Investor Lawyers Blog

Merrill Lynch Must Pay $26 million to States to Resolve Charges of Failure to License Associates

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

As a result of a widespread multi-state investigation which began in May 2008, Merrill Lynch Pierce, Pierce, Fenner & Smith Inc. has agreed to pay more than $26 million to settle claims that certain client representatives were not properly licensed in states where sales efforts were undertaken. The investigation, coordinated by the North American Securities Administrators Association (NASAA), discovered that 60 percent of the firm’s “client associates” were registered only in their home state, or in only one additional state.

States require that persons at securities firms involved in sales to client or prospective clients must be licensed in the states in which the persons contacted reside – with some de minibus exceptions. Although the Merrill Lynch associates were assisting the firm’s financial advisors, they were undertaking duties which required state licenses.

While states issue licenses based on a single multi-state examination, each also charges an annual fee for each representative of a firm licensed in that state. A financial advisor with a brokerage firm may have clients or prospective clients in a number, or even dozens, of states. If an advisor’s assistant is communicating with those clients or prospects in a sales capacity, he or she must be licensed in and a fee must be paid to each state as well.

Attention Schwab Yield Plus Investors: Deadline for Opting Out of Class Action So You Can File Your Own FINRA Arbitration Claim is December 28

Published on: December 21, 2009 | by Shepherd Smith Edwards & Kantas, LLP

One of the leading private advocacy groups in the country is urging investors who lost money in the Charles Schwab YieldPlus funds to opt out of the class action lawsuit so they can file individual arbitration claims. The Wall Street Fraud Watchdog sees no reason why you should accept up to 20 cents on the dollar when you can get back more with an individual claim filed with the Financial Industry Regulatory Authority. The deadline for opting out is Monday, December 28, 2009.

Investors that may qualify as class members acquired Schwab YieldPlus Fund shares between May 31, 2006 and March 17, 2008. In California, residents who held shares from this fund beginning September 1, 2006 also are part of this class action.

Like the Wall Street Fraud Watchdog, our stockbroker fraud lawyers believe it is unfair that investors should get so little back for so much investment. Shepherd Smith Edwards & Kantas LTD LLP represents investors throughout the US who suffered financial losses from investing in Schwab YieldPlus funds. Investors say they were deceived about the risks involved when the funds allegedly were marketed and sold as cash alternatives. Investors also have accused Schwab of leaving out key information in the YieldPlus funds disclosure and registration statements. Schwab denies the allegations.

Credit Suisse to Pay $536 Million Settlement For Violating US Sanctions With Secret Transactions from Iran, Libya, Cuba, Burma, and Sedan

Published on: December 19, 2009 | by Shepherd Smith Edwards & Kantas, LLP

The Justice Department says Credit Suisse will pay a $365 million settlement for violating US economic sanctions. According to US Attorney General and Manhattan District Attorney Robert Morgenthau, the bank carried out secret transactions from Cuba, Libya, Iran, Burma, and Sedan that allowed “rogue players access to US dollars.”

The Justice Department says Credit Suisse admits to violating the International Emergency Economic Powers Act. The probe has resulted in about $1 billion in fines for the banks involved in the case. Credit Suisse reportedly stopped doing this kind of business in 2005, cooperated with investigators, and took additional measures to prevent this type of activity from happening again.

Under Credit Suisse’s deferred prosecution deal, however, the investment bank could be subject to further prosecution if more problems arise.

Holder says Credit Suisse showed clients how to transfer payments without capturing the attention of US authorities. He also claims that Credit Suisse profited by disregarding the law. Among the illegal activities, according to the Manhattan’s district attorney’s office, Credit Suisse,

• Between 2002 and 2006, processed over $700 million in payments that were in violation of US sanctions.
• Processed $1.1 billion in payments while concealing their Iranian ties.
• Illegally invested $150 million for two banned state-affiliated banks, one in Sudan and another in Lebanon.

Several other banks are under investigation for disregarding US sanctions. Morgenthau promises these banks are facing harsh penalties. Earlier this year, Lloyds TBS agreed to pay $350 million for helping Sudan and Iran despite US sanctions. Last month, federal authorities confiscated about $500 million in real-estate and bank deposits from Alavi Foundation for allegedly facilitating intelligence and financial activities for Iran. In 2008, a Manhattan federal court froze $2 billion that Citigroup was allegedly holding for Iran.

Related Web Resources:
Credit Suisse fine bigger w/o cooperation- US, Forbes/Reuters, December 16, 2009
Credit Suisse’s Secret Deals, The Wall Street Journal, December 17, 2009
International Emergency Economic Powers Act
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Citigroup, J.P Morgan Chase, Morgan Stanley and Other Firms Added to Investigation of Goldman Sachs over “Front-Running” of Research

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

The Financial Industry Regulatory Authority ( FINRA) has launched an investigation into improper trading in advance of stock research and ratings at Citigroup, J.P. Morgan Chase, Morgan Stanley and ten other financial firms, it was reported today by the Wall Street Journal and Reuters News Service.

FINRA – formerly the National Association of Securities Dealers (NASD) – has since August examined weekly meetings at Goldman Sachs where research analysts offer tips to traders and then to big clients. According to the Wall Street Journal, this examination has now been expanded to include ten other firms and FINRA is now seeking information concerning any meetings where unpublished research opinions or trading ideas were disclosed to non-research employees or clients.

“FINRA does not reveal names of firms that have received sweep letters,” said its spokesman Herb Perone to Reuters. Citigroup, JPMorgan and Morgan Stanley could reportedly not be reached immediately for comment.
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Securities Fraud: Broker Sentenced for Selling High-Risk Short Term Funds to Four Pennsylvania School Districts

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

The broker who pleaded guilty to one count of securities fraud for selling risky securities to four school districts in Pennsylvania has been sentenced to one year and a day in federal prison. Robert Bradbury, 63, must also pay a $10,000 fine.

The Pennsylvania school districts that were the victims of Bradbury’s investment fraud scam are Red Lion, North Penn, Boyertown, and Perkiomen Valley. The securities fraud scheme cost taxpayers over $10 million.

From 1998 to 2004, Bradbury illegally sold bond-anticipated notes for the Whitetail golf project. According to Eastern District of Pennsylvania’s U.S. Attorney Pat Meehan, the broker, who had worked with the school districts for three decades, took advantage of their trust when he underwrote and sold them the notes but failed to fully disclose the nature of the investments and the risks involved. While the four school districts are only allowed to make investments that fall under certain conservative categories.

Lehman Brothers Sues Barclays for Billions Over Windfall Profit From Asset Sale Transaction

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

Lehman Brothers Holdings Inc. has filed an adversary complaint against Barclays Capital Inc. requesting the return of billions of dollars in extra profit that it says the latter made when buying Lehman’s North American brokerage business last year. Lehman says that Barclays failed to disclose that it received an illegal payment of at least $5 billion as part of the asset sale transaction. Barclays says that the asset sale terms were delineated in documents that Lehman executives signed.

Lehman is alleging breach of contract, aiding and abetting breach of fiduciary duty, and several violations of the US bankruptcy code. Lehman is seeking punitive damages, compensatory damages, post-judgment interest, return of excess assets, avoidance of excess asset transfers, disgorgement of ill-gotten gains, and, pursuant to Bankruptcy Code Section 502(d), disallowance of Barclays claims against Lehman Brothers Holdings Inc.

According to the adversary complaint, Lehman and Barclays executives made an agreement that Barclays would buy Lehman’s US brokerage business, key real estate pieces, and related support systems. A bankruptcy court approved the deal.

Now, however, Lehman claims that the Sale Transaction were secretly put together in a manner that gave Barclays a huge, immediate windfall profit: Specifically, an undisclosed $5 billion off the book value of assets that were moved to Barclays and later, the undisclosed transfers of billions of dollars in ‘additional value.’

Barclays, however, says that the $5 billion “discount” is in fact the difference between the $45 billion it paid and the $49.7 billion nominal value of Lehman collateral that Barclays assumed and paid for the Lehman assets.

Related Web Resource:
Read the Lehman Brothers Lawsuit
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Edward Jones and Merrill Lynch Brokers Like Where They Work, While UBS Representatives are the Least Happy

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

According to Registered Rep magazine’s latest Broker Report Card, 98% of Edward Jones brokers say their securities firm is the best place to work. 78% of Merrill Lynch brokers ranked their investment firm as the number the one workplace.

Findings were compiled from Internet surveys taken by 898 captive brokers last October. Other results:

• 73% of Morgan Stanley Smith Barney representatives gave their firm the top spot.

UBS Loses Lehman Arbitration Note Claim by Small Investor

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

In an arbitration case that could affect numerous cases that are still pending, a Financial Industry Regulation Authority panel awarded a small investor $200,000 after finding that a UBS Financial Services broker acted inappropriately when he sold high-risk Lehman Brothers Holdings Inc. principal-protected notes to the claimant.

The case involving Lehman notes is one of the first to be decided by a FINRA panel. While the ruling won’t establish a precedent, it could be an indication of how similar rulings may go in the future. “There are many cases pending against UBS and other firms that sold Lehman notes shortly before Lehman failed,” said stockbroker fraud attorney William Shepherd, whose firm, securities fraud firm Shepherd Smith Edwards & Kantas LTD LLP, is handling a number of such cases. “These cases often involve misrepresentations and omissions as well as unsuitability, since the investments were sold to clients who sought safety and income,” he added.

The claimant filed the arbitration claim accusing UBS of recommending structured products that are not suitable for “unsophisticated investors.” The broker purchased for the client a $75,000 return optimization note and a $225,000 guaranteed principal protection note. The FINRA panel determined that the claimant should be compensated for the principal protected note, in addition to legal fees and interest.

Although the amount awarded is less than what the investor hoped to recover, a UBS spokesman said the securities firm was disappointed that the claimant was awarded any damages and maintains the investor’s financial losses were a result of the collapse of Lehman Brothers.

Investor Wins Lehman Note Arbitration, Wall Street Journal, December 5, 2009
FINRA awards US investor in Lehman notes $200,000, Reuters, December 5, 2009 Continue Reading ›

Even as FINRA Lost $696.3 Million in 2008, its Executives Made Millions

Published on: December 7, 2009 | by Shepherd Smith Edwards & Kantas, LLP

Last year, 13 current and ex- Financial Industry Regulatory executives made over $1 million each, even as the regulatory organization posted a $696.3 million loss ($439 million in investment losses). Compensation included salary, retirement plan awards, and bonuses. This data, reported in Investment News, is found in FINRA’s latest tax reforms and annual report. Among the executives who received such hefty compensation in 2008:

• Michael D. Jones, former FINRA chief administrative officer: $4.43 million
• Mary Schapiro, now Former FINRA chief executive officer and now SEC Chairman: $3.3 million and $7.2 million for accumulated retirement benefits
• Elisse Walter, SEC commissioner: $3.8 million
• Douglas Shulman, who left the SEC in March 2008 to become Internal Revenue Service Commissioner: $2.7 million
• Susan Merrill, FINRA enforcement chief: Over $1 million

• Grace Vogel, FINRA member regulation’s executive vice president: Over $ 1 million
All employee compensation packages over $1 million was approved by FINRA’s management compensation committee.

FINRA’s compensation and benefits costs for its 2,800 employees went up 21.4% ($541.7 million) in (2008 from 2007) due to $30.3 million in benefit costs (including severance) from a larger retiree medical and savings plan and a voluntary retirement savings program. Also in 2008, another 400 employees joined FINRA’s payroll because of the company’s merger with NYSE Regulation.

Robert Ketchum, FINRA’s new chief executive , says that like everyone else, the SRO took a serious financial hit because of the credit crisis.

However, according to Shepherd Smith Edwards & Kantas LTD LLP founder and securities fraud lawyer William Shepherd: “This is yet another chapter in the saga of ‘Who regulates the regulators?’ But first, you should know that FINRA is no ‘authority’ at all. Instead it is a non-profit corporation owned by each and every securities firm that it regulates! How many of us are regulated by an ‘authority’ that we literally own? This also means that just before she became Chairman of the SEC, Mary Schapiro received $10 million that was mostly tax deferred as a parting gift from all the securities dealers! Now there’s a real incentive to be tough on Wall Street! Oh, and did I mention that FINRA runs its own ‘court system’ for anyone that wants to sue a broker or securities firm? Sometimes I feel like I live in Oz.”

Related Web Resources:
Finra execs pocketed millions in ’08, while SRO was in the red, Investment News, December 3, 2009
FINRA
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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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