Investor Lawyers Blog

Number of FINRA Arbitration Claims Rose in 2009 Following Market Crisis

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

According to FINRA dispute resolution president Linda Fienberg, the market turmoil of the last two years has led to an increase in the number of arbitration cases filed, as well as a change in the the kinds of claims that are submitted. Fienberg made her statements before the DC bar.

7,134 arbitration files were submitted last year-a definite increase from the 4,982 arbitration cases filed the year before and the 3,238 arbitration cases submitted in 2007. Fienberg said that the number of cases filed goes up when stock prices go down. For example, when the dotcom bubble burst, nearly 9,000 arbitration claims were submitted in 2003.

Fienberg told the group that in the wake of the auction-rate securities crisis, more large corporations filed claims over frozen assets last year. The last two years also saw an increase in claims over mutual funds, making this type of fund the most common security cited in arbitration cases.

Schwab YieldPlus and Morgan Keegan RMK Funds Among Worst Mutual Fund Disasters of the Last Decade, According to US News & World Report

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

US News and World Report says that the first decade of the 21st Century for fund investors got worse after the dotcom bubble burst in 2000. The media publication picked its 10 worst fund disasters:

Reserve Primary Fund: Investors scrambled to cash in shares after the fund’s price sank to over $1/share on September 16, 2008. According to US News & World Report, the Reserve Primary Fund’s biggest mistake was relying too much on Lehman Brothers, which left the fund with $785 million in worthless bonds when Lehman collapsed. Meantime, other funds found themselves in trouble as panic spread. Three days later, the federal government said it would temporarily insure money market funds.

Market timing scandal of 2003: Funds were accused of illegal late trading and front running that showered favor on more influential investors-leaving ordinary retail investors in a state of mistrust toward the institutions they had turned to for securing their retirement savings. Bank of America, Janus, Putnam, and PBHG were just a few of the financial firms accused of market timing, though the practice appeared to have permeated the entire fund industry to some extent.

SunTrust Robinson Humphrey Ordered to Pay $4.1 Million to Former Institutional Salesperson for Alleged Defamation and Wrongful Termination

Published on: January 7, 2010 | by Shepherd Smith Edwards & Kantas, LLP

A FINRA arbitration panel is ordering SunTrust Robinson Humphrey, Inc. to pay $4.1 million to a former institutional salesperson who claims he was defamed in a regulatory filing and wrongfully terminated. SunTrust Robinson Humphrey is the corporate and investment bank services unit of SunTrust Banks, Inc.

Lance B. Beck, who worked for the company 19 years and sold debt securities, claims he was slated to gross more than $3 million when, following the auction-rate securities market collapse, he was let go. According to a regulatory filing for the former institutional salesman, his case against his former employer involves a $2.9 million ARS transaction with a institutional customer. SunTrust later decided to repurchase the securities.

Beck is accusing SunTrust of making disclosures on his Form U5 that were “devastating,” and prevented him from getting hired by other companies or take his book of business with him. Beck wanted certain language in the form, which brokerage firms have to submit to regulators when a broker leaves the company, expunged.

Investors of Robert Bentley Ponzi Scam Suffer Setback as Court Overturns $32.7 Million Verdict Against Brokerage Firm and Investment Bank

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

On Monday, the victims of Robert Bentley’s $1 billion Ponzi scam suffered a setback when a federal appeals court overturned a $32.7 million jury verdict against Peninsula Bank of Delray Beach, its ex-executive vice president, Joseph Marzouca, Southeastern Securities, Inc., and its president Theodore Benghiat. The defendants are accused of helping to keep Bentley’s Ponzi scheme going.

Per court documents, Entrust Group and Bentley Financial Services Inc. misled investors by making them believe they were buying federally insured CD’s when they were actually buying unregistered IOU’s. David H. Marion, the receiver of Bentley’s companies in Paoli, Pennsylvania, says the Ponzi scam would have fallen apart much sooner without the defendants’ help.

The jury found that the brokerage firm and the bank either helped or conspired with Bentley to defraud investors. They said Southeastern Securities and Benghiat should pay almost $19.7 million and Peninsula and Marzouca should pay approximately $13.1 million.

Number of Ponzi Scam Collapses Increased Significantly Last Year

Published on: January 4, 2010 | by Shepherd Smith Edwards & Kantas, LLP

The number of Ponzi scams that fell apart increased by nearly four times in 2009, compared to the year, before resulting in over $16.5 billion in investor losses. This figure comes from the Associated Press, which analyzed Ponzi schemes in all US states.

Additional findings from the AP analysis:

• Over 150 Ponzi schemes fell in 2009 • 40 scams collapsed in 2008 • Allen Stanford’s $7 billion international Ponzi scam and Scott Rothstein’s $1.2 billion scheme were among the larger plots that fell apart last year
Bernard Madoff’s $65 billion Ponzi scam wasn’t calculated into last year’s figures because he was arrested at the end of 2008.

In addition to increased enforcement efforts, the economic collapse can be credited with the discovery of many schemes that may have otherwise gone undetected. The number of people willing to invest in new ventures went down in 2009 while current investors rushed to pull out their money. As Ponzi scammers rely on new investors to not only pay the old investors but also fund their expensive lifestyles, many schemes collapsed. The discovery of Madoff’s Ponzi scam has also made investors more wary and regulators more alert.

Another scam of note is Tom Petters’ $3.65 billion scheme. Petters used Petters Group Worldwide, LLC to run his Ponzi scam. He is in prison waiting to receive his sentence. He could be sentenced to a life prison term.

In 2009, the Federal Bureau of Investigation opened over 2,100 securities fraud probes. That’s 350 more investment fraud investigations than the number of investment probes that were opened in 2008. The FBI had 651 agents working on high-yield investment fraud investigations last year. Also in 2009, the US Securities and Exchange Commission issued 82% more restraining orders against securities fraud cases than they did in 2008. Ponzi scams now compromise 21% of the SEC’s enforcement workload-up from 9% in 2005.

The number of civil actions (31) that the Commodity Futures Trading Commission filed last year has more than doubled since 2008. Many securities fraud cases from last year have not yet gone to trial.

Related Web Resources:
AP: Ponzi collapses nearly quadrupled in ’09, Yahoo, December 28, 2009
2009: The Year of the Ponzi, ABC News
Charles Ponzi
Continue Reading ›

Goldman Sachs Executives Sued by Pension Fund Over Bonuses

Published on: December 31, 2009 | by Shepherd Smith Edwards & Kantas, LLP

A shareholder derivative complaint filed by Security Police and Fire Professionals of America Retirement Fund and Judith A. Miller Living Trust is accusing Goldman Sachs Group Inc. executives of breaching their fiduciary duties for failing to modify the investment firm’s compensation policies according to the best interests of shareholders.

Goldman’s usual policy is to place 44-48% of its net revenue in employee compensation, which includes bonuses. The plaintiffs say these breaches were even greater this year because of federal funding that the investment bank received in 2008 and 2009. According to the complaint, this means that although the firm’s revenues are not related to employee performance, Goldman executives are still being rewarded for corporate performance.

Goldman Sachs is expected to pay its employees about $22 billion (including bonuses) this year. Now, the plaintiffs are seeking to recover billions of dollars in compensation.

Goldman Sachs was the recipient of a $10 billion TARP loan. Pension fund officials claim the investment firm’s revenue for the year can largely be attributed to taxpayer money. In 2008, Goldman generated $29 billion in cash by issuing debts that the Federal Deposit Insurance Company had insured. It then obtained money from contractual counterparties that got their assets from taxpayers.

Meantime, Goldman Sachs says the claim is without merit. Earlier this month, the investment firm announced that its 30 most senior executives would receive their bonuses in the form of restricted stock instead of cash.

Goldman Sachs CEO Lloyd Blankfein is one of the executives named as defendants in the lawsuit.

Related Web Resources:
Read the Shareholder Derivative Complaint (PDF)

Pension fund sues Goldman over executive pay, Pensions and Investments, December 15, 2009 Continue Reading ›

Judge Rejects ‘Fat Cat’ JPMorgan Chase’s $9,122 Bill for Producing Subpoenaed Documents

Published on: December 29, 2009 | by Shepherd Smith Edwards & Kantas, LLP

A judge has turn down JPMorgan Chase‘s request that a petitioner pay the investment bank $9,122 for providing subpoenaed documents to confirm an arbitration award. Instead, Judge Arthur Schack issued an 11-page ruling granting just $1.250.27 to JPMorgan Chase for producing 18,248 pages.

The investment bank had sought to bill Abraham Klein, who was granted a multimillion-dollar arbitration award against Caring Home Care Agency and Christine Persaud, $.25/page at $25/hour for 182 hours of research. JP Morgan Chase said it cost $4,550 to find and retrieve the documents and $4,580 to print them.

Schack called the astronomical bill an example of greed among Wall Street’s ‘fat cat bankers.’ He noted that the court does not serve as a collection agency for making rich bankers even richer and called JPMorgan Chase head James S. Dimon the investment firm’s “fattest cat,” considering that he was compensated almost $20 million last year.

Schack reduced JPMorgan Chase’s bill by lowering the quoted hourly fee to $6.55, which is Indiana’s minimum wage. He also awarded the investment bank 1 cent/ page based on page prices found on major stationary supplier Web sites. He also said that because JPMorgan Chase posted 16,317 of the 18,248 pages online, rather than printing them, the bank should receive payment for labor and not supplies for those pages.

Klein says that not only did JPMorgan Chase seek reimbursement for documents it never produced, but also it sent over thousands of documents that hd did not request. JPMorgan Chase is denying the allegations.

There have been too many occasions involving investment banks that have sought to take financial advantage of investors and other clients. You can obtain compensation for the financial harm that you have suffered.

Related Web Resources:
Judge Slashes ‘Fat Cat’ Bank’s Bill for Subpoenaed Documents, Law.com, December 28, 2009
Courts See Recession’s Toll; Judge Schack Strikes Again, The Wall Street Journal, December 28, 2009
Obama Slams ‘Fat Cat’ Bankers, Wall Street Journal, December 14, 2009
Judge Arthur Schack, NY Courts Continue Reading ›

SEC Accuses Austin Advisor, Triton Financial, and Triton Insurance of Texas Securities Fraud Scam Involving Former NFL Football Players

Published on: December 28, 2009 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission has filed charges accusing Austin investment adviser Kurt B. Barton and his two firms, Triton Insurance and Triton Financial, of committing Texas securities fraud and raising over $8.4 million from about 90 investors. Former football stars were used as bait to target former NFL players as potential investment fraud victim.

The SEC claims the defendants used salespersons, stockbrokers, and former football players, including previous Heisman trophy winners and ex-NFL players, to sell Triton securities to potential clients. The agency says that the use of ex-football stars allowed Barton and Triton to appear legitimate and gain investors’ trust.

Potential investors were allegedly told that their money would be used to buy an insurance firm. The SEC claims such representation were bogus. Instead, the agency claims that investors’ funds were used to pay for daily expenses at the two companies.

Texas Securities Fraud: SEC Freezes Assets of Fourth Person Involved in Alleged $485 Million Ponzi Scheme

Published on: December 23, 2009 | by Shepherd Smith Edwards & Kantas, LLP

Earlier this month, the US Securities and Exchange Commission was able to get a temporary restraining order to the freeze the assets of Joseph Blimline, the fourth person accused of masterminding a $485 million Ponzi scheme involving Provident Royalties LLC. The SEC charged three other individuals, Brendan Coughlin, Paul Melbye, and Henry Harrison, in July. Their assets were also frozen.

In its amended complaint, the SEC alleged that Provident, owned by the four defendants, advanced approximately $93 million of investor funds to Blimline and entities that he controlled for the purchase of gas and oil interests. The fund repayments and the title, however, frequently did not go to Provident. The SEC also accuses Blimline of failing to disclose that he received the funds, was involved with Provident management, and had been sanctioned in the past by Michigan securities authorities.

The SEC’s amendment complaint charges the four men with violating the Securities Act of 1933 (Section 17a) and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. The SEC is seeking preliminary and permanent injunctions, financial penalties, disgorgement of ill-gotten gains, and prejudgment interest.

Director and officer bars are also being sought against the four defendants for allegedly committing Texas securities fraud. 36 affiliated entities are named as relief defendants for disgorgement purposes.

New Judge in Securities Fraud Case Involving Former Brokers Previously Affiliated with Capital Growth Financial, Wachovia Securities, and VSR Financial Services

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

A new judge will preside over the case against two former brokers accused of defrauding over 130 Nebraska investors of over $20 million. Gage County District Judge Paul Korslund takes over for Sarpy County District Judge David Arterbur, who recused himself over possible conflicts.

Prosecutors are accusing Brian Schuster and Rebecca Engle, previously affiliated with Wachovia Securities LLC, Capital Growth Financial LLC, and VSR Financial Services Inc., of improperly selling risky investments to former clients when they worked together between 2000 and 2007. The two of them entered not guilty pleas to eight felony counts of securities fraud.

The investments under dispute were sold to investors while Capital Growth employed the two brokers. Investors say they bought securities in American Capital Corp. and Royal Palm. PrimEdge Inc. eventually bought both companies and Schuster became PrimEdge chief executive and president.

Over 200 investors will share a settlement of approximately $900,000 to be paid by the brokers’ ex-employers. Quanta Specialty Lines Insurance Co. will pay for most of it on behalf of Capital Growth. However this recovery is just a small portion of the over $20 million dollars in broker fraud losses that investors are claiming.

The majority of investors that have filed securities fraud lawsuits and arbitration claims were either nearing retirement or already retired when they were defrauded. They had wanted to make stable, low risk, conservative investments and they claim that the former brokers made investments for them in risky ventures without fully explaining what was involved. Engle and Schuster, however, say they shouldn’t be prosecuted for securities fraud because investors acknowledged the risks in writing.

Related Web Resources:
Judge appointed in fraud cases of ex Neb. Brokers, AP, December 22, 2009 Insurer to Pay Bulk of $900K Settlement in Nebraska Fraud Case, Insurance Journal, July 23, 2009 Continue Reading ›