Investor Lawyers Blog

SEC Commissioner Annette Nazareth’s Departure Leaves Agency With No Democrats On Panel

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

Annette Nazareth, the only Democratic commissioner left on the Security and Exchange Commission’s five-member panel is leaving her post for the private sector.

Her departure is the second one in the past month and leaves the panel with three members-all of them Republicans. Roel Campos, also a Democrat, left in September. The remaining panel members are SEC Chairman Christopher Cox and Commissioners Paul Atkins and Kathleen Casey.

The SEC released a statement saying that Nazareth had requested that she not be renominated for the position. Nazareth has been a member of the SEC panel for nine years. The SEC cited her contributions to include modernizing national market system regulations and working on issues affecting the securities markets and investor protection.

Oppenheimer, Morgan Stanley, Nomura Securities, and A.G. Edwards Traders Face SEC Charges of Stealing Stock Loan Kickbacks Worth $12 Million Plus

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

38 stock loan traders from A.G. Edwards, Morgan Stanley, Oppenheimer, and Nomura Securities are accused of stealing over $12 Million in stock loan kickbacks from their Wall Street firms. The Securities and Exchange Commission has charged the employees with the more than $12 million theft.

The SEC says that from 1998-2006, the traders worked with fake stock loan finders to skim profits from their employers through finder fees as well as cash kickbacks from finders. The stock loan traders conducted actual, legal stock loans but logged that the transactions involved finders so there would be finder’s fees.

The finders were usually friends or relatives of the traders who were in charge of illegitimate “shell companies” that were not even a part of the stock loan business. The “finder” would then pay traders with stock loan kickbacks. The more sophisticated scams involved traders using their kickbacks to pay the other traders who had pushed through the loan transactions.

Merrill Lynch, Morgan Stanley and Bear Stearns Suffer Losses as Ratings Agencies Are Grilled over Sub-prime’s

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

Merrill Lynch will soon report third quarter earnings which analysts have revised downward. An analyst at competitor Goldman Sachs says that Merrill’s earnings for the third quarter will be about $1.80 per share, down from $1.95 and lowered Merrill’s stock price target to $94 from $108. The Goldman analyst predicted that Merrill will have $4 billion in write-downs, primarily from the fixed income division, resulting in a net loss of $1.5 billion for the quarter.

Other analysts’ expectations were even even lower: Fox Pitt Kelton’s analyst lowered earnings per share estimate for Merrill to $1.20, from a previous estimate of $1.91, “while noting that forecasting confidence is low in periods such as these.” He also expected the firm to experience $3.5 billion “in gross negative marks and realized losses” on leveraged loans, CDOs, and mortgages resulting in $2.2 billion in net losses and attributes the more positive net loss estimate to “$700 million in hedging gains; $500 million in loan fees; and $100 million in gains on liability marks.”

Morgan Stanley reported last week that it suffered a 17 percent drop in profit compared to the third quarter last year, earning $1.44, about ten cents below analysts’ estimates, with loan losses of $1 billion the culprit.

Morgan Stanley Fined $7.5 Million by SEC for Trade Confirmation Violations

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

The Securities and Exchange Commission has filed Morgan Stanley $7.5 million to settle charges that it provided insufficient written trade confirmations to its customers for municipal securities and bonds.

Morgan Stanley Dean Witter, Inc, a subsidiary of Morgan Stanley, furnished customers with trade confirmations that had missing or incorrect information relating to yield, call dates and/or prices and other features of the bonds, the SEC said.

This sanction by the SEC against Morgan Stanley Dean Witter comes on the heals of $10.4 million in fines against 14 other broker-dealer firms by the New York Stock Exchange over similar charges. Morgan Stanley agreed to pay the settlement without admitting or denying the commission’s findings in its investigation.

Citigroup, Lehman Brothers, DeutscheBank and other Firms Fined for Failing to Deliver Trade Confirmations.

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

NYSE Regulation fined 14 of its member firms a total of $10.4 million in fines for failing to deliver trade confirmations to their clients and other violations.

Citigroup Global Markets received the heaviest fine of $2.25 million for failing to deliver trade confirmation documents in more than a million consumer transactions. Lehman Brothers and DeutscheBank were each fined $1.25 million.

Other firms sanctioned included UBS Securities; Bear Stearns & Co.; Credit Suisse Securities (USA) LLC ; Banc of America Securities LLC; Goldman Sachs & Co.; JP Morgan Securities; Wachovia Capital Markets LLC; and Keefe, Bruyette & Woods Inc. Fines levied against these firms ranged from $375,000 to $800,000.

EKN Financial Services Fined and Sanctioned for Transactions in Unregistered Securities

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

The NASD imposed a $200,000 fine against EKN Financial Services Inc. and levied sanctions against the firm’s CEO, President, Head Trader and Financial and Operations Principal for improper short selling in connection with three unregistered PIPE securities offerings. As part of the settlement, EKN was also suspended for six months from engaging in transactions in PIPES.

“This action represents NASD’s continued commitment to ensuring that those firms and individuals who engage in improper activity involving PIPE trading will be held accountable,” said the NASD’s Head of Enforcement. “Suspending the firm for six months from future PIPE deals illustrates the seriousness with which we view these violations.”

A PIPE is a private offering in which accredited investors agree to purchase restricted, unregistered securities of public companies. The companies agree, in turn, to file a resale registration statement so that investors can resell the shares to the public. Only after the PIPE shares registration is approved by the Securities and Exchange Commission (SEC) are investors free to sell them on the open market.

Study Says Securities Arbitrators Often Expunge Investor Settlements from Brokers’ Records

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

A recent study conducted by the Public Investors Arbitration Bar Association indicates that securities arbitrators frequently agree to erase past settlements that were paid to investors from brokers’ records. Removing brokers’ settlement payments from their histories could cause future investors to not find out about the brokers’ past misconduct.

The study reveals that 99% of the time, FINRA arbitrators are the ones who suggest expunging these records. Over 70% of these decisions were made without hearings, even though there are new rules in place that say that a record can only be expunged if the complaint is false, erroneous, or did not involve the broker that was accused.

FINRA disagrees with the study results and claims expungements have dropped dramatically since the new rules were put in place in 2004.

New Primary Regulator of Securities Brokerage Firms Is Run Only By Brokerage Firms

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

The National Association of Securities Dealers (NASD) recently absorbed the regulatory unit of the New York Stock Exchange (NYSE) and changed its name to the Financial Industry Regulatory Authority (FINRA). Yet nothing has really changed. The primary regulator of securities brokerage firms industry is run solely by … brokerage firms.

There are a number of industry associations which oversee that industry. Yet, no other has the power of the FINRA. The Securities and Exchange Commission (SEC) is charged with the responsibility of policing the securities industry. (The last SEC commissioner appointed by a Democrat left this week leaving only Republican appointees and the Director is a former Republican Congressman, but that is another story.)

In any event, the SEC, the nation’s securities police force, delegates to the securities industry the power to police itself. There is now only FINRA, the rent-a-cop group in charge of that duty. FINRA is run by seven directors. Almost unbelievably, all of the directors of FINRA are representatives of brokerage firms. None are “public” directors.

Former GunnAllen Financial Branch Manager Allegedly Involved in Partnership Ponzi Scheme

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

A former broker and branch manager of a Michigan office of GunnAllen Financial, Inc. are accused of selling fraudulent investments. His clients, many of whom are retirees, recently learned that the partnership investments may have been part of a Ponzi scheme. According to reports, a mastermind of the scheme stated in a sworn statement that the investments were fraudulent and that he had acted on the advice of the GunnAllen broker/manager.

Frank Bluestein, who has been in the investment business for an over a decade, joined GunnAllen Financial in 2004. There, he was not only a registered stockbroker but also as one of the firms’ branch office managers. According to reports, Bluestein, his son and another broker worked in a Detroit area office fo GunnAllen.

Along with other investments, Bluestein’s clients were persuaded to invest millions of dollars into partnerships which ceased paying earlier this year. Those who invested recently learned about investigations, a court action seeking to freeze partnership assets and that their total investment in the partnerships could be in peril

Enforcement Actions Against Brokerage Firms And Individuals Went Down in 2006, Says Study

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

Last week, a securities law journal published a study illustrating how securities regulators went “soft” last year. According to the study, NYSE and NASD fined securities companies and individuals $111 million in 2006, which was lower than the $184 million in collective fines that their two regulatory units issued in 2005. Regulators only issued 19 actions of $1 million or greater. There were 25 such actions the year prior.

The report cited a similar decrease in penalties at the SEC. Penalties issued in 2005 were $1.5 billion. Penalties went down to $974 million in 2006.

Barbara Roper, Consumer Federation of America’s Director of Communications, says, however, that public-company managements and brokerage firms actually outdid themselves in their handling of research-analyst conflict, accounting scandals, and mutual fund-trading scandals.