Investor Lawyers Blog

SEC Charges Two Former In-House Enron Attorneys With Violating Securities Laws

Published on: March 30, 2007 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. Securities and Exchange Commission filed a complaint on Wednesday against Rex Rogers, the former associate general counsel at Enron, and Jordan Mintz, the former general counsel for Enron’s finance group, with civil violations of securities laws because of omitting or fudging regulatory filing disclosures.

The SEC alleges that Mintz engaged in fraud by arranging the murky disclosure of Enron’s repurchasing of a power plant in Brazil from an LJM partnership that was run by former Enron finance chief Andrew Fastow. The SEC claims that Mintz knew that LJM had bought the plant with the understanding that it would sell it back to Enron and that this wiped out the sale’s legitimacy.

Mintz is also accused of delaying the closure of the resale for a number of months until after Fastow had sold his interest in LJM Partnerships so that Enron wouldn’t have to reveal that the deal was done with an Enron officer. Rogers is also being charged with not disclosing all the details of this deal.

U.S. Senator Durbin Wonders Whether Smaller Budget Can Satisfy the Commodity Futures Trading Commission’s Urgent Needs

Published on: March 29, 2007 | by Shepherd Smith Edwards & Kantas, LLP

At a hearing discussing the budgetary needs of the Commodity Futures Trading Commission, Senator Richard Durbin voiced concerns that President Bush’s 2008 budget request for the CFTC would not be enough to meet the regulatory agency’s key needs to allow it to function effectively. Durbin, the chairman of the Senate Appropriations Financial Services and General Government Subcommittee, also said that he was worried that staffing problems and older computer systems at the CFTC could negatively affect is ability to supervise the surging derivates industry.

At the hearing, Durbin addressed CFTC Chairman Richard Jeffrey, telling him that he had observed agency’s problems with developing technology to keep up with market changes and its struggles with staffing levels. Durbin said that he believed the agency needed the right tools to enforce the laws.

Jeffrey has complained that agency’s staff size had dropped over the past several years and its computers had become out of date, even as trade volume has increased. He said the $116 million request by President Bush-18 million more than what Congress had allotted to the agency for fiscal year 2007-would help “modestly increase our capabilities in certain areas,” but that this amount of financial support needed to be seen as a beginning, not the end attempt, to addressing certain problems the agency had been experiencing.

Enron Litigation Continues With Actions by Stockholders and Regulators of Accounts.

Published on: March 28, 2007 | by Shepherd Smith Edwards & Kantas, LLP

As class actions against investment firms face dismissal, attorneys for investors plan to go forward with claims for individual shareholders against those same firms. After the U. S. Court of Appeals for the Fifth Circuit decided that cases in Houston against Merrill Lynch and other investment banking firms could not go forward as class actions, the door was left open for victims of Enron stock fraud to file their own claims in court or arbitration against these investment firms.

The class actions stopped the clock for filing individual claims against the defendants until appeals are completed. Also, through the class actions substantial information was learned regarding the role of these investment firms in the Enron debacle.

Meanwhile, that same Court of Appeals affirmed a district court’s order allowing Texas accounting regulators to gain access to confidential discovery material in the Enron Corp. shareholder litigation (Newby v. Enron Corp., 5th Cir., No. 05-20462, 3/16/06). The massive amounts of discovery material related to the Enron litigation led to a stipulation by parties that discovery be housed on a Web site. The district court overseeing the litigation issued a confidentiality order covering the deposition transcripts and other material, barring disclosure except to parties, their counsel, witnesses, a depository administrator, a court-appointed mediator, and a few others.

Goldman Sachs Affiliate Agrees To Pay $2 Million in Fines and Penalties Over Short-Sale Scheme Charges by NYSER and the SEC

Published on: March 27, 2007 | by Shepherd Smith Edwards & Kantas, LLP

NYSE Regulation Inc. and the Securities and Exchange Commission say that a clearing affiliate and prime broker of Goldman Sachs Group will pay $2 million in fines and penalties over its alleged role in an illegal short-sale trading scheme that was executed by Goldman Sachs customers through their accounts with the brokerage. Goldman Sachs Execution and Clearing, LP has not admitted to or denied any wrongdoing by agreeing to the censure. They are, however, agreeing to cease and desist from future violations.

The SEC charges that firm customers unlawfully sold securities short right before public offerings of the companies’ securities. It is accusing Goldman of violating the rules that mandate that brokers must mark sales short or long, while restricting stock loans on long sales. Both NYSER and SEC say that if Goldman had proper procedures in place, it would have discovered via its own records this illegal activity by its customers. Two Goldman customers have already settled SEC charges connected to their alleged participation in these activities.

SEC Chairman Christopher Cox told the U.S. Chamber of Commerce on the day of this announcement that the commission and its senior staff members are very concerned about abusive naked short-selling. He admitted that Regulation SHO had not properly addressed these issues and that the commission will now eliminate the regulation’s grandfather provision. Cox said that naked short-selling was connected to settlement and clearance systems and that the SEC would use technology to further deal with this issue. He said the action against Goldman was important.

New Regulations, Filed By The Massachusetts Securities Division, Define Credentials Standards For Advisors To Senior Investors

Published on: March 22, 2007 | by Shepherd Smith Edwards & Kantas, LLP

William Francis Galvin, the Massachusetts Secretary of the Commonwealth, says that his office has set up new standards for advisers using credentials implying that they are experts when it comes to senior investors.

According to Galvin, the state of Massachusetts is charging two Massachusetts annuity salesmen with using unethical and dishonest practices when marketing annuities to seniors: Michael Mark Delmonico and John Christopher Huck.

Delmonico is accused of presenting himself as an unbiased and objective financial advisor to seniors, but allegedly was actually trying to sell high-commission annuities that were often not suitable for senior investors. He has denied the charges. Also charged in the complaint was Workman Securities Corp. and company officials Robert Vollbrecht and Paul Maxa for failing to properly supervise Delmonico.

More Good News for Morgan Stanley! Record Earnings, a Jury Verdict Overturned and a Slap on the Wrist by Regulators.

Published on: March 21, 2007 | by Shepherd Smith Edwards & Kantas, LLP

Morgan Stanley shared in the earnings boom for Wall Street Firms as it reported earnings for its latest quarter of $2.56 Billion, a 29% increase over a year ago.

The investment giant is also celebrating a victory in the Florida courts, having convinced an appeals court to throw out an $1.58 Billion jury award against it for its mis-handling of a 1998 merger between Coleman Company with Sunbeam Corporation.

Morgan Stanley had faced an uphill fight in that case because it failed to honor a court order to produce e-mails sought by lawyers for the plaintiffs. Frustrated by the delays, Palm Beach County trial judge Elizabeth Maass issued a ruling that the Morgan Stanley and Sunbeam conspired to defraud the plaintiff and presented the case to the jury to establish the damages. Morgan Stanley had in 2005 set aside $360 million of reserves for the case expecting the jury verdict to be reduced. That will presumably will then be added to the firm’s current earnings.

Appeals Court Shoots Down Enron Stock Victims, But Leaves Door Open to Law Suits and Arbitration Claims.

Published on: March 20, 2007 | by Shepherd Smith Edwards & Kantas, LLP

A Houston Federal Court was set to begin tiral on class actions filed on behalf of investors against several fiancial firms that allegedly assisted Enron to defraud shareholders. However, a Federal Court of Appeals, with most of its judges selected by the Bush-Cheney administration, stepped in to overturn the class action status of these Enron shareholders.

Several cases had been filed for Enron shareholders against Merrill Lynch, Credit Suisse, Royal Bank of Canada, Toronto-Dominion Bank, Barclays and the Royal Bank based upon the involovement of those fiancial institutions in actions by Enron management which misled investors about the finances at Enron and ultimately led to that firm’s demise.

Attorneys for the Enron victims say they will request the U. S. Supreme Court reverse this decision, but observers point out that the balance of power in the High Court has also been altered by Bush-Cheney appointees. Observers also remind the public that, prior to Enron’s demise, officials of that firm were involved in establishing energy policy for the Bush-Cheney administration. Notes of such discussions have never been produced to Congress.

Banc of America Securities LLC to Settle SEC Charges By Paying $26 Million In Penalties and Disgorgement

Published on: March 20, 2007 | by Shepherd Smith Edwards & Kantas, LLP

To settle administrative charges made by the Securities and Exchange Commission, Banc of America Securities LLC has agreed to paying $26 million in penalties and disgorgement. The SEC says that BAS did not safeguard upcoming research reports and submitted ones that were fraudulent to companies. Without denying or admitting the charges, BAS has agreed to a cease-and-desist order against future violations and to being censured, as well as other remedial measures. It will also work with an independent consultant to assess its internal controls and prevent nonpublic information about forthcoming researched from being misused again.

The SEC says that there was a “breakdown” in internal controls that had been put in place at BAS to stop the firm and its employees from misusing research reports that were forthcoming between January 1999 and December 2001. Because of this breakdown, traders and salespersons at BAS allegedly found out about research changes that were forthcoming, such as downgrades and upgrades.

The SEC claims that BAS had no effective or clear procedures and policies that could allow it to control or manage this kind of information. Because of this, BAS allegedly traded prior to the research reports being issued. The firm is also accused of not taking care of specific conflicts of interest, which compromised the integrity and independence of its analysts. These conflict allegedly led to misleading research reports being published and given to TelCom Semiconductor Inc., Intel Corp, and E-Stamp Corp.

In Hi-Tech Market Manipulation Case By Unknown Traders, Securities and Exchange Commission Freezes $3 Million To Protect Brokerage Firms

Published on: March 15, 2007 | by Shepherd Smith Edwards & Kantas, LLP

On March 6, 2007, The U.S. District Court for the District of Columbia froze $3 million in an account under the name of a Latvian bank. The SEC said unknown traders used the money last year for a “hi-tech market manipulation scheme”. According to the Commission, the action is the largest freeze secured for an intrusion-related market manipulation scheme.

The SEC says that the assets had been placed in an omnibus brokerage account at Pinnacle Capital Markets LLC. The unidentified account owners are based in Russia, the British Virgin Islands, Latvia, and Lithuania-but the account was under the name of JSC Parex Bank, a Latvian bank that the SEC has named as a relief defendant in the SEC action.

The Commission says that unknown traders hacked into investor accounts at online brokerages, sold off clients’ existing positions, and used the money they made to bid up the market for specific stocks that they wanted to manipulate. These traders made at least $732,000 with their alleged pump-and-dump scheme, costing brokerage firms about $2 million.

NYSE Regulation Fines Swiss American Securities Inc. and UBS Securities, LLC For Violations

Published on: March 14, 2007 | by Shepherd Smith Edwards & Kantas, LLP

NYSE Regulation says it has ordered Swiss American Securities Inc. (a unit of Credit Suisse Group) and UBS Securities LLC to pay fines for a number of securities violations.

The regulatory arm of the New York Stock Exchange says UBS Securities is being fined $95,000 for canceling or entering limit-on-close and market-on-close orders in a number of securities after relevant cut-off times. These violations happened between June 2005 and February 2006. Other violations were also cited as reasons for the fine.

Swiss American Securities was fined $100,000 because it failed to maintain control or possession of all excess and fully paid margin securities that it held for customer accounts (in 2004 and 2005), as well as other violations.