Investor Lawyers Blog

Securities America Fined $375,000 Over Secret Commissions Directed to Its Broker

Published on: July 18, 2007 | by Shepherd Smith Edwards & Kantas, LLP

Securities America, Inc. agreed to a $375,000 fine to settle charges by the NASD that it received improperly directed mutual fund commissions on behalf of one of its brokers, failed to supervise and failed to disclose the arrangements to the affected mutual fund owners.

The NASD said that this situation, in which a mutual fund company directed brokerage fees specifically for the benefit of a lone broker, is the first known case of its kind. NASD rules prohibit registered firms from allowing sales personnel to participate in directed brokerage arrangements. NASD fair dealing regulations also require disclosure to clients of such fees and other compensation received through arrangements involving their accounts.

A directed brokerage arrangement is one in which a client, such as a pension fund, directs a planner to use a certain broker-dealer for trade executions. In return for the commissions received on the transactions, the broker-dealer provides other services to the advisor or these can be rebated to the clients. The Securities America broker arranged for such commissions from union-sponsored retirement plan clients to be directed to his firm for his own benefit.

Margin Debt on NYSE Stocks Over $350 Billion – Record Debt Brings New Warnings of Risks

Published on: July 12, 2007 | by Shepherd Smith Edwards & Kantas, LLP

Margin debt owed on stocks listed on the New York Stock Exchange has surpassed $350 billion. This is up to $35 billion, or over 10%, in just one month. The jump in margin debt brings new warnings to investors concerning the risks of leveraged investments.

Traditional theories concerning the stock market include that small investors are always wrong. They jump into the market when it is near its highs and get out near the lows. There is both a guesstimate and empirical data to support this theory. One measure of investing by small investors is margin account debt. With the exception of hedge funds, most large investors do not use margin.

Considering this theory, the warnings are thus two-fold. Not only is high margin account debt an indicator of a market top, but margin investing can also be very dangerous. Margin debt amplifies losses and even a moderate drop in stock prices can cause forced liquidations. As well, the cost of margin interest exacerbates losses in leveraged accounts. Non-margined investors can wait for recovery without liquidation or enduring interest costs.

Schwab to Distribute $3.5 Billion to Its Shareholders by Buying Back Over 100 Million Shares

Published on: July 11, 2007 | by Shepherd Smith Edwards & Kantas, LLP

After sale if its U.S. Trust subsidiary to Bank of America for $3.3 billion, Charles Schwab Corporation has decided to distribute even more than the proceeds of that sale to its shareholders by buying back shares and paying a special dividend.

Under the plan, San Francisco-based Schwab will pay up to $22.50 per share for 84 million shares of its own stock — 10 percent above the previous closing price. It will guarantee selling stockholders at least $19.50 per share, and also purchase up to 18 million additional shares from its founder. Charles Schwab will himslef receive over $400 million and will maintain his stake at its current level of 18%, which would be valued at over $4.5 billion.

The auction, which covers about 7 percent of Schwab’s outstanding shares has already begun and is to be completed by July 31. In addition to $2.3 billion to buy the stock, in August Schwab will also pay $1.2 billion to shareholders through a $1 per share special dividend.

SEC Announces $37Million Distribution To Investors in Columbia Funds Harmed by Timing Scheme

Published on: July 11, 2007 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission recently made a $37 million disbursement to more than 300,000 investors in the Columbia Funds who were injured in the widespread fraudulent mutual fund market timing scandal. The SEC said this was the first of four anticipated distributions of approximately $140 million total to be paid to 600,000 affected Columbia account holders.

These funds were obtained in a settlement in 2004 with Columbia Management Advisors Inc. and Columbia Funds Distributor Inc. The SEC had charged that between 1998 and 2003, the two entered into or allowed arrangements to market-time Columbia funds.

The SEC has returned more than $1.8 billion through such distributions, said Linda Thomsen, director of the agency’s Division of Enforcement. Additional information can be learned by contacting David P. Bergers, John T. Dugan, or Celia D. Moore in the SEC’s Boston Regional Office at 617-573-8900.

Latest in “Race to the Bottom” by Securities Regulators: Relaxed Accounting Procedures for Foreign Issuers

Published on: July 10, 2007 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission has published a 121-page proposal for dropping the requirement that non-U.S. companies reconcile to the generally accepted accounting principles (GAAP) as required by U.S. firms in financial reports.

The proposal would apply to foreign private issuers that file financial statements to comply with the English language version of IFRS as published by the International Accounting Standards Board. “The Commission has taken a significant step on this important policy matter that was outlined in the ‘Roadmap’ announced in 2005,” said Conrad Hewitt, the SEC chief accountant.

“Along with the Commission’s work relating to internal control reporting and deregistration, this proposal to accept financial statements prepared in accordance with IFRS as published by the IASB without a US GAAP reconciliation represents another significant action to tailor the regulatory environment for foreign companies in the U.S. public capital markets,” said John White, director of the SEC’s Division of Corporation Finance.

Oppenheimer Fined $1 Million for Abuse of Widow – Later Told She “Only Had Herself to Blame”

Published on: July 10, 2007 | by Shepherd Smith Edwards & Kantas, LLP

Massachusetts securities regulators fined Oppenheimer & Company, Inc. a million dollars for failing to supervise its representatives and ordered the company to also pay $135,000 to the victim, the difference between the losses she sustained and the amount Oppenheimer earlier paid her.

Oppenheimer was charged with failing to supervise a broker as he allegedly engaged in acts including theft, fraud, churning and unauthorized trading in the account of an elderly couple. The firm consented to the order without admitting or denying the claims. The broker is currently under indictment for securities fraud.

After her husband died, personnel at the elderly woman’s bank raised concerns over the activity which had occurred in the couple’s brokerage account. The widow approached Oppenheimer and claims were ultimately filed in arbitration. Oppenheimer then responded by saying she “only has herself to blame for any losses or other injury she may have suffered.” The arbitration claims were later resolved with Oppenheimer paying less than was lost.

Former Trautman Wasserman Executive is Latest to be Fined in Widespread Late Trading Scandal

Published on: July 10, 2007 | by Shepherd Smith Edwards & Kantas, LLP

The former chief administrative officer of Trautman Wasserman & Co. Inc. agreed to pay a $50,000 fine to settle SEC administrative charges he helped facilitate a scheme to engage in late-trading in mutual funds shares on behalf of certain favored customers and for the firm’s own account.

The man who once served as TWCO’s “de facto chief compliance officer” consented, without either admitting or denying wrongdoing, to be barred from the securities industry, cease and desist from future violations and cooperate in the SEC’s investigation.

Earlier this year, the SEC charged the executive, TWCO and five of its other officials over their alleged roles in the scheme. The SEC claims included that he and two others he supervised thwarted efforts by mutual fund companies to curtail excessive timing.

Ameriprise Broker Arrested for Defrauding Investors – Clients Say He Cashed Checks Made Out to Ameriprise.

Published on: July 10, 2007 | by Shepherd Smith Edwards & Kantas, LLP

Authorities in Knoxville have arrested an Ameriprise Financial Services broker who is accused of defrauding Tennessee residents. The charges include theft and forgery. At least five alleged victims have come forward claiming losses of almost $1 million. A client in another state claims damages of more than a million dollars and detectives are seeking to learn of more victims.

Delbert Forster Blount III worked out of an Ameriprise office in Knoxville and another in Morristown, Tennessee. It is reported that Blount received checks from clients made out to his firm but deposited these into his personal account rather than his clients’ investment accounts.

According to the latest disclosures made by Ameriprise, fifteen complaints have been lodged against Blount by his clients alleging damages totaling more than $2.5 million. Many of those complaining are reported to have provided Ameriprise with copies of cancelled checks made out to the investment firm which were instead deposited into an account opened by Blount.

Government Tightens Noose on Top Securities Class Action Attorneys

Published on: July 9, 2007 | by Shepherd Smith Edwards & Kantas, LLP

Enemies of Wall Street learned even before the recent Alberto Gonzales affair that indictments by U.S. Prosecutors can be in their future.

King of securities class action suits was the law firm of Milberg Weiss & Bershad LLP. Federal prosecutors indicted the firm last year on charges of paying kickbacks to clients to serve as lead plaintiffs in class-action lawsuits.

The government probe of the firm began just after the Bush Administration entered the White House promising to curtail law suits. After the firm pleaded not guilty, prosecutors went after the firm’s partners. With little headway seemingly made, prosecutors were criticized that the case must lack legs.

Morgan Stanley Fined By State Regulator for Failure to Supervise Mutal Fund Sales

Published on: July 9, 2007 | by Shepherd Smith Edwards & Kantas, LLP

Morgan Stanley & Co. Inc. agreed to pay a $250,000 civil penalty to end claims by Rhode Island Regulators that it failed to supervise sales representatives who engaged in unethical and dishonest practices in the sale of mutual funds and variable annuities.

According to the director of the Rhode Island Department of Business Regulation, the practices in question took place in Morgan Stanley’s Providence office. Morgan Stanley agreed to the penalty and will undertake a comprehensive review of the practices of the two sales representatives involved to ensure that there are no other violations of the securities statutes and rules involving other clients.

The state’s superintendent of securities said the investigation uncovered securities laws violations that occurred over a three-year period and involved a lack of supervision and oversight of the sales representatives. “Morgan Stanley failed to ensure that there were adequate procedures in place reasonably designed to prevent these unlawful practices,” she said.