment adviser pleads guilty to fraud, Triangle Business Journal, June 11, 2009
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Texas Securities Fraud: A Houston Attorney and a Texas A & M Professor Charged with Investment Fraud

Published on: June 14, 2009 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission and the Commodity Futures Trading Commission are accusing Houston attorney and accountant Daniel Petroski and Texas A & M Professor Robert Watson of using forged bank records to engage in investor fraud. On May 21, the US District Court for the Southern District of Texas froze the assets of the two men and of two firms associated with the alleged misconduct.

According to the two agencies, Petroski and Watson raised over $19 million from about 65 investors, while claiming they would use a foreign-currency trading software, “Alpha One,” that they said belonged to their company, Private FX Global One Ltd. Watson’s “deal clearing company, “36 Holdings,” was also to participate in the investing.

The SEC and the CFTC contend that the two men engaged in misrepresentation when they made it appear as if their foreign exchange trading business never had a losing month, achieved a yearly return of over 23%, and that their venture had millions of dollars in Swiss and US bank accounts. The two agencies are also accusing the two men of generating bogus records for investigators, including records indicating that 36 Holdings had an account with Deutsche Bank where Global One earned over $2 million this year by trading foreign currencies. In fact, 36 Holdings does not have a Deutsche Bank account.

In addition, the SEC’s complaint accuses the two men of putting, at maximum, 33% of their proceeds in a Swiss bank before transferring some $5 million to a Houston bank-even though they told investors that the amount of foreign currency and other assets was closer to 80%. The defendants are also accused of giving their own employees bogus Swiss bank statements and making false claims that 36 Holdings had nearly $70 million deposited there.

The SEC accuses the defendants of violating the Securities and Exchange Act of 1934’s Section 10(b), Rule 10b-5 thereunder, and the Securities and Exchange Commission Act of 1933’s Section 17(a). The CFTC and the SEC are seeking a preliminary injunction, final judgment from permanent enjoinment of future violations, disgorgement with interest, and fines.

Brokers Renew Push for Investors to Buy Structured Products

Published on: June 12, 2009 | by Shepherd Smith Edwards & Kantas, LLP

Brokers are once again getting behind structured products, hoping that investors will bite. While sales of structured products during 2008’s 4th quarter-at $5.8 billion-was down 75% from the year’s 1st quarter, sales are starting to go up. One reason for this is that certain structured products, such as return-enhanced notes and principal protected notes, are considered safer than reverse convertibles, which led to some of the worst losses for investor.

Ideally, structured products are supposed to provide sturdy profits, while limiting losses, and brokers like them because the commissions are high. However, representatives must still account for why these products haven’t delivered the way investors were told they would. Many investors that bought structured products from Lehman Brothers, such as the Lehman principal-protected notes, incurred some large losses. Some of these notes were bought through a UBS Financial Services office in Houston, Texas.

Until the bear market struck, structured products did incredibly well, and sales almost doubled to $105 billion in 2007 before dropping to $70 billion last year when structured products, collateralized debt loans, and credit default swaps played a huge role in the global financial collapse.

Reverse convertibles are considered the most high-risk structured product-short-term bonds with a large interest that can seriously hurt investors if the underlying stock drops dramatically. Investors can end up with shares with a value far below the principal. For example, 78-year-old Dominic Annino says he invested $300,000 in IndyMac shares and JetBlue shares and lost money after the stocks fell. He filed an arbitration complaint with FINRA and claims that the broker that sold him the Wells Fargo reverse convertibles never fully explained to him what he was getting himself into. Still, brokers are hoping that last year’s stock market fiasco won’t discourage investors from trying structured products again.

Twice Shy On Structured Products? Wall Street Journal Online, May 28, 2009
Understanding Structured Products, Investopedia Continue Reading ›

To The SEC: Why It Is Necessary to Change Public Reporting Requirements on Stockbrokers

Published on: June 11, 2009 | by Shepherd Smith Edwards & Kantas, LLP

Recently, Shepherd Smith Edwards & Kantas LTD LLP Founder and Securities Fraud Attorney William Shepherd wrote a letter to the Securities and Exchange Commission voicing his support for needed changes to the public reporting requirements on stockbrokers. His letter was published on the SEC’s Web site and included a number of key facts and statistics, including:

· The # of registered US brokers: Over 500,000 brokers · The # of investors: More than 50 million, and nearly all of them have recently lost money on their investments · The # of US securities fraud claims filed in arbitration: About 5,000 claims · The # of investors that file for recovery: 1 out of every 10,000 investors

· The # of investors that contact Shepherd Smith Edwards & Kantas LTD LLP each year about a possible stockbroker fraud case: About 5,000 investors · The # of stockbroker fraud cases our securities fraud law firm takes on each year: About 150 cases

Morgan Keegan, Charles Schwab and Others Fight as Wells Fargo Unit Settles Claims of Misrepresented Securities in Short Term Bond Funds

Published on: June 9, 2009 | by Shepherd Smith Edwards & Kantas, LLP

Evergreen Investment Management Company, a Wells Fargo unit, has agreed to a $40 million settlement with federal and state regulators over allegations that it misrepresented securities in short-term bond funds. The settlement could be a sign that other fund providers, including Morgan Keegan, Charles Schwab Corp., and Fidelity Investments, may face similar lawsuits. Already bond providers are facing securities fraud lawsuits and arbitration claims from clients that experienced heavy losses from investing in debts that were either high risk or became illiquid.

The Massachusetts Securities Division and the Securities and Exchange Commission had accused Evergreen and one of its affiliates of inflating the value of its Ultra Short Opportunities Fund by up to 17%. The SEC says that this inflated value allowed the fund in 2007 and 2008 to be ranked high compared to other peer funds, when its true value should have placed it closer to the bottom of its class. At the time of the alleged violations, Evergreen was a Wachovia Corp. subsidiary.

With the housing crisis getting worse, Evergreen is accused of not using the information it had access to about mortgage-backed securities when engaging in the valuation process. Evergreen dealt with the fund by adjusting the prices on specific holdings, but only notified a select number of investors about the reasons for the re-pricings, as well as the possibility of adjustments in the future.

The investors that were given this information managed to leave the fund before their shares’ value went down even more. However, the other shareholders that did not receive the preferential information were left at a disadvantage. In June 2008, Evergreen closed the Ultra Short Fund, which, at the time, had $403 million in assets.

By agreeing to settle, Evergreen is not admitting to or disagreeing with the SEC’s findings. As part of the agreement, the Wells Fargo unit will pay $33 million to fund shareholders, $3 million in disgorgement of ill-gotten gains, a $4 million SEC penalty, and $1 million to Massachusetts.

Evergreen settles state, US charges for $40 mln, Reuters, June 8, 2009
Settlement in Mutual Fund Case, NY Times, June 8, 2009 Continue Reading ›

UBS Financial Services Misled Investors about Lehman Brothers Securities, Says New Hampshire Regulators

Published on: June 4, 2009 | by Shepherd Smith Edwards & Kantas, LLP

According to New Hampshire securities regulators, UBS Financial Services Inc., a unit of UBS AG, misled investors regarding complex securities that were issued by Lehman Brothers before the latter filed for bankruptcy protection in 2008. The Bureau of Securities Regulation says investors were misled when the representatives for the UBS unit told them that the securities were safe, while failing to let them know that Lehman Brothers was in trouble. The state regulators are also accusing UBS of failing to properly supervise the employees that sold the structured products and of engaging in improper sales practices.

Some 42 New Hampshire investors could lose more than $2.5 million from securities underwritten by Lehman Brothers. State regulators have filed a cease-and-desist order against UBS and they are seeking an unspecified sum from the financial firm.

UBS disputes the Bureau of Securities Regulation’s allegations. The investment bank claims it didn’t do anything improper when it sold the Lehman products to UBS clients and that its employees engaged in the proper sales practices, followed all regulatory guidelines, abided by client disclosure guidelines, as well as followed firm procedures and industry regulations. The investment bank contends that any losses experienced by investors occurred because Lehman Brothers failed unexpectedly. UBS vows to combat the New Hampshire regulators’ allegations.

Already, a number of investors have filed claims against Lehman Brothers. Last year, with $613 billion in debt, Lehman filed the largest bankruptcy in US history. Globally, the collapse of Lehman Brothers resulted in investor losses worth billions of dollars. Many clients have blamed lenders for failing to warn them that Lehman was in trouble.

Meantime, Credit Suisse has offered to pay $140.7 million to compensate more than 3,700 of its retail clients for their Lehman financial products that now have no value.

Securities Fraud Attorney Sam Edwards, partner of the law firm of Shepherd Smith Edwards & Kantas LTD LLP says: “While many smaller investors into Auction Rate Securities have now been paid, our firm is representing a number of larger investors, many of whom have millions of dollars that have been frozen for more than a year. Many of these are business which have been crippled by the loss of liquidity of these funds and are seeking resulting business losses.”

Related Web Resources:
UBS says will fight New Hampshire Lehman case, Reuters, June 4, 2009
UBS Sold Unsuitable Lehman Securities, New Hampshire Alleges, Bloomberg.com, June 4, 2009
Bureau of Securities Regulation
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FINRA Orders RD Capital Group and Its President to Pay $1 Million for Fraudulent STRIPS Markups

Published on: June 3, 2009 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority says that RD Capital Group, based in Puerto Rico, and its president Ramon Luis Dominguez have agreed to pay $950,000 in restitution plus interest to three clients over fraudulent and excessive markups involving the sale of U.S. Treasury Separate Trading of Registered Interest and Principal Securities, also known as STRIPS. The firm and Dominguez are also to pay a $50,000 fine, while the latter was suspended for 30 days as a principal and in every capacity for 5 business days.

According to FINRA, RD Capital and Dominguez sold more than $34 million in US treasury STRIPS to three clients between August and August 2005. They made the sale while charging $1,289,727 in total markups. However, FINRA says that Dominguez neglected to tell the clients how much of a markup they got-from 3.5 – 6.2%-and that these markups were fraudulent and too much because they were more than what the market conditions warranted.

STRIPS are zero-coupon securities created from U.S. Treasury bonds by “stripping” the future interest payment oblitations from the final principle payment obligation on those bonds, then selling each of these separately at a discount. FINRA mandates that firms make sure customers are fairly charged for STRIPS transactions, with the cost for effectuating the sale, profit by the dealer or broker and the expertise provided, the total cost of the transaction, the financial product’s availability, the instrument’s yield or price, and other factors taken into consideration.

By agreeing to the terms of the settlement agreement, RD Capital Group and Dominguez are not admitting to or denying wrongdoing.

More about STRIPS:

• STRIPS can be bought or held via government securities dealers and brokers.
• STRIPS cannot be sold or issued directly to an investor.
• An investor receives payment from STRIPS upon maturity.

Related Web Resources:
RD Capital Group and Firm President Ordered to Pay $1 Million in Fines, Restitution for Fraudulent Markups of U.S. Treasury STRIPS, FINRA, May 11, 2009
TreasuryDirect.gov
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