Investor Lawyers Blog

Texas Securities Commissioner Not Convinced SEC Has Reformed Itself Since Madoff Ponzi Scam

Published on: December 5, 2009 | by Shepherd Smith Edwards & Kantas, LLP

Denise Voigt Crawford, the Texas securities commissioner and current North American Securities Administrators Association president, says it isn’t evident that the US Securities and Exchange Commission has implemented key reforms to the issues that allowed the agency to fail to detect Bernard Madoff’s $50 billion ponzi scheme for almost 20 years. Speaking at the National Press Club on Friday, she accused the SEC of not doing enough to support legislation intended to increase investor protection.

Crawford claims staffers that work for the SEC hardly interact with investment fraud victims. Because many SEC employees would like to work on Wall Street, she contends that this makes it difficult for agency members to properly oversee a securities firm that could potentially become a future employer.

Seeking to make a number of changes to the financial-overhaul bill currently moving through Congress, NASAA wants states securities regulators to have jurisdiction over securities firms that manage up to $100 million in assets. It also wants broker/dealers, and not just investment advisers, to be subject to a fiduciary standard when giving investment advice. NASAA wants to terminate mandatory pre-dispute arbitration clauses that make investors to pursue their securities fraud claims in arbitration proceedings run by Financial Industry Regulatory Authority.

Responding to Crawford’s comments, SEC spokesperson John Nestor called her statements “uninformed” and cited the agency’s proposal of the Investor Protection Act, its hiring of senior management, reforms made to internal operations, new rulemaking that is focused on investors, and an increase in investigations and penalties as among the numerous “dramatic” changes that the SEC has implemented since Madoff’s massive ponzi scam was discovered.

Related Web Resources:
State regulator: Jury still out on SEC post-Madoff, AP/Yahoo! News, December 4, 2009
2nd UPDATE:Texas Securities Regulator:’Jury Is Still Out’ On SEC Reform, Wall Street Journal, December 4, 2009
Texas State Securities Board

North American Securities Administrators Association
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SEC Submits Amended Complaint Against Bank of America Over Merrill Lynch Merger and Executive Bonuses

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

The US Securities and Exchange Commission’s amended complaint regarding the acquisition of Merrill Lynch by Bank of America Corp. last January includes one new assertion. In addition to the SEC’s original allegations against Bank of America, the agency now says that the investment bank was in violation of proxy regulations when it did not provide a merger agreement schedule, as well as a list identifying what would have been included in the schedule.

At the center of the SEC lawsuit is Bank of America’s proxy disclosure to shareholders that it wouldn’t pay year-end bonuses to Merrill executives. Yet, even as Merrill posted a record $27.8 billion loss last year, its executives were paid $3.6 billion.

BofA and the SEC initially attempted to settle the allegations for $33 million. Federal Judge Rakoff, however, wouldn’t sign off on what he considered both a swift resolution to an embarrassing situation for the bank and an attempt to make it appear as if the SEC was engaged in enforcement.

Rakoff accused SEC of not being hard enough on Bank of America, which it is supposed to regulate, even as shareholders suffered. He also accused the defendant of neglecting to take responsibility for its actions, which forced taxpayers to bail out the investment bank. A trial is scheduled to begin on March 1.

The US Congress and New York Attorney General Andrew Cuomo are also investigating the merger between Bank of America and Merrill Lynch.

Throughout the US, our securities fraud law firm represents investors who have suffered financial losses because of broker-dealer misconduct.

Related Web Resources:
SEC’s Amended BofA Complaint: New Claims, but No New Defendants, Law.com, October 23, 2009
Judge Rejects Settlement Over Merrill Bonuses, NY Times, September 15, 2009
SEC Fines Bank Of America $33 Million Over Bonuses, Consumer Affairs, August 3, 2009 Continue Reading ›

The Investor Protection Act is Approved by House Financial Services Committee

Published on: December 2, 2009 | by Shepherd Smith Edwards & Kantas, LLP

The US House Financial Services Committee has voted to pass the Investor Protection Act, which is part of a package of bills focused on widening financial industry oversight and investor protection. The bill increases the US Security and Exchange Commission’s authority and doubles the agency’s funding, giving it another $1.115 billion for the 2010 fiscal year.

HR 3817 has a clause that would exempt businesses with a $75 million or lower value from a Sarbanes-Oxley requirement that auditors must verify management’s declaration regarding a concern’s internal controls over financial reporting. The SEC had exempted small businesses from SOX”s Section 404(b) attestation requirement, and the exception was to be lifted in 2011. Another amendment added to the bill would confirm the SEC’s authority to rule on shareowners’ right to vote on corporate board directors.

The Investor Protection Act also terminates the inclusion of mandatory arbitration in contracts in the event that investors wish to file securities fraud claims. It also enforces the fiduciary obligation that investment advisers and broker dealers have to make client’s interests their priority.

Whistleblowers would be given incentives for cases leading to sanctions of over $1 million. The SEC would be able to pay a reward of up to 30% of sanctions to the informants involved. The agency could also issue fines for cease-and-desist cases. It would also have greater subpoena powers.

The House Financial Services Committee has recommended other bills compelling a number of derivatives that are privately traded “over the counter” to pass through regulated exchanges and clearing houses. The bill also calls for dealers to be subject to more extensive transparency, business conduct, and capital requirements. It lets investors file lawsuits against investment firms that recklessly or knowingly publish ratings that are inaccurate and compels private equity and hedge fund advisers to register with the SEC.

Financial Services Committee Approves Investor Protection Act, House.gov, November 4, 2009
House Committee Approves Investor Protection Act, SocialFunds.com
House Financial Services Committee

Sarbanes-Oxley Act 2002
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Braintree Appeals to Keep Auction-Rate Securities Lawsuit Against Citigroup in Court

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

Braintree Laboratories Inc. is asking the U.S. Court of Appeals for the First Circuit to keep its auction-rate securities lawsuit against the brokerage division of Citigroup Inc. in court. A federal court had ordered the proceedings into arbitration.

Last April, the pharmaceutical company sued Citigroup for securities fraud, accusing the investment bank of misrepresenting $33.2 million in ARS as “liquid,” government-supported “money market” investments that could be sold following seven days notice when Citigroup allegedly knew that the investments were auction-rate securities that were illiquid, subject to failed auctions, and not redeemable until 2030.

Braintree also contends that Citigroup used misleading and false descriptions to prevent clients and regulators from finding out that it was still selling these “toxic instruments.” The pharmaceutical company is accusing Citigroup of destroying key evidence related to the alleged fraud.

Braintree purchased the ARS from Citigroup between June and August ’08. The ARS market froze in early 2008.

Citigroup has agreed to give back $7.5 billion to individual clients, charities, and small businesses that suffered ARS losses when the market collapsed. The broker-dealer is also promising to put its best efforts toward liquidating some $12 million in ARS that were purchased by institutional investors, including retirement plans, by the end of 2009.

As Shepherd Smith Edwards and Kantas Founder and Stockbroker Fraud Lawyer William Shepherd points out, “Most securities firms have agreed to repurchase Auction Rate Securities from smaller investors, but our firm is representing many large investors who remain in ‘ARS limbo.’ It is very important for these investors to hire skilled attorneys to protect their rights before time limits expire to take action! We have found many firms are dragging out discussions with investors but only paying those who take legal action.”

Related Web Resources:
ARS Investor Fights To Keep Citigroup In Court, Law 360, November 11, 2009
Citi sued over auction-rate securities, Reuters, April 17, 2009 Continue Reading ›

FINRA Bars Former Piper Jaffray & Co. Broker from Industry for Insider Trading

Published on: November 25, 2009 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority is barring a former Piper Jaffray & Co. broker from the securities industry. The broker was accused of insider trading. He has agreed to the ban and has settled the FINRA charges without denying or admitting wrongdoing.

From 2007 until this July, the broker worked in Piper Jaffray & Co.’s investment banking department. Piper Jaffray was the confidential adviser of SoftBrands while the company considered potential buyers. Those at the advisory firm with access to information about the acquision were not allowed to buy SoftBrands shares. Yet on June 4 and 5, this broker bought 27,161 SoftBrands shares. On June 12, when SoftBrands announced its acquisition by Golden Gate Capital and Infor Global Solutions-an $80 million transaction. SoftBrands’s stock price almost doubled.

The shares at issue, previously bought at $.42 and.$.45 per share, were then sold at $.89 per share resulting in a profit of $11,955 on the transactions.

Fighting Senior Investment Fraud: Panel Calls for SEC, Labor Department, and Treasury Department to Work Together

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

Participants at an AARP/National Consumer League panel called on federal regulators from the US Labor Department, Treasury Department, and the Securities and Exchange Commission to work together when combating elder financial fraud.

North Carolina deputy securities administrator David Massey said not only must federal regulators from the different departments identify common interests and ways to work together, but also they must examine all regulatory gaps. He cited the fact that the 1996 National Securities Markets Improvement Act limits state regulatory authority over certain private offerings (Rule 506 offerings under Regulation D of the 1933 Securities Act).

Meantime, senior policy advisor Jeff Cruz encouraged the different federal arms to work together to combat fraud related to 401K retirement plans. He says that the recent change from benefit pension plans that were professionally managed to defined contribution plans is making retirees and seniors more vulnerable to financial fraud. He also recommended that the Department of Labor audit 401K plans.

Number of Securities Lawsuits Increased During 3rd Quarter

Published on: November 20, 2009 | by Shepherd Smith Edwards & Kantas, LLP

According to commercial insurance consulting firm Advisen, 169 securities lawsuits were filed during 2009’s third quarter-an 11% increase from the 152 complaints that were filed during the previous quarter. 249 securities lawsuits were filed in the 1st quarter.

The most common kind of securities lawsuit filed this past quarter was securities fraud lawsuits that were brought by law enforcement agencies and regulators. 70 securities fraud complaints and 55 securities class actions were filed during 3Q. 50 securities fraud complaints and 38 cases were filed in the 2Q.

Advisen Executive Vice president Dave Bradford says the percentage of securities fraud lawsuits is expected to grow now that the Securities and Exchange Commission appears to be increasing its securities fraud enforcement initiatives under President Barack Obama. The SEC has been attempting to recoup from its failure to detect the $50 billion Ponzi scam that Bernard Madoff ran for years.

Obama Administration Supports Investors’ Securities Fraud Lawsuits Against Merck

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

Taking the side of investors who are suing Merck for securities fraud, the Obama Administration filed an amicus brief last month arguing that the plaintiffs did not wait too long to file their complaints against the drug manufacturer. use. The painkiller drug was taken off the market in 2004. However, investors are accusing the company of misrepresenting how safe Vioxx was for use.

Investors are suing Merck for billions. They claim that they ended up paying inflated prices for Merck stock because the drug maker downplayed clinical trial test results that appeared to link Vioxx with a greater risk of heart attack. The investors filed one of several securities fraud lawsuits in 2003. At issue in the US Supreme Court case is whether investors should have realized sooner that fraud might have occurred.

Merck claims that investors should have filed their complaints earlier since by late 2001 there was already a lot of information out there alluding to possible misstatements by Merck about Vioxx. Merck has said it acted properly and in a timely manner when it did tell the scientific community and the US Food and Drug Administration about the Vioxx-related info.

The amicus brief, filed by U.S. Solicitor General Elena Kagan, is another indicator that the Obama administration may be more supportive than the Bush Administration of investor lawsuits. According to Shepherd Smith Edwards and Kantas Founder and Stockbroker Fraud Attorney William Shepherd, “It is an oddity to see our government take a legal position on behalf of investors! This may be the first time in a decade that I have seen an official legal position that is contrary to the vested position of Wall Street.”

Kagan says that the investment fraud lawsuits were filed in a timely manner because the plaintiffs did not know and could not have known about Merck’s alleged Securities Exchange Act Section 10(b) violations more than two year before they filed the complaints. She wants the Supreme Court to affirm the appeals court’s ruling that the shareholder complaint was timely. Per federal law, plaintiffs must file their securities fraud complaint within two years after finding out about the violation.

Related Web Resources:
Obama Sides With Investors in Merck Lawsuit, SmartMoney, October 26, 2009
U.S. Supreme Court to Hear Merck Appeal on Reinstated Investor Lawsuit, Insurance Journal, May 27, 2009
Merck & Co.
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JP Morgan Chase to Pay $75 Million in Penalties and Forfeit $647 Million to Settle SEC Charges Over Alleged Municipal Bond Payment Scam

Published on: November 16, 2009 | by Shepherd Smith Edwards & Kantas, LLP

JP Morgan Chase has settled Securities and Exchange Commission charges that the securities firm was allegedly involved in an illegal payment scam to get municipal securities business from Jefferson County, Alabama. As part of its settlement with the SEC, JP Morgan Chase agreed to pay penalties of $75 million and forfeit $647 million in termination fees that it says the county owes. JP Morgan Securities will also pay Jefferson County $50 million, as well as a $25 million penalty. By agreeing to settle, the securities firm is not admitting to or denying the commission’s charges.

The SEC had accused JP Morgan Securities and former managing directors Douglas MacFaddin and Charles LeCroy of making over $8 million in undisclosed payments to friends of certain Jefferson County commissioners. These friends either worked for or owned broker-dealers in the area. The SEC says that these payments led to the commissioners voting for JP Morgan Securities as its managing underwriter of bond offerings. They also voted for JP Morgan Securities’s affiliated bank as the transactions’ swap provider.

The SEC claims JP Morgan Securities charged Jefferson County higher interest rates on swap transactions. This allowed it to pass on the unlawful payments’ costs. According to Robert Khuzami, SEC Enforcement Director, senior bankers with JP Morgan made illegal payments to earn fees and garner business.

The SEC has filed a civil lawsuit against LeCroy and Macfaddin. The SEC is accusing the two men of committing securities fraud for allegedly directing the illegal payments to the Jefferson County commissioners’ associates.

The commission claims the two men knew that the transactions, which occurred between October 2002 and November 2003, were “sham transactions.” The SEC says the men’s failure to disclose these payments or related “conflicts of interest” to either Jefferson County or bond offering investors or the county in the challenged swap agreements deprived those involved of swap agreement negotiations and bond underwriting processes that were impartial and objective. The SEC is seeking disgorgement plus prejudgment interest and permanent injunctions against the two men.

Related Web Resources:
JPMorgan to Pay $75 Million in Alabama Case, NY Times, November 4, 2009
Read the civil complaint (PDF)

Read the administrative complaint (PDF)
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Stifel Financial Corp. Sees 73% 3rd Quarter Earnings Rise and Completes Purchase of 56 UBS Financial Services Inc. Branches

Published on: November 13, 2009 | by Shepherd Smith Edwards & Kantas, LLP

Even as Stifel Financial Corp. continues to deal with securities fraud lawsuits and claims accusing the broker-dealer of misrepresenting the risks associated with investing in auction-rate securities, the company exhibited a 73% increase in 3rd quarter earnings due to a growth in transaction revenue.

Its profit posted at $22.1 million, an increase from earlier this year when it’s posted profit was $12.8 million. Net revenue hit $289.7 million-a 32% increase. Principal transaction revenue went up 81%, hitting $123.2 million. Commissions went up to $90.9 million-that’s a 2.5% increase.

Stifel has been working to turn its business into a full-service investment bank and its subsidiary, Stifel, Nicolaus, & Co., recently completed its buy of 56 UBS Financial Services Inc. branches, which it purchased for at least $46 million. Stifel says the deal should increase the company’s earnings within the first year.