Investor Lawyers Blog

Banc of America Securities LLC to Settle SEC Charges By Paying $26 Million In Penalties and Disgorgement

Published on: March 20, 2007 | by Shepherd Smith Edwards & Kantas, LLP

To settle administrative charges made by the Securities and Exchange Commission, Banc of America Securities LLC has agreed to paying $26 million in penalties and disgorgement. The SEC says that BAS did not safeguard upcoming research reports and submitted ones that were fraudulent to companies. Without denying or admitting the charges, BAS has agreed to a cease-and-desist order against future violations and to being censured, as well as other remedial measures. It will also work with an independent consultant to assess its internal controls and prevent nonpublic information about forthcoming researched from being misused again.

The SEC says that there was a “breakdown” in internal controls that had been put in place at BAS to stop the firm and its employees from misusing research reports that were forthcoming between January 1999 and December 2001. Because of this breakdown, traders and salespersons at BAS allegedly found out about research changes that were forthcoming, such as downgrades and upgrades.

The SEC claims that BAS had no effective or clear procedures and policies that could allow it to control or manage this kind of information. Because of this, BAS allegedly traded prior to the research reports being issued. The firm is also accused of not taking care of specific conflicts of interest, which compromised the integrity and independence of its analysts. These conflict allegedly led to misleading research reports being published and given to TelCom Semiconductor Inc., Intel Corp, and E-Stamp Corp.

In Hi-Tech Market Manipulation Case By Unknown Traders, Securities and Exchange Commission Freezes $3 Million To Protect Brokerage Firms

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

On March 6, 2007, The U.S. District Court for the District of Columbia froze $3 million in an account under the name of a Latvian bank. The SEC said unknown traders used the money last year for a “hi-tech market manipulation scheme”. According to the Commission, the action is the largest freeze secured for an intrusion-related market manipulation scheme.

The SEC says that the assets had been placed in an omnibus brokerage account at Pinnacle Capital Markets LLC. The unidentified account owners are based in Russia, the British Virgin Islands, Latvia, and Lithuania-but the account was under the name of JSC Parex Bank, a Latvian bank that the SEC has named as a relief defendant in the SEC action.

The Commission says that unknown traders hacked into investor accounts at online brokerages, sold off clients’ existing positions, and used the money they made to bid up the market for specific stocks that they wanted to manipulate. These traders made at least $732,000 with their alleged pump-and-dump scheme, costing brokerage firms about $2 million.

NYSE Regulation Fines Swiss American Securities Inc. and UBS Securities, LLC For Violations

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

NYSE Regulation says it has ordered Swiss American Securities Inc. (a unit of Credit Suisse Group) and UBS Securities LLC to pay fines for a number of securities violations.

The regulatory arm of the New York Stock Exchange says UBS Securities is being fined $95,000 for canceling or entering limit-on-close and market-on-close orders in a number of securities after relevant cut-off times. These violations happened between June 2005 and February 2006. Other violations were also cited as reasons for the fine.

Swiss American Securities was fined $100,000 because it failed to maintain control or possession of all excess and fully paid margin securities that it held for customer accounts (in 2004 and 2005), as well as other violations.

The SEC And The U.S. Attorney’s Office File Separate Criminal And Civil Actions In Major Insider Trading Schemes Involving Confidential Information From UBS Securities And Morgan Stanley

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

The U.S. Attorney’s Office announced the unsealing of criminal actions against a dozen individuals for allegedly stealing and trading on inside information from Morgan Stanley and UBS Securities, LLC, two Wall Street brokerage firms. The SEC also filed charges against these individuals in a separate civil case.

Former Morgan Stanley attorney Randi Collotta and former UBS Securities LLC executive Mitchell Guttenberg are two of the individuals out of more than a dozen people being charged by the U.S. Attorney’s Office for two bribery schemes and two insider trading schemes. Participants made over $8 million in illegal trading profits. U.S. Attorney Michael Garcia says all of the criminal defendants are in custody. Four of them have pleaded guilty.

Garcia said that the defendants violated the trust that had been given to them, made money illegally, and took extensive measures to hide their alleged illegal actions. Concealment measures included secret meetings, paying cash kickbacks, and communicating in code using disposable cell phone.

SEC Charges Against Two Former Citigroup Officials For Fraudulent Fund Dealings Are Dismissed

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

Charges by the Securities and Exchange Commission have been dropped against Lewis Daidone and Thomas Jones, two former Ex-Citigroup Officials. The SEC had charged the two men with alleged involvement in a fraud scheme that let Citigroup gain millions of dollars in profits, which should have gone to specific mutual funds.

According to Judge Richard Conway Casey of The U.S. District Court for the Southern District of New York, the SEC’s push for injunctive relief and civil penalties is time-barred. He also said that there is no factual support for the Commission’s disgorgement claim.

The court said that the SEC sought three forms of relief-permanent injunctions, civil penalties, and disgorgement-for one cause of action-aiding and abetting 1940 Investment Advisers Act Section 206 violations. The remedies, according to the judge, are not available. The civil penalties and injunction relief is time-barred (the charges did not meet the 5-year statute of limitations) and the disgorgement request was not supported by enough facts. The SEC filed its suit in 2006, six years after the alleged wrongdoing that took place in 1999.

Former UBS Vice President Pleads Guilty To Conspiring With Hedge Fund Operator And Founder Of Capital Management Group To Bilk At Least $2.5 Million From Over 40 Investors

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

The U.S. Attorney’s Office says that Justin Paperny, a former account vice president at UBS Financial Services, Inc., has pleaded guilty to helping Capital Management Group founder Keith Gilabert bilk at least $2.5 million from investors.

Paperny pled guilty to wire fraud, securities fraud, and conspiracy to commit mail fraud, while admitting that he helped Gilabert fraudulently run GLT Venture Fund. Paperny also said that he lied to investors so that they would invest in the fund, took kickbacks from Gilabert, and conspired with him to mislead investors about the hedge fund’s performance history, the oversight of Capital Management Group by his brokerage firm, and any risks connected to investing in Capital Management Group.

That said, Paperny also says that he informed management at the brokerage firm that GLT had not been adhering to its investment strategy and that authorities at his firm knew of Gilabert’s fraudulent behavior. The investigation is pending. Paperny faces a possible 5-year federal prison term. He has agreed to cooperate with investigators as a condition of his guilty plea.

Putnam Retail Management, Scudder Distributors, and AllianceBernstein Investments Say They Will Pay $700,000 Settlement Over NASD Allegations That They Violated Non-Cash Compensation Rules

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

While neither admitting or denying the charges by NASD, AllianceBernstein Investments Inc. of New York, Scudder Distributors Inc. of Chicago, and Putnam Retail Management Limited Partnership of Boston says they will collectively pay $700,000 to settle allegations that they violated the NASD’s non-cash compensation rules. Charges included the accusations that they improperly provided entertainment at education and training meetings and paid for guest expenses at these events.

Scudder, the distributor of Scudder investment products, said it would pay $425,000 in fines. AllianceBernstein, the distributor of AllianceBernstein LP’s investment products, agreed to pay $100,000, and Putnam, which distributes its own products, said it would pay $175,000.

NASD limits compensations so that point-of-sale incentives won’t affect a broker’s objectivity to find the appropriate investment product for each investor. Non-cash compensations are also limited by NASD, including reimbursements for meals, lodging, and travel expenses related to education and training meetings.

The NASD Charges Two Former Prudential Brokers And A Branch Manager With Helping A Hedge Fund Manager Engage In Market Timing Through Variable Annuities

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

On February 15, the NASD announced that it was charging two former prudential brokers with helping a hedge fund manager to time the market through variable annuities. The former broker’s supervisor was also charged with failure to properly supervise them. Both brokers were registered with Prudential Securities Inc., now called Prudential Equity Group, during this time.

David Corn and Jeffrey Doerr allegedly helped Paul Saunders, a client, by opening 20 accounts for him under the names of a number of limited partnerships that had been created by Saunders. The limited partnerships had the same beneficial owners as James River Capital Corp., which was Saunders’s market timing hedge fund. The NASD says that the two brokers should have known their client would use the accounts for the purpose of market timing variable annuities and that the limited partnership had the same beneficial owners.

The SRO says that, between October 2001 and September 2003, Saunders executed about 900 variable annuity sub-account transactions with the brokers’ help. These transactions earned about $5.2 million, while violating the restrictions set up by insurance companies that offered annuities. The two brokers made about $45,000 each from these trades and their commissions.

U.S. Bankruptcy Court Says Bear Stearns Must Pay More Than $125 Million for Collapsed Hedge Fund Fiasco

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

Bear Stearns Securities Corp. is being ordered to pay over $125 million to a bankruptcy trustee because of Manhattan Investment Fund, a collapsed hedge fund used by hedge fund principal Michael Berger to run a large scale fraudulent investment scam. The ruling was issued on February 15 by the U.S. Bankruptcy Court for the Southern District of New York.

Berger, who was a fugitive and a convicted felon, had created and used the fund through his company, Manhattan Capital Management Inc., to engage in fraud-an action that led to a number of regulatory and criminal actions. The SEC had even filed a securities fraud complaint against MCM, Berger, and Manhattan Investment Fund in January 2000, even obtaining an asset freeze. Two months later, Helen Gredd, the fund’s receiver, filed for Chapter 11 bankruptcy on the fund’s behalf.

According to the court, the fund made 18 transfers, worth approximately $141.4 million in total, in the year before filing for bankruptcy. Funds were transferred from Bank of Bermuda to a Bear Stearns-maintained account with Citibank. The funds were then transferred to a Bear Stearns account and used for securities trading.

Former Prudential and E.F. Hutton Exec. Weighing Problems at Current Firm.

Published on: February 27, 2007 | by Shepherd Smith Edwards & Kantas, LLP

Apparently unscathed by scandals at his former firms, 67 year old George Ball serves as Chairman of Sanders Morris Harris Group, Inc., a Houston based investment bank and wealth management firm.

Ball served as the No. 2 executive at E.F. Hutton & Co. Inc. from 1980 to 1982. Three years after he left, the now-defunct New York firm pleaded guilty to 2,000 counts of mail and wire fraud in a check-kiting scheme that occurred during Ball’s tenure.

Ball left Hutton to become chairman of Prudential Bache Securities. That firm thereafter became involved with what some have called “the biggest swindle in Wall Street History.” Regulators charged the company with defrauding hundreds of thousands of customers by misstating risks involved in investment partnerships. Prudential paid restitution and penalties totaling $2 billion – the costliest settlement ever for a brokerage firm – and was forced to resolve thousands of civil claims by investors for its role in these investments.