Investor Lawyers Blog

LPL Financial Services is Playing Hardball to Prevent Competitor from Raiding Its Newest Brokers.

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

Linsco Private Ledger (LPL) has apparently warned competitor National Planning Holdings, Inc. (NPH) to stop its aggressive recruiting practices aimed at luring registered representatives away from three broker-dealer firms LPL is in the process of acquiring. Reportedly, LPL has threatened to steer all its representatives away from selling insurance products of the parent firm of NPH if such recruiting tactics do not end.

After months of negotiations, LPL, the largest independent-contractor broker-dealer in the industry, said at the beginning of March that it was acquiring three broker-dealers owned by Pacific Life Insurance Co. of Newport Beach, Calif. Along with Mutual Service Corp., the other broker-dealers were Associated Securities Corp. of El Segundo, Calif., and Waterstone Financial Group of Itasca, Ill.

National Planning is a Santa Monica, Calif.-based network of four broker-dealers owned by Jackson National Life Insurance Co. of Lansing, Mich. Industry observers said that National Planning recruiters were talking to and negotiating with reps and advisers affiliated with the three Pacific broker-dealers LPL is acquiring.

Citigroup Will Pay $200,000 in SEC Sanctions Connected to LMWW Auction Market Misconduct

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

Last week, Citigroup Global Markets Inc. said it would pay a $200,000 fine to settle charges by the Securities and Exchange Commission. The charges are connected to Leg Mason Wood Walker Inc’s allegedly improper interference with auction rate securities. Citigroup is LMWW’s merger successor.

According to the SEC, the penalty amount was determined based on LMWW’s willingness to cooperate, the “relatively small share of the auction rate securities markets,” and LMWW’s decision to report the allegedly illegal practices at a later time than did other broker-dealers from an earlier settlement.

During that related case, 15 broker-dealers-Citigroup included-said they would pay penalties of over $13 million related to charges that they participated in violative practices affecting the $200 billion auction rate securities market.

Claims Against Goldman Sachs for Alleged Fannie Mae Fraud Must Be Filed Individually

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

The U.S. District Court for the District of Columbia dismissed class action claims against Goldman Sachs & Co. stemming from two Real Estate Mortgage Investment Conduit–or REMIC–deals with Fannie Mae.

Judge Richard Leon said that the plaintiffs–Fannie Mae investors–-failed plead a case which involved “direct acts” of securities fraud by Goldman. (In a court system friendly to those accused of securities fraud, claims are not allowed for aiding and abetting Federal Securities violations and class action claims involving securities fraud can no longer be filed under state laws.)

However, this court’s decision does not prevent members of the former class action from now seeking their own claim against Goldman in court or arbitration. Clients of Goldman who purchased shares of Fannie Mae during this period would likely have the stronger claims. Such claims could include aiding and abetting, conspiracy and other claims under state laws which were not allowed in the class action. Fortunately, statutes of limitations on individual claims are usually preserved while a class action case is pending in court.

When Asked the Fate of $134 million of Investors’ Funds Ex-professor Claims “Amnesia.”

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

After $134 million was found missing from the funds he managed, a flamboyant former professor is now claiming amnesia after being charged with lying to federal investigators. The U.S. Attorney’s office in Charleston, South Carolina, said Al Parish, 49, made false statements and provided false documents to the Securities and Exchange Commission. The former Charleston Southern University professor then surrendered to FBI agents.

Last week, the SEC reported that Parish had been charged with civil fraud, saying he provided false statements to over 300 investors indicating that the five funds he managed were trading profitably. The SEC said that after it tried to contact Parish, “he checked into a local hospital claiming to have amnesia.”

While his attorney said Parish had remained in the area since the civil case began and would not flee, prosecutors argued that Parish is a flight risk because of the large amount of missing funds involved in the case and should therefore be held without bail. The judge agreed ordering Parish to be held without bail. If convicted, Parish faces up to five years in prison and a $250,000 fine.

Coalition of Former Enron Shareholders Asks the SEC for Help In Holding Banks Accountable for Their Role in Enron’s Fraud Scheme

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

A coalition of consumer and labor groups that are plaintiffs in the shareholder litigation against Enron Corp. say that they are asking the Securities and Exchange Commission to talk to the U.S. Supreme Court on their behalf.

The University of California is a lead plaintiff in the case, and its attorney, Christopher Patti, says the shareholders deserve to have their case presented during trial before the Supreme Court. He also said that he felt that the law was broad enough so that parties, such as financial institutions that were active, key, and consenting participants in the Enron fraud case and had intentionally engaged in deceptive conduct to purposely mislead investors, could be included.

On May 8, a group of Enron shareholders that claim that the energy trading giant allegedly defrauded them sent a letter to the SEC asking it to file an amicus brief with the high court explaining why banks and other parties took part in Enron’s fraudulent scheme and should be held accountable.

U.S. Senators Push For The End of Mandatory Arbitrations

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

U.S. Senator Robert Casey of Pennsylvania has joined the efforts of two other U.S. Senators, and others, to persuade the SEC to lift the requirement mandating arbitration when there is a security dispute. Senator Casey expressed his opinion earlier this week at the yearly public policy conference hosted by the North American Securities Administrators Association Inc. (NASAA) of Washington. Mr. Casey said he would use his position as a Banking Committee member to push the SEC on this matter.

Senator Russ Feingold of Wisconsin and Senator Patrick Leahy of Vermont had written a letter to the SEC just last week requesting that mandatory arbitration in securities disputes be banned.

Currently, most investors are required to sign agreements mandating that they take their disputes to an NASD-operated arbitration system. NASAA has asked the U.S. Congress to consider letting investors bring their disputes to the courts.

NASD Fines Two Fidelity Brokerage Subsidaries $400,000 for Distributing Misleading Sales Literature Regarding Systematic Investment Plans Sold to Military Personnel

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

The NASD announced this week that it fined two Fidelity brokerage firms $400,000 for preparing and distributing misleading sales literature promoting Systematic Investment Plans, which were sold primarily to U.S. military personnel. Issuance and sales of new systematic investment plans after these were prohibited by Congress last fall.

The NASD found that between January 2003 and January 2006, the two firms violated NASD advertising rules by preparing and distributing misleading sales literature. From May 2003 through January 2006, the Fidelity firms prepared and distributed a brochure entitled “Time is Money” that included misleading performance claims about its “Destiny Plans”. According to “mountain charts” contained in the brochures, these plans significantly outperformed the S&P 500 Index over a 30-year period. Yet, during the most recent 10- and 15-year periods-the time frame most relevant to current and prospective investors – Destiny Plans substantially underperformed the S&P 500 Index.

The brochures also showed average annual total returns for 1, 5 and 10 years as well as the life of the Plan, without showing comparable returns for the S&P 500 Index. This also created the misleading impression that the plans outperformed the S&P 500 Index when instead that index significantly outperformed the plans.

SEC Orders Morgan Stanley to Pay $7.9 Million for Failing to Provide “Best Execution” on Client Trades

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

Morgan Stanley & Co. Inc., the world’s second largest securities firm, will pay $7.9 million for its failure to provide best execution to certain retail orders for over-the-counter securities, the Securities and Exchange Commission announced today. Morgan Stanley embedded undisclosed mark-ups and mark-downs on certain retail OTC orders processed by its automated market-making system and delayed the execution of other retail OTC orders, for which Morgan Stanley had an obligation to execute without hesitation.

“By recklessly programming its order execution system to receive amounts that should have gone to retail customers, Morgan Stanley violated its duty of best execution and defrauded its customers,” said Linda Chatman Thomsen, Director of the regulator’s Division of Enforcement. “Best execution is a fundamental duty of a broker- dealer,” Thomsen, added. “Morgan Stanley violated its duty” and committed fraud by setting-up its order-execution system “to receive amounts that should have gone to retail customers.”

The company began overcharging clients after embedding undisclosed fees on some trades when it adopted a new computer system to handle transactions in 2001, the SEC said. The lapses affected more than 1.2 million transactions valued at about $8 billion from 2001 through 2004. A Morgan Stanley trader stumbled onto the problem in December 2004 when unusually high trading in a company’s stock generated a $400,000 profit within a few minutes, the SEC said. The trader alerted his supervisor, and by that afternoon a technician pinpointed the programming “error”.

Is the Stock Market Boom Really a Bust?

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

Stock market cheerleaders these days sound as inebriated as New Year’s Eve drunks on Y2K. Too bad their hangovers have apparently affected their memories since 1/01/2000.

Since that date, over 88 months or more than two-thirds of a decade have passed by, yet the Dow Jones Average Industrial Average and the Standard and Poor’s index of 500 stocks have barely moved an inch. Imagine an S& P stock unit, consisting of fractional shares of each stock in the index, costing in dollars the value of the S& P index. On the first day of 2000, that unit would have been worth $1,469.25. At the end of April, 2007 it was worth $1,482.37.

Measured by these widely recognized yardsticks, if your retirement portfolio was invested only into blue-chip stocks and if you did not spend a dime, the portfolio you held at the birth of the Millennium has finally recovered its losses. After suffering the slings and arrows of anxiety and despair, you finally broke even. But is even this any cause for celebration?

State Securities Registration Laws Will No Longer Apply to Nasdaq Capital Market Listed Securities

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

When state securities regulators led by Elliot Spitzer of New York exposed a shocking level of crime and fraud on Wall Street, corporations and securities firms stepped up their campaign to gut state securities laws and the powers of state regulators. These special interests had already convinced Congress to forbid class action claims for securities fraud under state laws.

Meanwhile, many are accusing the SEC, with its commissioners all appointed by the President, of pandering to those same special interests. Despite its purpose to protect investors, the Securities Exchange Commission (SEC) has taken numerous actions to reduce its own restrictions and has taken positions on numerous court cases which are contrary to the interests of investors.

In its latest action, the SEC announced May 3 that, beginning May 24, securities listed on the Nasdaq Capital Market will be exempt from state “blue sky” registration requirements.