Investor Lawyers Blog

Bear, Stearns, Merrill Lynch, Deutsche Bank Securities and UBS Securities Among the 19 Broker-Dealers to Settle SRO Charges Of Overstated Ad Volumes

Published on: January 14, 2008 | by Shepherd Smith Edwards & Kantas, LLP

Last week, the Financial Industry Regulatory Authority (FINRA) announced that 19 broker-dealers agreed to pay fines to settle SRO charges that they “substantially overstated their advertising trade volume to private sector providers.” By agreeing to pay the fines, none of the firms are admitting to or denying the charges.

FINRA says that after comparing each firm’s advertised trade volume in selected securities with executed trade volume for the same issuer, they noticed overstatements that were substantial in at least one of the securities examined.

Broker-dealers that agreed to be fined $200,000:

Investors Complain about Mutual Funds Sold by Morgan Keegan

Published on: January 12, 2008 | by Shepherd Smith Edwards & Kantas, LLP

Some Investors have complained they were sold mutual funds by the securities firm of Morgan Keegan & Company, Inc. based on representations of safety which were unfounded. At this time such complaints are only allegations and no determination has been made that the firm and/or its representations engaged in any wrongdoing.

The funds in question include RMK High Income Fund (RMH), RMK Advantage Income Fund (RMA), and RMK Multi-Sector High Income Fund (RHY). Reportedly, these funds were heavily invested into collateralized debt obligations (CDO’s) based on sub-prime mortgages and have therefore declined sharply in value.

Morgan Keegan is a Memphis, Tenessee based brokerage firm and is a division of Regions Financial Group. The firm’s offices are located primarily in the South, including in the states of Alabama, Arkansas, Florida, Georgia, Kentucky, Mississippi, North Carolina, South Carolina, Tennessee and Virginia.

vFinance Investment Inc. is Slapped with SEC Charges for Failing to Retain E-Records

Published on: January 11, 2008 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commisison is charging vFinance Investment Inc., its President Richard Campanella, and former New Jersey Branch Manager Nicholas Thompson for failing to keep records and show them to Commission staff. The SEC’s need for the e-records stemmed from possible securities fraud involving a company that vFinance is the market maker for.

The Securities and Exchange Commission is accusing Thompson of erasing documents, e-mails, and instant messages from his computer’s hard drive even though he knew that the records had been requested by the commission. By law and according to vFinance’s policies, e-mails and instant messaging communications with clients must be preserved.

The SEC says that vFinance Investment President Campanella should have made sure that the documents were being preserved. He was reportedly “on notice” that vFinance was not keeping Thompson’s business records.

Ex-Goldman Sachs Associate Will Serve Nearly Five Years in Prison for Insider Trading

Published on: January 10, 2008 | by Shepherd Smith Edwards & Kantas, LLP

Eugene M. Plotkin, a former Goldman Sachs associate, will serve 57 months in prison for his involvement in insider trading. Plotkin pleaded guilty to conspiracy and eight counts of insider trading for his role in a number of insider trading scams that generated over $6 million in illegal gains.

The former fixed-income research associate to will have to forfeit $6.7 million and pay a $10,000 fine. The forfeiture will come from money that the government has already frozen.

Plotkin, along with ex-Goldman analyst David Pajcin, was one of the key players accused of illegally trading stocks after consulting prepublished copies of BusinessWeek’s “Inside Wall Street” column. The scam also involved the use of information leaked by Jason Smith, a grand juror in the Bristol-Myers Squib Co. case and information provided by Stanislav Shpigelman, a former Merrill Lynch investment-banking analyst.

$600 Million Set Aside by State Street May Be Tip of Mortgage Litigation Iceburg

Published on: January 8, 2008 | by Shepherd Smith Edwards & Kantas, LLP

State Street Corp. announced it established a pre-tax reserve of $618 million billion “to address legal exposure and other costs associated with the under-performance of fixed-income strategies managed by the company’s investment management arm,” blaming exposure to subprime mortgages. The company referenced “customer concerns as to whether the execution of the strategies was consistent with the customers’ investment intent” without identifying any specific litigation.

However, the New York Times published an article stating that State Street created the reserve “after five clients sued it, claiming they had lost tens of millions of dollars in State Street funds they were told would be invested in risk-free debt like Treasuries.” The article added that State Street’s reserve “highlight the legal challenges that lie ahead for financial firms.”

The first of the five lawsuits referenced by the Times article was filed October 1, 2007, by Prudential Retirement Insurance and Annuity Co. The action “seeks, among other relief, restitution of certain losses attributable to certain investment funds” sold by State Street’s investment management arm, and alleges State Street “failed to exercise prudent investment management,” in violation of the Employee Retirement Income Security Act of 1974 (ERISA).

Morgan Keegan Settles Arbitration Claim Made By Indiana Children’s Wish Fund

Published on: January 7, 2008 | by Shepherd Smith Edwards & Kantas, LLP

Last month, brokerage firm Morgan Keegan made an undisclosed payment to the Indiana Children’s Wish Fund to settle an arbitration dispute. The wish granting organization had lost $48,000 in a mutual fund that was heavily invested in mortgage securities.

The Indiana Children’s Wish Fund has about $1 million in assets. The Wish Fund was founded by Richard Culley, a blind attorney, in 1984. The charity has granted some 1800 wishes to children who have been diagnosed with life-threatening illnesses. If the charity had not received its settlement sum, it would not have been able to realize the wishes of nine children.

Last June, a banker at Regions Bank in Indiana recommended that the Wish Fund invest money in a bond that Morgan Keegan offered. Regions Bank and Morgan Keegan are affiliated with one another. Terry Ceaser-Hudson, the Wish Fund’s executive director, says that the Morgan Keegan broker told her that the fund was very safe.

Senior Vice President of Questar Capital (now Allianz Insurance) Claims He’s a Victim of Ponzi Scheme

Published on: January 3, 2008 | by Shepherd Smith Edwards & Kantas, LLP

Questar Capital Corp’s senior vice president of mergers and acquisitions claims he too was victim of a $250 million alleged Ponzi scheme that affected up to 1,200 investors-many senior citizens residing in Michigan, California, Illinois, New York, Florida, New Jersey, and Ohio.

The Securities and Exchange Commission charged Edward May and E-M Management Co. LLC with selling bogus investments which involved shares in fake Las Vegas casino and resort telecom transactions. “Investment seminars” were held to persuade investors to buy shares. The investors were told they would receive monthly returns for the next 12-14 years.

It turns out that there were never any telecom contracts with any Las Vegas resorts, hotels, and casinos. Some of the hotels and casinos that supposedly had contracts were Motel 6, Hilton, Tropicana, MGM Grand, and Sheraton.

Two Former Morgan Stanley Advisers are named in SEC Market Timing Lawsuit

Published on: January 2, 2008 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission is suing two ex-Morgan Stanley advisers for allegedly circumventing the market timing restrictions of 50 mutual fund companies, and, as a result, allegedly defrauding some 50 mutual fund companies.

Between January 2002 and August 2003, Former advisers Darryl Goldstein and Christopher O’Donnell earned about $1 million in fees and commissions because of their alleged misconduct. Attorneys for both men say their clients will fight the charges.

The SEC says that the two men, on more than one occasion, strategically engaged in several deceptive practices, including the opening of several brokerage accounts and trading in them, trading with variable annuity contracts, and using a number of financial advisor identification numbers while trading. The deceptive practices were meant to get around the restrictions that mutual funds had regarding market timing.

SEC Investment Management Division Director Wants Mutual Funds to Call Their “Distribution Fee” a “Sales Charge”

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

The director of the Securities and Exchange Commission’s Investment Management Division is calling for mutual funds to rename their 75 basis point “distribution fee” and call it a “sales charge”-regardless of whether the sales charge is deducted right away or over a period of time.

At the Investment Company Institute’s 2007 Securities Law Developments Conference in Washington, Donohue issued a call out for “truth in labeling.” He said that financial advisers should notify investors about the sales charge and the information about the charge should also be in the prospectus and the confirmation.

Last year, the mutual fund industry collected 12b-1 fees totally $11.8 billion. These fees are authorized under the 1940 Investment Company Act Rule 12b-1 in 1980.

Goldman Sachs Class Securities Fraud Lawsuit is Dismissed

Published on: December 26, 2007 | by Shepherd Smith Edwards & Kantas, LLP

A class securities fraud lawsuit against Goldman Sachs & Co. was dismissed by the U.S. District Court for the Southern District of New York. The lawsuit had charged that a Goldman Sachs & Co. senior analyst issued false research reports with inflated projections of Exodus Communications Inc.’s financial growth on more than one occasion.

Judge Thomas Griesa granted the motion to dismiss after deciding that the second amendment complaint “fails to adequately plead loss causation.” The court dismissed the original lawsuit filed by Exodus investors based on the same grounds.

The Allegations: