Investor Lawyers Blog

NASD Successor “FINRA” Hypes Retail Investor Online Info Section

Published on: September 7, 2007 | by Shepherd Smith Edwards & Kantas, LLP

The new Financial Industry Regulatory Authority has launched a section on its website to provide online information for retail investors.

The “Market Data” section on FINRA’s website provides data on equities, options, mutual funds and corporate, municipal, Treasury and Agency bonds. The site also provides a page for all stock exchange-listed companies, including a company description, recent news stories and Securities and Exchange Commission filings, and an interactive list of domestic securities the company issues.

The site also provides equities indices and the FINRA-Bloomberg Active U.S. Corporate Bond Indices for investment-grade and high-yield bonds. Additionally, the site features U.S. Treasury Benchmark yields, market news an economic calendar and other information indicating current market conditions.

State Regulators’ Association Seeks to Abolish Bogus Finanical Advisory Designations

Published on: September 6, 2007 | by Shepherd Smith Edwards & Kantas, LLP

The North American Securities Administrators Association Inc. of Washington (NAASA) plans a vote by its members by the end of this year on a proposal which would make it a violation of state securities regulations to “misuse, mischaracterize or fraudulently represent a designation that has little or no value,” said the President of NASAA, Alabama securities commissioner Joseph Borg.

Mr. Borg announced the NASAA plan at a hearing being held this week by the Senate Special Committee on Aging. Mr. Borg appeared to testify on matters involving securities fraud of the elderly, and within his presentation he chose to specifically adress the use of questionable senior financial adviser designations.

State securities regulators have authority to take action against financial advisers for unethical sales practices, such as churning and selling unsuitable products, he said. “This would be an enhancement to cover fraudulent use of designations,” Mr. Borg said. NASAA initiative is part of ongoing efforts by state and federal regulators to beef up regulatory authority to protect seniors from financial fraud.

Pump and Dump Scheme Involving Prime Time Stores Inc. Sends Global Spam Levels Up 30%

Published on: September 5, 2007 | by Shepherd Smith Edwards & Kantas, LLP

In one of the largest online stock manipulation campaigns in history, spammers sent out some 500 million e-mails last month advising recipients to invest in Prime Time Stores Inc.

This prime example of “pump and dump” scamming involved spammers purchasing shares in a company, promoting it, and then waiting for share prices to rise before selling their stocks and making a profit. This particular pump and dump scheme caused the amount of spam sent around the globe to increase by 30% over a 24-hour period.

Prime Time Stores owns the exclusive licenses for 7-Eleven stores in the Caribbean and Puerto Rico. The company is also involved in automotive, gas, and oil activities. The spam e-mails promoting the company announced the opening of Prime Time Stores in Puerto Rico and said that a huge change in the stock would occur on August 8, 2007.

American Funds’ Europacific Growth Fund, Allegiant Advantage Fund, and Vanguard 500 Index Fund Are Among Mutual Funds Offering Data to Investors Via SEC’s EDGAR

Published on: September 3, 2007 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. Securities and Exchange Commission says that a number of mutual funds have started providing risk/return data with the use of interactive reporting language.

Vanguard 500 Index Fund, Allegiant Advantage Fund, Muhlenkamp Fund, and American Funds’ Europacific Growth Fund are among the mutual funds that have taken what the SEC is calling this “significant step.”

The agency says that it will continue to observe the way information can be used to keep mutual fund investors informed. It will also look at whether anything else needs to be done to create greater accessibility for investors.

Wealth Advisor Institute Calls for Reforms of the U-5 Termination Process For Brokers

Published on: September 2, 2007 | by Shepherd Smith Edwards & Kantas, LLP

The Wealth Advisor Institute wants the way U-5 termination forms are filed to be reformed. The forms are used for reporting information about why a broker has left a firm. A copy of the form then has to be given by the broker to a new employer.

The WAI called on NASD (Now part of FINRA) to make the reforms after the New York State Court of Appeals gave total legal immunity to the information that firms choose to include on U-5 forms. This means that under New York law, brokers cannot obtain monetary damages in rulings involving U-5 defamation cases. An appeals court in California issued a similar ruling regarding U-5 forms two years go.

The WAI says it was appalled by the New York Court’s decision and expressed worries “advisers can end up getting sold out” by their firms.

Business Optimism over SEC ‘Reforms’ – That is, to Dismantle Securities Regulations!

Published on: August 5, 2007 | by Shepherd Smith Edwards & Kantas, LLP

Washington lawyer Peggy Blake, who recently joined Winston & Strawn as a corporate partner, reports her foreign financial services clients are “very optimistic” about the movement afoot at the Securities and Exchange Commission to adopt a mutual recognition regime.

Yet, during recent trips to London and Geneva, she found a number of her foreign bank clients have some reservations about “how the whole thing will play out.” Blake advises clietns on application of U.S. securities laws to non-U.S. financial service providers. As part of her practice, she works with clients to design their compliance programs.

Her goal, along with those on Wall Street, in the White Houst and at the SEC, is to dismantle U.S. securities regulations governing corporations, their executives, securities firms, accounting firms and others.

New York Court Sides with Ameritrade – Redefines “Best Execution”

Published on: August 5, 2007 | by Shepherd Smith Edwards & Kantas, LLP

Justice for investors is simply denied in New York courts and a trend of no justice for investors threatens to spread nationwide as more and more “activist” business-friendly judges are appointed to the federal bench.

The U.S. District Court for the Southern District of New York, known to be friendly to Wall Street, has struck again, this time ruling Ameritrade was not required to route orders to multiple markets to fulfill its duty of “best execution” of trades. This is one of many case filed by investors which was dismissed, with prejudice, in a decision which could affect investors nationwide. (Gurfein v. Ameritrade Inc., S.D.N.Y., No. 04 Civ. 9526 (LLS), 7/17/07

Although language on Ameritrade, Inc.’s Website advertised that it had the capability of distributing customer orders to multiple markets and could thereby seek best execution, the judge decided this did not oblige Ameritrade to route orders to different markets for execution. The judge also found Ameritrade had no duty to the plaintiff to execute the limit order at the “best price” or fulfill the “best execution” regulatory requirement.

Hedge Funds Plead Guilty in Scam Costing Victims $194 Million

Published on: August 4, 2007 | by Shepherd Smith Edwards & Kantas, LLP

Three hedge fund companies pleaded guilty to criminal conspiracy charges in a Florida Federal Court in a scheme that cost victims nearly $195 million. The defendants included KL Group LLC, Shoreland Trading LLC, and KL Triangulum Management LLC, U.S. Attorney R. Alexander Acosta said in a written statement.

These companies each admitted their role in running a hedge fund “scam” based out of West Palm Beach and Irvine, California, Acosta’s statement said. “The corporations admitted their complicity, through the attorney for their court-appointed receiver, in overseeing approximately $195 million in fraudulently obtained proceeds.” The companies will be sentenced in November.

Claims were also filed against three principles of the funds describing a scheme in which approximately 250 clients invested between 2000 and 2005. Although much of the money was apparently lost, a large amount of the funds allegedly went to the individuals’ personal use. Case documents say the defendants established opulent ocean-view offices in West Palm Beach with high-end furnishings and equipment. Prospective investors were given tours to view day trading purportedly using a proprietary system.

SEC Bows to Pressure – Pulls List of Those Linked to Terrorists

Published on: August 4, 2007 | by Shepherd Smith Edwards & Kantas, LLP

A month ago the SEC rolled out a list of companies officially linked to countries designated by the U.S. Secretary of State as state sponsors of terrorism. The SEC’s published list, which included Halliburton and other large companies, received more than 150,000 Internet hits. It also stirred a firestorm from business groups and lobbyists.

Under such pressure, the SEC has suspended publication of the controversial list indefinitely. In a release, SEC Chairman Christopher Cox said that, while the agency “received many positive comments” over its listing, it also received negative comments regarding the lack of updated information.

Cox justified removal of the list by citing the agency’s commitment to “complete, accurate, and timely disclosure,” rather than simply admitting it succumbed to political pressure. Cox also questioned the need for a SEC list, stating that the issuers’ disclosures regarding their business contacts in the five named countries–Cuba, Iran, North Korea, Sudan, and Syria–“will continue to be available through the SEC’s EDGAR database.”

Hartford to Pay $115 Million for Late Trading – and More!

Published on: August 3, 2007 | by Shepherd Smith Edwards & Kantas, LLP

Hartford Financial Services Group will pay $115 million to settle market-timing and broker-compensation charges brought by the Attorney General offices of Connecticut, New York and Illinois.

The three state regulators charged that the Hartford insurance unit failed to properly oversee hedge funds that were engaging in market-timing sales of its variable annuities. New York Attorney General Andrew Cuomo said his investigation also found that Hartford invested into a hedge fund that was market-timing Hartford’s variable annuities, reaping nearly $16 million in profits from the hedge fund, while hiding its role and profit to customers.

The Connecticut Attorney General said his investigation revealed that Hartford also provided fictitious quotes to insurance brokers including the Marsh & McLennan Companies. He stated that Hartford provided Marsh with the intentionally high and noncompetitive bids, knowing it could “deceptively create the mirage of a competitive market–with the understanding that it could win other desirable future business from Marsh,” adding, “Hartford colluded with brokers and agents to pay concealed contingent commissions to get steered business.”