Investor Lawyers Blog

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.

Fired UBS Broker’s $2.4 Million NASD Arbitration Award is Upheld

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

A $2.4 million NASD Arbitration Award to a former UBS financial adviser, who was fired in 2003 by the company that preceded UBS PaineWebber Inc. is being upheld by the U.S. District Court for the Western District of North Carolina. The court said that it did not agree with UBS’s theory that the arbitration award did not honor provisions made in the arbitration contract or that it was in manifest disregard of the law.

Former financial adviser W. Van Pelt Jr. had served as a financial advisor UBS and its predecessor JC Bradford from 1999-2003. Upon his hiring, he filled out a Form U-4 industry form in which he agreed to not hold UBS liable if it provided specific information, including notice of termination.

He was let go in January 2003 during an internal probe. UBS filed a U-5 form reporting Van Pelt’s termination because of “concerns of conduct” in a matter involving a customer transaction. On the form, UBS said that Van Pelt was not under investigation because the probe was already over at that time.

Guardian Wealth Management – Where Stockbrokers Go to Stop Working but Keep Earning

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

In the Galleria area of Houston is Guardian Wealth Management LLC, a Registered Investment Advisory Firm with an interesting business model: To provide a home for stockbrokers who want to retire or pursue another career – and continue to get paid!

Securities regulators report over 660,000 registered representatives, with about 15% (almost 100,000) annually retiring or leaving the securities industry to pursue other careers. Since 1970, Guardian’s partners say they have watched scores of co-workers leave their firms which then dealt out their clients to other brokers, often the newest kids on the block.

“Brokers can work for years developing relationships with investors but are then helpless to protect even their family and friends from those assigned to their accounts,” says Guardian’s Founder Jerrod Summers, adding that “Guardian was built as a ‘safe harbor’ for investors – free of widely publicized conflicts at brokerage firms such as tainted research, commission churning and high-load funds, annuities and other products.”

Mortgage Backed Securities and Collateralized Debt Obligation Losses Mount as Lawyers Weigh Investors’ Options

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

The other shoe is dropping on mortgage securities holders who have already suffered devaluations on what many were told were low risk investments. Monthly interest payments are now falling and in some cases have ended on securities backed by risky home loans.

Large numbers of collateralized debt obligations (CDO’s) and mortgage back securities (CMO’s) made up of bonds backed by sub-prime home loans are starting to shut-off cash payments to investors. Such cash flow cutoffs are expected to accelerate, as observers speculate whether this will cause a new round of panic in the battered mortgage securities market.

Owners of collateralized obligations, including investment banks, hedge funds, insurance companies and public pension funds continue to write down mortgage investments beyond the billions they have already written off. Some of the securities may, for example, fall from 70 percent of face value to almost worthless overnight, bankers and analysts say.

Ex-Wood Rivers Partners Hedge Fund Manager to Serve 3 Years in Prison for Defrauding Investors of $88 Million

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

Wood Rivers Partners LP Founder John Whittier has been ordered to serve 36 months in federal prison. The former hedge fund manager pled guilty to charges that he defrauded investors of about $88 million over a two-year-period.

Whittier admitted to deceiving investor clients and making them think that he would keep risks low while he employed diverse investment strategies. Prosecutors also say that Whittier lied when he told investors that the hedge fund they had invested in was being audited.

Instead, Whittier placed about 80% of the assets in his Wood River US hedge fund portfolio, worth $127 million, into one stock, called Endwave. In doing so, he was in breach of his investors’ trust.

Merrill Liable for $6 Million to Estate of Elderly Couple

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

A Florida jury has ordered Merrill Lynch & Co. Inc. to pay $6 million to the daughters of a New Jersey philanthropist and his wife. The claims against Merrill Lynch included that its broker took advantage of the elderly couple’s deteriorating mental condition in order to convert their money into investments that paid he and the firm higher commissions.

The suit also claimed the Merrill broker falsely told Mr. Rothman in three letters that the investments carried no fees or sales commissions. An attorney for the heirs said that Merill and its brokers made at least $2.5 million in fees on the Rothmans’ $32 million investment in variable annuities, while the investors only made $600,000.

“The verdict is astonishing in light of the undisputed fact that the Rothmans, who were wealthy, sophisticated investors, made $10 million on the annuities at issue, and did not lose money,” a Merrill spokesman said. “The verdict is unjustified by the facts and law.”

HSBC Securities, Citigroup Global Markets Inc., UBS Securities LLC, Merrill Lynch, Pierce, Fenner & Smith Inc., and Interactive Brokers LLC Among Firms Disciplined by NYSER

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

The New York Stock Exchange Regulation Inc. is disciplining nine companies and eight people for numerous violation. The firms disciplined include:

Merrill Lynch, Pierce, Fenner & Smith: Fined $100,000 for violating rule 123c about 480 times when it cancelled or submitted securities orders after the mandatory cutoff period.

Citigroup Global markets Inc: Find $300,000-half of this to be payed to NASDAQ; the other half to be paid to NYSE. The firm made inaccurate reports about short interest positions in securities that were listed on the NYSE.

Fidelity Investments and The Vanguard Group Offer Retirees Managed-Payout Funds

Published on: October 17, 2007 | by Shepherd Smith Edwards & Kantas, LLP

Fidelity Investments has launched 11 funds focused on generating steady income for retired seniors. The launch followed a similar launch by The Vanguard Group Inc., who will launch three similar funds in the next couple of months. Fidelity and Vanguard are the largest and second largest mutual funds in the country.

The move by both companies will likely force competitors to do the same. Industry experts say that they expect fund companies with a solid 401 (k) plan market to announce similar fund launches.

However, a number of major fund companies have only admitted to closely monitoring open-end managed-payout funds. This type of fund has been part of a number of closed-end funds for awhile. However, closed-end funds only appeal to a small section of investors.

Morgan Stanley Former Associate and Husband Sentenced in Insider Trading Scheme

Published on: October 16, 2007 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. District Court for the Southern District of New York has sentenced former Morgan Stanley Associate Randi Collotta and her husband, an attorney, to home confinement and ordered them to pay more than $10,000 in fines, plus a forfeiture, for their alleged roles in a large insider trading scheme which apparently resulted in at least $15 million of illicit profits.

At all relevant times, Randi Collotta was an associate in Morgan Stanley & Co. Inc.’s global compliance division, the indictment said. Her husband practiced law at a firm in Long Island at the time of his arrest, a source knowledgeable with the case said. The SEC charged the Collottas and 12 others with insider trading violations for using information stolen from UBS Securities LLC and Morgan Stanley.

The indictment detailed trades the Collottas allegedly made with insider information gained by Collotta at Morgan Stanley. She passed the information to her husband, who passed it to a co-conspirator, who then made trades based on the information and passed the information to a second co-conspirator, who traded on the information as well.

Interactive Brokers LLC Sanctioned for Failing to Supervise Its Compliance Staff

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

The U.S. Commodity Futures Trading Commission (CFTC) ordered Interactive Brokers LLC (IBL) to relinquish $175,000 in commissions, for failing to properly supervise its compliance employees while handling a commodity futures trading account. The National Futures Association (NFA) recently fined IBL $125,000 regarding the same matter and for failing to maintain adequate books and records.

IBL is a discount direct access brokerage firm and registered futures commission merchant (FCM) headquartered in Greenwich, Connecticut. According to the order, an account was maintained at IBL in the name of Kevin Steele, a Canadian who used the account to defraud more than 200 Canadian, German, and US citizens of over $8 million in a commodity pool fraud that was the subject of an earlier CFTC enforcement action.

The CFTC found that, from February 2003 through May 2005, IBL accepted 135 third-party deposits in the form of wire transfers and checks totaling $7.7 million into Steele’s personal account, but did not have procedures reasonably designed to detect the deposit of third-party funds in an individual trading account. The frequency and magnitude of deposits and withdrawals to Steele’s account, relative to his stated liquid net worth, and the pattern of deposits followed by withdrawals suggested that Steele might be operating as an unregistered commodity pool operator.