Investor Lawyers Blog

FINRA Says Ex-Morgan Stanley Stockbroker Misappropriated Nearly $400,000 From 97-Year-Old Widow

Published on: February 27, 2008 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority is charging stockbroker John Mullins with misappropriating nearly $400,000 from an elderly widow and her charitable foundation. Esther Weil, a 97-year-old widow, died earlier this month. She was living in a nursing home. Mullins was her stockbroker for over 20 years.

Mullins allegedly tried to conceal his status with his elderly client’s charitable foundation. John and his wife Kathleen were the trustees of Weil’s nonprofit foundation-a relationship that is prohibited by Morgan Stanley’s firm policies. Morgan Stanley employed the Mullins from 2002-2006. The company fired them after it was discovered that they were violating company policies.

John is accused of allegedly misappropriating funds from his employer for improper expenses, making misstatements on his firm’s yearly compliance questionnaires and Form U4, and accepting an unauthorized $100,000 loan from a client.

Questar Executive Fired For Failure to Disclose Private Securities Transactions

Published on: February 26, 2008 | by Shepherd Smith Edwards & Kantas, LLP

Questar Capital Corp. has fired Jason Kavanaugh, its senior vice president of mergers and acquisitions, because he failed to disclose outside business activities and private securities transactions.

Kavanaugh recently came under fire when it was discovered that he paid E-M Management Co. LLC $57,000 for fake, unregistered securities. Kavanaugh also set up JASTAR, LLC, which acted as the official subscriber to the deals.

E-M Management Co. LLC, which is owned by Edward May. The Securities and Exchange Commission has charged May with masterminding an investment scam involving fake Las Vegas casino and resort telecommunications contracts. Some 1200 investors became victims of May’s $250 million scam.

How Wall Street Firms Convinced Investors to Put Billions into ARS and ARP Securities Just Before the Auctions “Failed”

Published on: February 25, 2008 | by Shepherd Smith Edwards & Kantas, LLP

An SSE Exclusive: Provided below is a link to a comprehensive expose explaining how Wall Street firms and banks may have convinced investors it was safe to place over $300 billion into “auction rate securities” by promising that these were safe and liquid investments.

During the week of February 11, 2008 the $330 billion market for “Auction Rate Securities” market virtually collapsed overnight as the liquidity of many of these investments disappeared and their safety was reportedly in jeopardy. What had been described to many as safe AAA credits, comparable to money market funds, were instead exposed in a nightmare for investors.

The article states that the result was “mass confusion” which caused by one of the most “convoluted structures ever devised by Wall Street.” The writer, who demonstrates special insight into the situation but desires to remain anonymous, laments that since the problem emerged “[e]veryone has a piece of the puzzle but no one to date put it together in one document.” The article is a MUST READ for all those seeking to understand the nature of this problem, including investors, law enforcement, regulators, attorneys and journalists.

Ex-Credit Suisse Investment Banker Appeals Insider Trading Charges Conviction

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

Former Credit Suisse Securities USA LLC investment banker Hafiz Naseem says he will appeal his conviction for insider trading charges, which include 1 count of conspiracy and 28 counts of securities fraud involving stolen nonpublic data allegedly used for insider trading that generated at least $7.5 million. He faces a maximum 5-year prison sentence and fines two times the gross loss or gain of the violation.

The Justice Department says that the ex-Credit Suisse Securities investment banker told Ajaz Rahim, a Pakistan resident and the former head of Faysal Bank, about nine upcoming merger and acquisition deals from April 2006 to February 2007 including:

– Apollo Management LP’s Jacuzzi Brands acquisition – NorthWestern Corp.’s acquisition by Babcock & Brown Infrastructure – Veritas DGC Inc.’s acquisition by Compagnie Generale de Geophysique SA

SEC Involved in 36 Subprime Mortgage Industry Probes

Published on: February 22, 2008 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission is conducting three dozen open investigations into misconduct in the subprime mortgage industry. The probe is taking a look at possible misconduct involving:

• The origination process • Insider trading • Securitization and sales of mortgage-backed securities

According to SEC Division of Enforcement Associate Director Cheryl Scarboro, the SEC wants to know who may have been involved, who knew about any misconduct, and who acted inappropriately. Scarboro also directs the SEC Subprime Working Group, which coordinates these probes with other SEC divisions.

FINRA, SEC, and NASAA Announce New Initiative for Protecting Senior Investors

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

The Financial Industry Regulatory Authority (FINRA), the Securities and Exchange Commission (SEC), and the North American Securities Administrators Association (NASAA) have announced a new group initiative to protect senior investors from becoming the victims of investment scams.

SEC, NASAA, and FINRA will work with investment advisers and broker-dealer companies to identify effective compliance and supervisory practices involving senior investors. Areas of exploration will include:

• Opening accounts • Training company employees • Marketing practices • Advertising practices • Review of products and accounts • Fulfilling the evolving needs of aging investors • Regularly reviewing products

Detroit Accounting Firm Named in Lawsuit Involving Alleged Ponzi Scheme

Published on: February 20, 2008 | by Shepherd Smith Edwards & Kantas, LLP

The accounting firm of Doeren Mayhew & Company was named in a lawsuit filed in Oakland County, Michigan, in connection with a highly publicized multi-million dollar alleged ponzi scheme using partnerships, many purported to earn revenues from telephone usage in Las Vegas hotels. The central figure reported as the mastermind of such investments is Ed May who, along with other individuals and firms, is the subject of several investigations including by the U.S. Securities and Exchange Commission.

The lawsuit was filed on behalf of investors jointly by three law firms: Sheldon Miller & Associates, a premier Detroit area litigation firm, the Poppe Law Firm, which has extensive experience in accounting malpractice claims, and Shepherd Smith Edwards & Kantas LTD LLP, a securities law firm which handles claims for investors nationwide.

The suit states allegations regarding Doeren Mayhew, including that the accounting firm was listed as the accounting firm of record for various partnership investments and that the firm and that some of its agents and directors were involved with the ongoing business affairs of the partnerships and/or engaged into direct and indirect communications with investors which misled them regarding these investments.

U.S. Supreme Court Decides That 401(k) Retirement Participants Can Sue for Losses Under ERISA

Published on: February 20, 2008 | by Shepherd Smith Edwards & Kantas, LLP

WASHINGTON – The Supreme Court ruled unanimously today that individual participants in 401(k) retirement plans can sue to recover their loses under the federal pension protection law.

Over 50 million workers in the U.S. have a total of $2.7 trillion invested into 401(k) retirement plans which are governed by the Employee Retirement Income Security Act (ERISA). Yet, as has recently been the unfortunate fate in court of other investors, judges have ruled against 401(k) participants who seek to recover under the very pension law written to protect them.

James LaRue of Southlake, Texas, filed such a claim stating that the value of his 401(k) plan fell $150,000 when the plan’s administrators failed to follow his instructions to switch to safer investments. Yet, attorneys for the plan administrator claimed the law only allows recovery of losses to the “plan,” not losses of an individual participant in the plan.

Allianz Life Insurance Settles Inappropriate Fixed Annuity Sales Allegations for $10 Million

Published on: February 19, 2008 | by Shepherd Smith Edwards & Kantas, LLP

Allianz Life Insurance Co. of North America and California’s insurance department have reached a settlement agreement over allegations that Allianz engaged in inappropriate fixed annuity sales.

Allianz Life will pay $10 million: $3.3 million to the California insurance department, $3 million to investments in the California Organized Investment Network, and $3.75 million, over a five-year period, to California’s Life and Annuity Consumer Protection Fund.

The agreement was reached after the California department of insurance’s market conduct examination results showed that Allianz Life had acted deceptively when it replaced 126 annuities for 84- and 85-year old senior investors.

Goldman Sachs, Merrill Lynch, Lehman Brothers, and Other Investment Firms Deal with Frozen Auction-Rate Securities

Published on: February 15, 2008 | by Shepherd Smith Edwards & Kantas, LLP

This week, Goldman Sachs told a number of investors that they could not withdraw money from their auction-rate securities investments. This move by Goldman came as a shock to investors-but the firm was not alone. Merrill Lynch, Lehman Brothers, and other banks have also found themselves notifying their investors that the market for these types of securities are frozen-along with their money. Just this week, there were nearly 1,000 failed auctions. The banks are now refusing to support the auctions and many investors are not sure when they’ll recover their investments.

Usually, auction-rate securities are considered safe alternatives to cash-and banks frequently recommend these bonds, considered long-term securities-to rich individuals and corporations. Banks regularly hold auctions to establish the interest rates and give holders an opportunity to sell their securities.

Auction-Rate Securities