Investor Lawyers Blog

Deutsche Bank Trust Company, Goldman Sachs Group, and Bank of America Corporation are Among the 21 Lenders Named in Cleveland, Ohio Lawsuit

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

The city of Cleveland, Ohio is suing 21 financial institutions for hundreds of millions of dollars in damages caused by subprime lending and securitization. The defendants named in the lawsuit are:

• Deutsche Bank Trust Company • Ameriquest Mortgage Company • Bank of America Corporation • The Bear Stearns Companies • Citigroup, Inc.

• Countrywide Financial Corp.

SEC & FINRA Examine CMO Sales and Marketing Practices

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

The Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) have each began their own investigations into the sales and marketing practices of certain collateralized mortgage obligations (CMOs),

FINRA sent more than 12 broker-dealers a sweeps letter requesting more information about: the sales of principals only, interest only, and inverse floater trenches of CMOs and details about actions taking place between June 30, 2006 and July 31, 2007.

FINRA specifically requested:

K.W. Brown & Company, K.W. Brown Investments, & 21st Century Advisors Are Held Liable in $4.5 Million Cherry-Picking Scam

Published on: January 21, 2008 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. District Court for the Southern District of Florida has found K.W. Brown & Company, K.W. Brown Investments, 21st Century Advisors, the companies’ owner Kenneth Brown, his spouse Wendy Brown, and representative Michael Cimilluca liable for their involvement in a cherry-picking scam that earned them $4.5 million and cost investors $9 million. The three of them were also found liable for violating federal securities laws.

According to the Florida Court, from September 2002 up until at least June 2006, Brown and his friends took part in a fraudulent cherry-picking scheme that helped him and his friends earn millions of dollars in illegal gains while clients lost money as a result.

Industry regulators had warned Brown that he needed to put in place procedures and policies that would prevent this type of illegal activity, yet the oversights persisted. A Securities and Exchange examination staff had discovered a number of violations in June 2003, including undisclosed conflicts of interest and breaches of fiduciary duty.

Investors into Bear Stearns’ “Mult-Strategy Fund Warrants” Lose over 99% on Their Investment

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

On Christmas Eve a Bear Stearns client received a present – a check for $1,000 – less some fees. While a check for $1,000 at Christmas time can come in handy, it was no gift since this was to close out an investment by the client in 2001 of almost $120,000!

Accoording to the paperwork provided to the investor, management chose to terminate early the Bear Stearns Multi-Stragegy Warants expiring March 31, 2009. The warrants, stated in the notice provided, were “linked to the performance of the Bear Stearns Multi-Strategy Fund, L.P.” the value of the warrants at maturity was to be based upon the average of the six month-end “net asset value” of the fund. That maturity never occured because the warrants were ended abruptly more than a year early.

According to the notice “the underlying constituents of the Fund were: New Castle Millennium II, L.P., New Castle Market Neutral, L.P. and Bear Stearns Emerging Markets Macro Fund, L.P., Bear Stearns Institutional Leveraged Loan Fund, L.P. Bear Stearns ABS Partners, L.P. and Bear Stearns High-Grade Structured Credit Strageties Enhanced Leverage Fund, L.P., with approximatelly equal wieghting.”

Class Action filed against Morgan Stanley on Behalf of Former Eastman Kodak Employees

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

Lawyers have filed a class action suit against Morgan Stanley for a group of former Eastman Kodak employees they say were persuaded to retire early and invest their retirement assets through Morgan Stanley.

According to the Dow Jones News Wire, the class action is seeking nearly a half billion dollars in damages from Morgan Stanley because its brokers advised the Kodak employees retire early with promises of financial security that never materialized. One of the attorneys estimates 1,000 investors or more are involved. If so, the claim seeks approximately $500,000 per former Kodak retiree.

Firms which report the results of class action cases estimate that recovery in securities class action cases is LESS THAN THREE PERCENT of the actual losses to investors! If one were to assume that 1,000 Kodak retirees lost, on average, $500,000, each may receive LESS THAN $15,000 according to this average.

SMH Capital and Two of Its Brokers to Settle FINRA Charges Over Oversight Failures

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

SMH Capital has agreed to pay $450,000 in fines to settle charges by the Financial Industry Regulatory Authority (FINRA) over the broker dealer’s failure to have supervisory procedures and systems in place to handle its prime brokerage and soft dollar services to hedge funds. The oversight led to a hedge fund manager receiving improper payments in soft dollars worth $325,000.

FINRA says other failures by SMH included producing and giving out hedge fund sales materials that failed to properly “disclose material investment risks to potential hedge fund investors.” SRO is accusing SMH of engaging in an “improper compensation arrangement” with two brokers who supervised hedge funds.

The two SMH brokers, Michael Rosen and Jack Seibal, have agreed to $100,000 fines and a 20-day suspension. SRO says that agreements prohibited the two men from receiving a share of any commission that SMH earned for fund trades. A third unregistered SMH employee agreed to a 10-day suspension and a $15,000 penalty.

TV Judge’s Case Goes to U.S. Supreme Court

Published on: January 16, 2008 | by Shepherd Smith Edwards & Kantas, LLP

Some folks resolve their disputes by going on TV, where they also get paid and enjoy their 15 minutes of fame (or infamy). But what does a TV judge do to resolve disputes and, perhaps, gain notoriety? Take his case to the U.S. Supreme Court!

TV trials are really arbitrations. The parties sign an arbitration agreement to resolve their disputes on TV. The shows pay each party so, reportedly, no one is actually out any money. One participant or the other may walk away with more than the other, or even all the money. The loser gets rid of the claim and, more importantly, is a loser on national TV. (Hey, people agree to eat worms, get caught cheating on their mates or to getting “punked,” proving some people will do anything to get on TV.)

TV’s “Judge Alex” is a male version of “Judge Judy” (only prettier). Allegedly, Florida State Judge Alex Ferrer, gave up his real judge gig in 2002, to try his luck on TV, though the help of promoter Arnold Preston, who claims Judge Alex agreed to pay him 12% of his income. After Judge Alex made the big time he decided he did not have to pay Preston because Preston was not a registered talent agent under California law. Preston claims he is a manager, not an agent, and does not have to be registered.

Bear, Stearns, Merrill Lynch, Deutsche Bank Securities and UBS Securities Among the 19 Broker-Dealers to Settle SRO Charges Of Overstated Ad Volumes

Published on: January 14, 2008 | by Shepherd Smith Edwards & Kantas, LLP

Last week, the Financial Industry Regulatory Authority (FINRA) announced that 19 broker-dealers agreed to pay fines to settle SRO charges that they “substantially overstated their advertising trade volume to private sector providers.” By agreeing to pay the fines, none of the firms are admitting to or denying the charges.

FINRA says that after comparing each firm’s advertised trade volume in selected securities with executed trade volume for the same issuer, they noticed overstatements that were substantial in at least one of the securities examined.

Broker-dealers that agreed to be fined $200,000:

Investors Complain about Mutual Funds Sold by Morgan Keegan

Published on: January 12, 2008 | by Shepherd Smith Edwards & Kantas, LLP

Some Investors have complained they were sold mutual funds by the securities firm of Morgan Keegan & Company, Inc. based on representations of safety which were unfounded. At this time such complaints are only allegations and no determination has been made that the firm and/or its representations engaged in any wrongdoing.

The funds in question include RMK High Income Fund (RMH), RMK Advantage Income Fund (RMA), and RMK Multi-Sector High Income Fund (RHY). Reportedly, these funds were heavily invested into collateralized debt obligations (CDO’s) based on sub-prime mortgages and have therefore declined sharply in value.

Morgan Keegan is a Memphis, Tenessee based brokerage firm and is a division of Regions Financial Group. The firm’s offices are located primarily in the South, including in the states of Alabama, Arkansas, Florida, Georgia, Kentucky, Mississippi, North Carolina, South Carolina, Tennessee and Virginia.

vFinance Investment Inc. is Slapped with SEC Charges for Failing to Retain E-Records

Published on: January 11, 2008 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commisison is charging vFinance Investment Inc., its President Richard Campanella, and former New Jersey Branch Manager Nicholas Thompson for failing to keep records and show them to Commission staff. The SEC’s need for the e-records stemmed from possible securities fraud involving a company that vFinance is the market maker for.

The Securities and Exchange Commission is accusing Thompson of erasing documents, e-mails, and instant messages from his computer’s hard drive even though he knew that the records had been requested by the commission. By law and according to vFinance’s policies, e-mails and instant messaging communications with clients must be preserved.

The SEC says that vFinance Investment President Campanella should have made sure that the documents were being preserved. He was reportedly “on notice” that vFinance was not keeping Thompson’s business records.