Investor Lawyers Blog

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.

Securities America & Ameriprise Financial Inc. Sued For Selling Allegedly Faulty Private Settlements

Published on: November 10, 2009 | by Shepherd Smith Edwards & Kantas, LLP

A securities fraud lawsuit filed in federal court is suing Securities America and parent company Ameriprise Financial Inc. for selling allegedly faulty private placement offerings even after W. Thomas Cross, a Securities America executive, expressed concerns that the sales could result in a “panicked run on the bank.” The lawsuit’s plaintiff, Florida resident Ilene Grossbard, invested $112,000 in Medical Capital’s fifth deal in March and April. The complaint may become a class action lawsuit.

According to the complaint, Securities America advisers was still selling Medical Capital securities in the form of notes worth hundreds of millions of dollars in October of last year. Securities America, however, is discounting the claim that the company’ advisers continued selling the Med Cap notes even after Cross voiced his concerns.

Last July, the SEC charged Medical Capital Holdings with securities fraud over the sale of $77 million in private securities as notes. Now, a court receiver is questioning the worth of the medical receivables’ holding company. The company has raised $2.2 billion from investors.

SEC to Continue Fight Against Senior Investment Fraud in 2010

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

The Securities and Exchange Commission is stepping up its efforts to combat senior investment fraud. In 2010, the SEC plans to focus on issues related to retirement investments, including product development, disclosures, and marketing issues.

The need to better regulate the retirement products arena and actively take action against securities fraud that targets elderly people has increased now that some 55 million senior investors are involved in defined contribution plans. The SEC is currently taking a closer look at life settlements (also called viatical settlements) and target date funds.

Viatical settlements involve transactions made by chronically ill or older people who sell their life insurance policy benefits to investors. In turn, these investors pay the premiums and collect the payout upon the seller’s death. According to the Senate Special Committee on Aging, the life settlement industry has doubled in value in the last 3 years and will likely exceed $150 billion in a few decades.

At this time, the SEC has limited authority over life settlement securities, which fall under its purview when they are solid in capital markets but also are sold in private offerings. On October 22, SEC Chairperson Mary Shapiro spoke at an American Association of Retired Persons forum. She called the life settlement market one of “emerging interest” and said its products could become Wall Street’s “next big securitized products.” The SEC has established a task force to determine whether this area of the market is regulated enough.

Shapiro expressed concern that many seniors may not comprehend the consequences of selling their life insurance policies to investors. She noted that tax benefits and the ability to get life insurance later on can be lost.

Shapiro says the commission is looking at target date funds and a target date’s use in the fund’s name. Target date funds are vehicles for college savings and retirement plans that move toward more conservative holdings as a specific date approaches. The SEC is taking a closer look at marketing and advertising collaterals to figure out if investors are getting accurate information about these products. Shapiro noted that some target-date funds lost up to 40% of their value when the economy collapsed last year.

Related Web Resources:
Schapiro: Settlements Need Watching

AARP

SEC
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Stifel, Nicolaus & Co. and AXA Advisors Broker Charged in Ponzi Scheme Victimizing Church Members

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

Former Stifel, Nicolaus & Co. and AXA Advisors broker Kenneth Neely has pled guilty to one count of mail fraud for setting up a Ponzi scheme that targeted at least 16 investors. Yesterday, Missouri Secretary of State Robin Carnahan announced that she has shut down the scam.

The 56-year-old St. Peters, Missouri broker got his clients to invest in a bogus St. Charles real estate investment trust. He promised high return rates and “no risk,” raising over $640,000 in investor funds. Federal prosecutors say clients paid about $3,000/share or unit.

At the time Neely was committing securities fraud (from 2001 – July 2009) he worked for broker dealers AXA Advisors and Stifel, Nicolaus & Co. He told clients to make checks payable to him and his wife.

Missouri Securities Law makes it illegal for a broker to “sell away,” which involves selling investments off a firm’s books.

Neely has 30 days to respond to Missouri’s cease-and-desist order. Federal brokers have barred him from working as a broker. Investor victims that lost some $400,000 included people that belonged to his church, friends, relatives, and acquaintances. Some people lost their savings because of the Ponzi scheme. Nealy used some of the money to pay for his personal expenses and debt.

Neely’s sentencing is scheduled for January 2010. He faces up to 20 years in prison, restitution, and up to $250,000 in fines.

Related Web Resources:
Carnahan Uncovers Ponzi Scheme in Saint Charles, SOS.Mo.Gov, November 4, 2009
St. Peters broker admits Ponzi scheme, St. Louis Business Journal, November 4, 2009
FINRA Permanently Bars Former Broker for Stifel, Nicolaus & Co. Inc and AXA Advisors For Ponzi Scheme, Stockbroker Fraud Blog, August 3, 2009 Continue Reading ›

CIT Group Bankruptcy Exposes Fraud Against Many Investors Who Were Sold Preferred Stocks And Bonds

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

Many investors were told that investing in CIT preferred stock and bonds was safe and appropriate for them. Some sales pitches were based on the $2.3 billion government bailout of CIT. This is just another example of material misrepresentations and omissions in the sale of fixed income products, which have become rampant on Wall Street.

There are some reports that misrepresentations were made to sell CIT securities to smaller institutions and individuals even as Wall Street and large institutions were unloading their own holdings of CIT. This is similar to claims made concerning the sales of auction-rate securities and recommendations prior to the Lehman, Fannie Mae, and Freddie Mac debacles.

This week, the 101-year-old commercial lender announced that it is filing for bankruptcy in an attempt to get rid of $10 billion in debt. Not only has CIT run out of funding, but also a US bailout and debt exchange offer faltered.

CIT says it will continue to stay in business and that bankruptcy will allow the commercial lender to keep providing funding to middle-market and small business clients.

With $64.9 billion in debt and assets valued at $71 billion, it is unlikely that the government will recover a lot of the $2.3 billion in taxpayer money that the commercial lender received under the Troubled Asset Relief Program.

CIT says bondholder support will allow it to get out of bankruptcy pretty quickly-two months is its current estimate. A prepackaged bankruptcy plan has been approved.

CIT’s prepackaged plan outline stated that majority of noteholders would get new notes at 70 cents on the dollar in addition to new common stock.

CIT is the country’s biggest lender to mid-sized and small businesses. CIT funds some 1 million businesses. It is the number one aircraft financier and the number three biggest US railcar-leasing firm. CIT finances trades in North America, Europe, and Asia.

Related Web Resources:
CIT Files Bankruptcy; U.S. Unlikely to Recoup Money, Bloomberg.com, Nov 1, 2009
Lender CIT files for bankruptcy, Portland Business Journal, November 2, 2009
Troubled Asset Relief Program, Federal Reserve
Chapter 11 Bankruptcy
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SEC to Probe Whether Former Ferris, Baker Watts Inc. General Counsel Failed to Properly Supervise Broker Convicted of Securities Fraud

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

The US Securities and Exchange Commission says it will investigate allegations that former Ferris, Baker Watts Inc. general counsel Theodore W. Urban did not properly supervise Stephen Glantz. In 2007, Glantz, who was employed by Ferris for almost thee years, pleaded guilty to lying to law enforcement officials and securities fraud.

The SEC says Urban ignored a number of warnings he received connecting Glantz to questionable activities and unauthorized trades. Urban also allegedly knew that numerous complaints had already been made against Glantz even before he came to work at Ferris. Not only did Glantz’s Form U-4 registration application show 10 customer complaints, but others had warned about his questionable reputation. Yet Urban still gave the broker more freedom than he did other brokers at the firm.

Urban is a former SEC staffer who was an Assistant Director in the Division of Market Regulation. In 2004, he recommended that Ferris, Baker Watts fire Glantz over unsuitable trades involving customer accounts. Urban later backed down from his stance. Instead, he and vice chairman Louis Akers were in agreement that Glantz be put under “special supervision.”

Glantz, another registered representative at another broker-dealer, and Glantz’ client David Dadante, were accused of manipulating the market for Innotrac Corp. Glantz also made unsuitable and unauthorized trades in a number of securities in his customers’ accounts.

Urban, according to his attorney, will contest the allegations.

Royal Bank of Canada subsidiary RBC Wealth Management acquired Ferris for $230 million in 2008.

While financial losses do occur when investing in the market, investor losses that are a result of broker fraud are unacceptable. You shouldn’t have to suffer because a broker or broker-dealer was negligent or engaged in misconduct.