Investor Lawyers Blog

Oppenheimer to Pay $1 Million to Settle FINRA Bogus Data Charges

Published on: November 13, 2007 | by Shepherd Smith Edwards & Kantas, LLP

Oppenheimer & Co. says it will pay a $1 million fine to settle charges by the Financial Industry Regulatory Authority that it turned in false information regarding mutual fund breakpoints. The company also has agreed to submit to having an independent consultant conduct an audit regarding how Oppenheimer handles regulatory inquiries. By agreeing to the settlement terms, Oppenheimer is not agreeing to or denying FINRA’s allegations.

Background

FINRA says it initially asked Oppenheimer for the information in March 2003 when the self-regulatory organization (then the NASD) looked at over 2000 broker-dealers who had sold front-end loan funds over a two-year period.

Corporation Owner and His Two Companies Can Sue Accountants For Fraud Involving Third Entity

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

A company owner and his two corporations have the right to sue their accountants for alleged defalcations at a third company because, at the time, the three companies were affiliated and only severed ties because of the misconduct at issue. The decision regarding whether or not the owner had standing was decided by the Wisconsin Court of Appeals last month when Judge Patricia S. Curley reversed the trial court’s grant of summary judgment.

Judge Curley found that plaintiffs do not have to be shareholders at the corporation where the alleged fraudulent accounting took place. She also said that the plaintiffs are trying to recover damages they had allegedly suffered, not damages sustained by another party.

Michael Vilione and Henry J. Krier were co-owners of three separate companies that were affiliated with each other. The companies, EOG Disposal Inc, EOG Environmental Inc, and Vil-Kri Investments LLC are involved in the hazardous waste storage business. Vilione and Krier became involved in a dispute over Vilione’s alleged personal use of corporate assets. In mediation, the two men decided to split the enterprise. Vilione got full ownership of EOG Environmental, while Krier took full possession of the other two companies.

Mortgage-Backed Securities, Collateralized Debt Obligations, Subprime Loans: Officials Scramble to Rescue Banks, Borrowers and Stock Market, but Forget Defrauded Investors

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

In August, Wall Street pundent Jim Kramer went ballistic when he felt the Federal Reserve did not act fast enough to rescue the stock market. Washington officials from George Bush to Nancy Pelosi are vying over how and how much to make avalible to troubled mortgage holders to keep afloat. The Chairman of the Federal Reserve acknowledges the need to preserve the banking system.

But no one seems worried about millions of individual investors who have chunked billions of dollars into mortgage related securities while being told these were completely safe. Many securities which were rated AAA only months ago, have lost a fourth of their value or more and likely face further markdowns in the near future.

Other investments which carried lower ratings, but were hyped as perfectly safe, are worth less than half their purchase value and may be all but wiped out before the dust settles. Many of these securities were sold as CD substitutes to small investors and retirees and to pension funds. The fallout of the failure of such investments will be tragic.

Broker-Dealers Get New Rule Governing Deferred Variable Annuities Sales

Published on: November 8, 2007 | by Shepherd Smith Edwards & Kantas, LLP

Broker-dealers are getting ready to cope with a new rule governing deferred variable annuities (VAs) sales.

Rule 2821 by the Financial Industry Regulatory Authority Inc. was finally approved by the Securities and Exchange Commission on September 7. The rule has been in the works since 2004. The official regulatory notice, to be issued this week, gives brokerage firms six months to comply. The rule is expected to go into effect in May or June 2008.

Rule 2821 has four provisions regarding the sale of deferred variable annuities and the exchange of variable annuities. The rule places a suitability requirement on products for sales. It also makes it mandatory for principals to look at transactions within seven business days and before a customer’s application is forwarded to an insurance carrier.

SEC and FINRA Announce Plan to Help Broker-Dealer CCO’s with Compliance Controls

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

The Financial Industry Regulatory Authority (FINRA) and the Securities and Exchange Commission (SEC) have introduced an initiative that will assist broker-dealer chief compliance officers in maintaining compliance controls that work, creating effective communications about compliance risks, and implementing solid compliance programs at brokerage firms.

Regional and national seminars will be designed to focus on increased compliance practices at brokerage firms to increase investor protection. FINRA and SEC said that this new initiative is similar to the SEC’s current CCOutreach Program for investment company chief compliance officers and investment advisers.

A national compliance seminar is tentatively scheduled for March 2008 at the SEC headquarters in Washington D.C. Regional seminars will be held in cities across the United States.

FINRA Says New Rule Book Consolidating NYSE and NASD Rules Might Not Be Completed Until 2009

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

FINRA enforcement chief Susan Merrill announced at a Practising Law Institute Gathering on “Coping with Dealer/Broker Regulation and Enforcement” that the Financial Industry Regulatory Authority rulebook, which consolidates NASD and NYSE Rules might not be completed until the end of 2008 or even into 2009.

Merrill said that the consolidation is causing FINRA to ponder whether different kinds of firms should be regulated differently and whether it makes sense to use principle-based standards more frequently.

Merrill says that different groups, including employees previously with NYSE and NASE, are looking at the different rules and trying to figure out how to best merge the two systems.

Bill Allowing American Stock Exchange to Increase Competitiveness With Second Tier Markets Passes House of Representatives

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

On October 23, The House of Representatives passed Bill H.R. 2868, which allows the American Stock Exchange (Amex) to move forward with plans to create a second tier market for smaller companies that have less restrictive listing standards. The plan will hopefully improve the global competitiveness of U.S. financial markets.

H.R. 2868 was introduced by New York Representatives Vito Fossella and Gregory Meeks. Both men claim that the bill is intended to slow down the flow of U.S. initial public offerings from U.S. exchanges to foreign exchanges.

The proposed Small Cap Competitive Listing Act would take away the “inadvertent” legal impediment brought about by the 1996 National Securities Markets Improvement Act (NSMIA) and allow for developmental listing tiers on the three major U.S. stock exchanges.

FINRA Cautions Investors to Watch Out For “Pump-and-Dump Scams” Using Energy Stocks

Published on: November 1, 2007 | by Shepherd Smith Edwards & Kantas, LLP

FINRA (Financial Industry Regulatory Authority) is warning investors to look out for “pump-and-dump” scams focusing on energy stocks. FINRA says that these scams involve energy stocks that are thinly traded issues from companies that are not well known.

In the alert that it issued on October 23, FINRA says that the purpose of the scams is to increase a stock’s price using misleading or false statements that create a demand for a company’s shares. The people who “pumped” the stock then sell their shares when the stock price is high enough. Investors are then left with stock that are worthless.

In one scam, investors were encouraged to invest in a Texas energy company involved in a business deal with a $23 million Chinese oil monopoly. The backers of the scheme told investors that they would receive huge returns if they invested immediately.

North American Securities Administrators Association Announces Investment Adviser Best Practices

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

The North American Securities Administrators Association announced a series of investment adviser best practices that it is recommending after it conducted investment adviser tests that showed 2135 deficiencies in 13 compliance areas. 418 investment advisers in 43 states and provinces participated in the tests, which were overseen by NASAA’s Investment Adviser Operations Project Group.

Five of the categories that had the largest amount of deficiencies included supervisory compliance (174 deficiencies), registration (504 deficiencies), books and records (384 deficiencies), unethical business practices (318 deficiencies) and privacy (142 deficiencies).

The leading three deficiencies in the category of registration involved:

Ameriprise Financial Again Charged With Fraud

Published on: October 25, 2007 | by Shepherd Smith Edwards & Kantas, LLP

Ameriprise Financial Services, Inc. has been charged by The New Hampshire Bureau of Securities Regulation of forging and tampering with documents. The complaint also alleges that the firm failed to deliver nearly 500 financial plans, conducted unapproved sales contests and intentionally limited compliance oversight.

Furthermore, Minneapolis-based Ameriprise was accused of failing to adequately release fraudulent activities to the New Hampshire Bureau while it was under supervision of an independent consultant, which was mandated under an earlier action against the firm.

The New Hampshire securities regulator said that the latest action against the company, which maintains about 30 offices in the state, could result in penalties and client restitution of up to $10 million.