Investor Lawyers Blog

According to NASD, Banc of America Investment Services Inc. Agrees To Pay $3 Million For Failing To Comply With Anti-Money Laundering Requirements

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

Banc of America Investment Services (BAI) Inc. says that it will pay $3 million in disciplinary charges for its alleged violation of anti-money laundering (AM) requirements.

The NASD says that BAI failed to acquire customer information for a number of high-risk accounts. It is also accusing BAI of failing to communicate sufficiently with its parent bank to make sure that BAI’S independent SAR (suspicious activity report) filing obligations were fulfilled. In addition, the NASD says that BAI did not properly investigate or pursue certain red flags, especially when its own clearing company had made repeated requests for additional information pertaining to certain account holders.

The NASD claims that BAI did not get the mandated additional information from customers who had 34 accounts involving trust and private investment corporations that were affiliated with one family and domiciled in the Isle of Man. The offshore accounts, collectively containing assets worth $79 Million to $93 Million, participated in multimillion-dollar wire transfers internationally.

Securities Officials In Massachusetts File Charges Against Bulldog Investors And Principal, Phillip Goldstein

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

The Massachusetts Division of Securities has filed an administrative complaint against Bulldog Investors General Partnership and the company’s principal, Phillip Goldstein. Bulldog Investors and Goldstein, as well as other individuals and firms, are being charged with offering unregistered securities for the purpose of selling them in Massachusetts.

The securities officials claim that the hedge funds allegedly failed to restrict prospective investors from accessing general advertising and offering content on their web site. The securities division says that while hedge fund offerings do not have to be registered with the Massachusetts Division of Securities, there are SEC guidelines for making private offerings online. This includes making sure that private offerings are password-protected so that only the potential investors that the issuer has assessed as sophisticated enough or properly accredited can view the materials. According to the complaint, Bulldog did not control access to the information, which “constitutes an unregistered, non-exempt public offering of securities in Massachusetts.”

Goldstein allegedly told the division that anyone who agreed to view the offering content online had to agree that the information was not a solicitation. The complaint however, claims that , “A disclaimer such as the one on the Bulldog web site does not constitute an appropriate or adequate control over a publicly accessible Web site that displays advertising and/or offering materials for securities.”

MBIA Inc. Will Pay $75 Million To Settle SEC Securities Fraud Charges

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

One of the largest municipal bond insurers in the country has agreed to pay $75 million to settle securities fraud charges. The charges were brought against MBIA Inc. by the SEC, the New York State Insurance Department, and NY Attorney General Andrew M. Cuomo.

In agreeing to pay the charge fees, the New York-based firm is not denying or admitting guilt. MBIA will pay $1 in disgorgement and a $50 million penalty-based on its agreement wit the SEC-the total will be put in a Fair Fund for investors. MBIA will also abide by a cease-and-desist order, as well as work with an independent consultant to look at specific transactions that MBIA took part in.

The firm will also pay $10 million in disgorgement fees to investors and $15 million in penalties to satisfy its agreements with the NY entities. It will also restate all earnings from 1998-2004.

Arbitration Panel Concludes that Former Gemstar CEO Must Pay Company $93.6 Million

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

A panel of arbitrators has found that the former chairman and CEO of Gemstar-TV Guide International Inc. breached warranties and representations that he made to the company. The arbitration panel is ordering Henry Yuen to pay $93.6 million in fees, damages, and back pay to Gemstar. According to the panel, Gemstar was within legal bounds to fire Yuen in April 2003, because of his misconduct relating to a corporate and management restructuring that took place in 2002. The panel also decided that Yuen is not entitled to the $39.9 million dollars he says that the company owes him because he was displaced as CEO and chairman due to the restructuring.

The ruling by the arbitration panel has rejected all of Yuen’s wrongful termination-related claims. This includes approximately $6.9 million in attorney’s fees that were given to the former CEO, some $6.1 million in salary paid to the former CEO since he was let go, and, for breaches of warranties and representation, approximately $80.6 million in damages. The panel also decided that it agrees with Gemstar’s claim that the Patent Rights Agreement between Yuen and the company will stay effective until 2010.

The judgment means that Yuen is not allowed to receive any more advancement of legal fees or indemnification for any matters related to his alleged misconduct. The panel also decided that Gemstar has the right to another judgment for costs and attorneys fees. The arbitrators will decide what this amount will be at a future date. In the meantime, Gemstar says it will pursue the amounts awarded to them from Yuen.

Securities and Exchange Commission Charges Clarion Management LLP and Its Hedge Fund Manager With Involvement In Alleged Market Timing Scheme

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

The SEC is charging Clarion Management LLP and its hedge fund manager, John Fife, with allegedly buying variable annuity contracts, with the intention of taking part in market timing in mutual funds on behalf of the hedge fund.

According to the SEC, in their lawsuit filed in the U.S. District Court of the Northern District of Illinois on January 18, Fife and Clarion Management allegedly made hundreds of thousands of dollars in profits at the expense of other shareholders. The Securities and Exchange Commission wants the court to order disgorgement plus prejudgment interest, injunctive relief, and civil penalties.

The SEC claims that Clarion Management and Fife allegedly took part in a fraudulent scheme to buy variable annuity contracts issued by the Lincoln National Life Insurance Company for Clarion Capital LP. The purpose of these purchases was to take part in market timing. The SEC says that Clarion Capital was created to market time international funds through variable annuities and that Clarion Management and Fife engaged in deceptive methods to buy contracts and take part in market timing to benefit Clarion Capital. One example the SEC cited was that of Clarion Management and fife using limited liability companies and trusts as nominee beneficiaries and contract owners to cover up the fact that Clarion Capital had a financial interest in the variable annuity contracts.

Securities and Exchange Commission Approves Improvements To The NASD’s Code of Arbitration Procedure

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

The SEC (Securities and Exchange Commission) says that it has approved a number of improvements made by the National Association of Securities Dealers to their Code of Arbitration Procedure. The newly approved Code describes best practices and offers additional guidance to arbitrators and parties regarding the NASD Dispute Resolution forum.

Included among these changes are the reorganization of the Code into a more user friendly and logical manner, and the simplifying of the Code’s language. The Code is also now divided into three sections: The Industry Code, The Customer Code, and the Mediation Code. This separation of the code into three parts is intended to remove any confusion regarding which part applies to which disputes. The rules are now ordered in the sequence of a typical arbitration to make each rule easier to find. In addition, parties involved in disputes must either produce documents requested during the discovery process or formally object to producing them. Uniform procedures for filing, responding to, and making decision regarding motions in arbitrations can also be found in the new Code.

While the Mediation Code became effective on January 20, 2006, the Industry and Customer Codes won’t become effective until April 2007. These new Codes will affect claims that are filed on or after the April 2007 date, claims that have already been filed but do not already have a list of arbitrators, and claims where a new list of arbitrators still needs to be generated.

SEC Says Broker-Dealers Are Not Following Supervisory Procedures

Published on: January 24, 2007 | by Shepherd Smith Edwards & Kantas, LLP

Mary Ann Gadziala, an associate director of the Securities and Exchange Commission’s Office of Compliance Inspections and Examinations, says that broker-dealers often do not follow written supervisory procedures.

Speaking to an audience on broker-dealer regulation at the ALI-ABA conference on January 11, Gadziala says that this finding often comes up during examinations. She also said that although firms may have good written procedures, the practices were not necessarily consistent, but that she was reluctant to recommend the outsourcing of the creation of these written procedures that tended to be standardized-and that these procedures were not in compliance with the law if they did not cover the firm’s actual business activities.

Gadziala commented that she thought centralized or automated surveillance, rather than manual monitoring processes, should be used by high-volume firms. She did, however, say that the SEC has been working to develop manual (as opposed to electronic) monitoring for branch office supervision, procedures and staffers, and the suitability of products that were sold to clients.

American Association for Justice Asks SEC To Publicly Disclose Relationship To Merrill Lynch

Published on: January 23, 2007 | by Shepherd Smith Edwards & Kantas, LLP

The AAJ (American Association for Justice) is asking Securities and Exchange Commission Chairman Chris Cox and General Counsel Brian Cartwright to address media reports that the SEC thought about supporting Merrill Lynch & Company during attempts by Enron shareholders to hold Enron banks accountable. The AAJ wants the SEC to publicly disclose the extent of its connections to Merrill Lynch.

On January 12, 2007, the AAJ turned in to the SEC a Freedom of Information Act request. The AAJ wants the SEC to disclose if, how, and when they communicated with Merrill Lynch regarding Enron and whether Counsel Cartwright and Chairman Cox have recused themselves from the Enron case because they had both once worked for the law firm (Latham and Watkins) representing Merrill Lynch. Also, the Center for Responsive Politics is reporting that Latham & Watkins was Chairman Cox’s largest contributor while he served in the U.S. Congress. The law firm reportedly contributed $124,594 on two separate occasions.

At least 30 states are supporting the Enron shareholders who have filed lawsuits against investment banks that are accused of taking part in accounting fraud because of the Enron scandal. Merrill Lynch is one of these banks.

Former Putnam CEO Agrees To Pay $75,000 In SEC Charges

Published on: January 19, 2007 | by Shepherd Smith Edwards & Kantas, LLP

Lawrence Lasser, the former CEO of Putnam LLC, has agreed to pay $75,000 to settle SEC charges that he neglected to make sure the company carried out its fiduciary duties.

The Securities and Exchange Commission issued the following statement on January 9, the day that Lasser agreed to pay the settlement fee. According to the SEC, Lasser “did not ensure that Putnam fulfilled its fiduciary duty to disclose adequately to the Putnam Funds’ board of trustees the use of fund brokerage commissions to pay for ‘shelf space’ arrangements or potential conflicts of interest created by this use.”

By agreeing to pay the settlement fine, however, Lasser is not admitting or denying the SEC’s charges against him.

JP Morgan Chase Reports Strong Profits For 4th Quarter From Investment Banking Growth And The Sale Of Their Trust Unit

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

JP Morgan Chase & Co. is reporting a 68% increase from the sale of their corporate trust unit, as well as strong investment growth. Credit quality became weaker, however. This suggests that the investment bank’s individual and commercial clients, like with many major banks, had a more difficult time paying their bills.

JP Morgan Chase is the third largest bank in the U.S. For its 4th quarter, the bank reported a net income of $4.53 billion, up $2.7 billion from the previous year. Revenue was $16.05 billion. According to analysts, 2007 is looking “modestly better than expected” for JP Morgan Chase.

Meanwhile, Wells Fargo & Co, the fifth largest bank in the country, reported a 13% rise in fourth quarter earnings. Credit losses for Wells Fargo also grew.