Investor Lawyers Blog

Former LPL Financial and Ameriprise Representative Charged with Theft and Fraud of Persons He Met through Church and Little League

Published on: September 24, 2008 | by Shepherd Smith Edwards & Kantas, LLP

A former LPL Financial and Ameriprise representative has been charged with 14 counts of theft and one count of fraud-all charged as felony crimes-after he allegedly stole $5 million from over 20 people he was acquainted with through Little League and church. James J. Buchanan was indicted last May at Maricopa County Superior Court in Arizona.

Buchanan was affiliated with Ameriprise Financial before joining LPL in 2006. The alleged theft and fraud incidents occurred between 2001 and April 2006 when LPL fired him.

Investigators say that there have been a number of victims and unknown damages as a result of the theft and fraud crimes. Buchanan allegedly convinced a number of elderly investors to let him handle their life savings for them, while presenting himself as a certified financial planner.

Court documents portray the former adviser as committing affinity fraud, which involves fraud inflicted upon members belonging to a specific group or community. He was considered an honest Christian and was a church board member.

In March, one victim told police that she had been defrauded $200,000 and that Buchanan had asked her not to report him. The former adviser also is accused of stealing $1 million from the Christ Life Church of Tempe, Ariz. Another alleged victim, a retired cop, says Buchanan promised him returns on his investment and convinced him to retire early.

Elderly investors are often the target of investment scams. There are remedies available that could allow you to recover your losses.

Related Web Resources:

Ex-LPL adviser charged with fraud, theft, Investment News, May 30, 2008
Affinity Fraud: How To Avoid Investment Scams That Target Groups, SEC Continue Reading ›

Court Upholds that New Jersey Division of Investment Cannot Hire External Pension Fund Investment Managers

Published on: September 23, 2008 | by Shepherd Smith Edwards & Kantas, LLP

According to the New Jersey Superior Court, Appellate Division, the New Jersey Division of Investment went beyond its authority with its rules allowing the division director to hire external managers to oversee pension fund investments. The panel however, did uphold the rules allowing the division to invest in private equity funds, hedge funds, as well as other alternative investment vehicles.

In June 2005, the New Jersey Securities Investment Council adopted regulations allowing investments in hedge funds or an absolute return strategy, as well as private equity funds. Soon after, pension funds were committed to private equity partnerships Warburg Pincus IX LLC, Blackstone Capital Partners V L.P., Quadrangle Capital Partners II L.P., and Oak Hill Capital Partners II L.P.

In 2006, the SIC put into effect procedures to bring in external investment managers to supervise pension funds in publicly traded securities. In 2007, the SIC adopted rules allowing the Division of Investment and the director to hire the managers.

The New Jersey Education Association and the Communication Workers of America appealed the actions made by the SIC, the New Jersey Treasurer, and the Division of Investment to adopt and implement the rules. After looking at the statutes, the New Jersey Court found that while the Director has the authority to invest, he or she does not have the authority to give that power to another party. Therefore, not only were any regulations giving the director this authority invalid, but any agreements made by the external managers because of such regulations were also not valid.

The court noted that while the director had the authority to invest in private equity funds and alternative investment management strategies, the director was subject to specific limitations, per N.J.S.A. 52:18A-89c.

Related Web Resources:

Court: No outside hedge fund managers for N.J., Pensions and Investments, August 25, 2008
Court Says US Pension Funds Can Invest in Alternatives, Online Financial News, August 26, 2008
Division of Investment, State of New Jersey Department of the Treasury Continue Reading ›

Hedge Fund Manager Settles SEC Charges He Helped Defraud Investors of Nearly $20 Million

Published on: September 18, 2008 | by Shepherd Smith Edwards & Kantas, LLP

A hedge fund manager has settled Securities and Exchange Commission charges that he misrepresented Pinnacle West, LLC and Sunquest Development, LLC as sound investments and, as a result, defrauded investors of almost $20 million. Mark Joseph Peterson Boucher will pay a $100,000 civil fine and will be barred from giving investment advice for five years. He also agreed to a permanent injunction from antifraud violations in the future.

Per the SEC’s complaint, the San Francisco-based hedge fund manager told clients that the real estate development companies did not have much debt and owned viable real property when, in fact, one of the companies did not own any property and the other company owned one property and had debts that exceeded potential profits. Along with the companies’ owners, Boucher was accused of using the invested funds for personal purposes. He is not agreeing to or denying the allegations by settling.

The SEC says that even though Boucher was not a registered investment adviser, he charged a fee to give clients advice. He is the author of the book The Hedge Fund on investing and the SEC says that he recommended the companies to clients in a newsletter that he owns.

Gary Paul Johnson, who owns 20% of Sunquest Development stock, also settled antifraud allegations. As part of his agreement with the SEC, Johnson will pay a $120,000 civil penalty, disgorge over $1.8 million in ill-gotten gains and about $700,000 in pre-judgment interest. Defendant and primary Pinnacle West owner John Earl Brake has not yet reached a settlement with the SEC.

SEC Charges Bay Area Investment Adviser, Others in Real Estate Investment Scam, SEC, August 27, 2008
Read the SEC Complaint (PDF)
Continue Reading ›

District Court Finds that Viatical Settlements are Securities In Michigan and Oklahoma

Published on: September 17, 2008 | by Shepherd Smith Edwards & Kantas, LLP

The US District Court for the Western District of Michigan says that under Oklahoma and Michigan laws, viatical settlements are securities. The court, however, did not rule on whether the instruments are securities under Texas law.

Investors in a number of states had sued Trade Partners Inc. and its affiliate partners for viatical settlements that were sold between 1996 and 2003. They wanted the courts to have the instruments declared securities under Texas, Oklahoma, and Michigan laws.

The court noted that earlier in the year, it found that under the Michigan Securities Act, the instruments were settlements under Michigan law. And, based on relevant information and the fact that in 2004, the Oklahoma Securities Act was amended and viaticals became included in the definition of what constituted an “investment contract” securities, the district court found that under the Oklahoma Securities Act, viatical settlements are securities.

The court pointed out, however, that the only Texas court that had considered the issue did not find that the instruments were securities under the Texas Securities Act. It also noted that the Texas Securities Board had told a defendant in a state criminal case that viaticals were securities. Because of these conflicting authorities, the district court opted not to determine whether, under the Texas Securities Act, viatical settlements are securities.

A viatical settlement is also called a life settlement. In this kind of transaction, a chronically ill or terminally ill person can sell his or her life insurance benefits to another party.

Oklahoma Uniform Securities Act of 2004

The Texas Securities Act

Michigan Legislature
Continue Reading ›

Rosenthal Collins Group LLC Settles CFTC Charges Over Failure to Enforce Compliance and Supervisory Procedures

Published on: September 15, 2008 | by Shepherd Smith Edwards & Kantas, LLP

Rosenthal Collins Group LLC has reached an agreement to settle Commodity Futures Trading Commission charges that it neglected to properly supervise employees and enforce compliance procedures. The futures commission merchant says it will pay $310,000 to settle the charges for violations that the CFTC says took place for over two years, between April 2003 and December 2005.The company also agreed to monitor and enforce its compliance rules in the future.

According to RCG’s compliance rules and procedures, issuing third party checks was prohibited unless the Compliance Department approved the checks or they were used to pay for a customer’s business expenses. The approval of the company’s compliance department was also required for any cash payments to customers.

The CFTC says that RCG did disburse cash to someone that worked for a New York Mercantile Exchange floor brokerage operation even though the worker was not an account holder that had been authorized to receive cash from the account. The futures commission merchant also disbursed a number of checks to third parties while failing to obtain the proper approval.

Related Web Resources:

CFTC Sanctions Rosenthal Collins Group, LLC $310,000 for Failing to Enforce Compliance Procedures and Diligently Supervise Employees, CFTC.gov, August 26, 2008
Rosenthal Collins Group, LLC
Continue Reading ›

SEC’s New IDEA Will Let Investors Easily Access Data About Public Companies and Mutual Funds

Published on: September 9, 2008 | by Shepherd Smith Edwards & Kantas, LLP

Securities and Exchange Commission Head Christopher Cox has introduced IDEA, an interactive system that will let investors more easily access key financial data about mutual funds and public companies. IDEA, which stands for Interactive Data Electronic Applications, Is the successor to the SEC’s EDGAR database and will eventually replace the older system.

The majority of SEC filings currently can only be accessed through EDGAR and in government-prescribed forms. Investors that access the information have to sift through each form and re-keyboard the data.

IDEA will let investors collate information from thousands of companies so that they can immediately generate analysis and reports. The new structure will allow both investors and the SEC to be prepared for when information related to financial disclosures are available in interactive form. The SEC has formally proposed that US investment firms provide their financial information in interactive form. A separate proposal has been made to mutual funds about the information related to their public filings.

Interactive data depends on computer “tags” that work like bar codes, which can identify each individually labeled item included in a company’s financial disclosures. Investors, journalists, analysts, and financial intermediaries would be able to take data from thousands of companies and download, reorganize, and analyze the information. The interactive data filings can be accessed through IDEA later this year.

Investors will still be able to access EDGAR while the transition to IDEA takes place, and EDGAR users can avail of IDEA-like features that will be available through the older system. EDGAR will also continue to serve as an archive for older filings. SEC’s Office of Interactive Disclosure Director David Blazkowsky called the agency’s decision to cross the ‘data threshold’ exciting.

EDGAR, SEC Continue Reading ›

Federal Judge Vacates Guilty Pleas Against Three NYSE Traders Charged With Securities Fraud

Published on: September 7, 2008 | by Shepherd Smith Edwards & Kantas, LLP

Judge Sidney H. Stein of U.S. District Court for the Southern District of New York has dropped the securities fraud violation charges against three ex-traders. The nolle prosequi orders conclude the Justice Department’s probe, began in 2005, against 15 New York Stock Exchange specialists for securities fraud violations. Stein set aside the guilty pleas of Van der Moolen USA LLC specialists Patrick McGagh and Joseph Bongiorno, while prosecutors dropped criminal charges against former LaBranche & Co. LLC specialist Freddy DeBoer.

The government had indicted the specialists on claims that they engaged in certain stock-selling practices to defraud investors. In November 2006, however, U.S. Attorney Michael Garcia announced that five the specialists would not be prosecuted. Also in 2006, charges against two of the defendants were dropped while two others were acquitted.

Three specialists were convicted in district court. However, this year, the U.S. Court of Appeals for the Second Circuit reversed all three convictions. The latest decisions mean that the government was not able to sustain even one criminal action it had filed against the 15 defendants.

In the 2005 indictment, McGagh and Bongiorno were charged with federal securities violations. They were accused of using their positions to defraud investors, including 15,620 instances of interpositioning to generate illegal profits over $1.38 million, causing over 8,630 instances of trading ahead, and causing over $1.36 million in customer harm. McGagh was also accused of causing more than 21,290 instances of interpositioning that led to illegal profits of over $3.43 million, over 4,200 instances of trading ahead, and over $1.24 million in customer harm.

Specialists match sellers and buyers at the NYSE. When there is an imbalance on the floor, they sell and buy shares.

More Guilty Pleas Vacated In Probe of NYSE Trading, Wall Street Journal Continue Reading ›

Two Former Credit Suisse Brokers Charged With Fraud and Conspiracy Related to Auction-Rate Securities Scam

Published on: September 3, 2008 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission and the US Attorney’s Office in Brooklyn are charging Eric Butler and Julian Tzolov, two ex-Credit Suisse brokers, with coming up with an auction-rate securities scam to mislead customers and increase their commissions. The fraud and conspiracy charges relate to the alleged deceptive sales of subprime-related auction-rate debt, and charges include violation of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The SEC is seeking permanent injunctive relief, disgorgement of ill-gotten gains, civil money penalties, and prejudgment interest.

Butler and Tzolov are accused of deceiving customers into thinking that ARS were backed by federally guaranteed securities loans that were a safe and liquid investment choice when, in fact, the securities that the men bought for clients were backed by collateralized debt obligations, subprime mortgages, and other non-student loan collateral.

The SEC says ARS scam resulted in clients purchasing over $1 billion in subprime-related securities. According to the complaint, Butler and Tzolov sent out e-mail confirmations to foreign corporate customers with short-term cash management accounts that included the terms “Education” and “St. Loan” added to the names of securities that were not related to student loans. The terms “Mortgage” and “CDO” were deleted from the emails.

As a result, investors were left holding over $800 million in illiquid securities once the market started to collapse. The value of their ARS have dropped significantly since then.

Credit Suisse says it is working with authorities on the case. The investment bank says it suspended the two men after they found out they were involved in prohibited activities. The SEC investigation is part of a larger probe into whether potential market manipulation, fraud, and breaches of fiduciary duty played a role in the problems the credit markets are experiencing.

Related Web Resources:

Ex-Credit Suisse Brokers Charged With Subprime, Bloomberg.com, September 3, 2008
SEC Charges Two Wall Street Brokers in $1 Billion Subprime-Related Auction Rate Securities Fraud, SEC, September 3, 2008
Read the SEC Complaint (PDF)
Continue Reading ›

US Labor Department Wants Whistleblower To Show that Sarbanes-Oxley Act Covers UBS Financial Services

Published on: September 2, 2008 | by Shepherd Smith Edwards & Kantas, LLP

Whistleblower and former UBS Financial Services Senior Vice President Timothy Flynn has been asked to show that the UBS AG subsidiary falls under the federal whistleblower statute. According to Flynn’s attorney, The US Department of Labor made the request. The department is in charge of enforcing the Sarbanes-Oxley Act’s whistleblower protection for employees who report alleged wrongdoings that occur publicly traded companies.

While UBS AG is publicly traded, the labor department wants Flynn to show that subsidiary UBS Financial Services is integrated into the Zurich-based company and is therefore covered by the act. Flynn’s lawyer, however, says that when a whistleblower is employed by the subsidiary of a publicly traded company, the subsidiary, along with the entire company, is subject to the same securities laws.

Flynn filed his whistleblower complaint against UBS Financial Services last June. He alleges that after he told Massachusetts regulators that the company did not tell its advisors that there were liquidity issues brewing within the auction-rate securities market, UBS financial services retaliated by locking him out of his office, preventing staff members from interacting with him, and suspending him from his job.

Last May, UBS Financial Services said it would return $37 million to the Massachusetts Turnpike Authority and the state municipalities that invested in ARS. The repayments are part of the settlement the company reached with the Massachusetts Attorney General. The agreement was reached after Flynn, the broker for many of these clients, testified.

Related Web Resources:

Labor Asks Whistleblower to Show Why Act Covers UBS Subsidiary, Wall Street Journal, August 31, 2008
Ex-UBS broker sues, alleging firm retaliated, Boston.com, July 3, 2008
The Sarbanes-Oxley Act

Same broker tied investors to UBS, May 16, 2008 Continue Reading ›

SEC Reaches Preliminary Settlement with Merrill Lynch, Pierce, Fenner & Smith to Liquidate About $8.5 Billion in Auction Rate Securities

Published on: September 1, 2008 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission says it has reached a preliminary settlement agreement with Merrill Lynch, Pierce, Fenner & Smith to liquidate about $8.5 billion in auction-rate securities that are still held by the firm’s institutional and retail investors. Small businesses, individual investors, and charities have until January 15, 2010 to accept Merrill’s offer to repurchase at par value some $7.5 billion in ARS. The investment bank will provide liquidity to some $1.5 billion in ARS that were purchased by institutional investors.

Merrill has “agreed in principal” to the terms of the agreement and is not agreeing to or denying the SEC allegations by settling. The SEC has accused Merrill of misleading thousands of clients into thinking that ARS were highly liquid and equivalent to cash or money market instruments even when the investment bank knew that the market was in trouble.

This settlement does not exempt Merrill from being named in civil lawsuits filed by investors seeking restitution for their losses. As part of its agreement with the SEC, Merrill says it will not deny liability for liquidity loss. The SEC is also evaluating whether an additional fine needs to be imposed on Merrill.

Merrill, along with Goldman Sachs Group Inc. and Deutsch Bank AG, also reached an auction-rate securities market settlement with New York Attorney General Andrew Cuomo. As part of its agreement with the NY AG, Merrill will buy back from retail clients, with account balances up to $4 million, up to $12 billion of illiquid ARS at par. It will also pay a $125 million penalty fee.

Related Web Resources:

SEC Enforcement Division Announces Preliminary Settlement With Merrill Lynch to Help Auction Rate Securities Investors, SEC, August 22, 2008
Continue Reading ›