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David Salinas, a well-known University of Houston and Rice athletics benefactor, was found dead in his home over the weekend. The Galveston County medical examiner’s office is calling the 60-year-old’s death a suicide. Salinas’ death comes amidst allegations of Texas securities fraud, including his suspected involvement in a Ponzi scam that allegedly victimized high-profile athletics coaches. Select Asset Management, a Houston financial services firm that worked with Salinas, notified its clients that the US Securities and Exchange Commission has subpoenaed information from its files, as well as from those of J. David Financial Group, which is a Salinas business.

Coaches that invested with or gave testimonials to Salinas include Baylor coach Scott Drew, ex-Rice coach/current Texas A & M- Corpus Christi coach Willis Wilson, ex-Arizona coach Lute Olson, Texas Tech coach Billy Gillispie, Nebraska coach Doc Sadler, and others. According to Chron.com, one ex-NCAA coach is claiming that Salinas asked him for a “significant” amount of money to invest. In return, Salinas would direct players from Houston Select to the coach’s school. The former coach says he refused to get involved.

Salinas is the founder of Houston Select Basketball. Players that have contributed include Joseph Jones from Texas A & M, Dexter Pittman from Texas and NBA’s Miami Heat, Demetri Goodson from Gonzaga, Jawann McClellan from Arizona, and Cartier Martin from Kansas State and the Washington Wizards.

J David Insurance Group, which is also a Salinas business, is associated with Select Asset Management. The latter company’s CEO Brian Bjork is a Houston Select Founder, while its vice president Greg Muse is secretary of Houston Athletics Foundation, which is a nonprofit corporation that raised donations for University of Houston Athletics. Salinas served as the foundation’s director.

Our Houston securities fraud lawyers represent investors throughout Texas who have lost money in Ponzi scams and as a result of other kinds of financial fraud.

Related Web Resources:
Basketball benefactor found dead, Chron.com, July 19, 2011
Tom Penders talks about Salinas scandal, ESPN, July 19, 2011
Houston Select Basketball


More Blog Posts:

Texas Securities Fraud: SEC Halts Alleged Ponzi Scheme in the Dallas-Fort Worth Area, Stockbroker Fraud Blog, March 2, 2011
Texas Congressmen Seek Answers from SEC Chairwoman Regarding Conflict of Interest Related to Madoff Debacle, Stockbroker Fraud Blog, March 8, 2011
Michael Kenwood Capital Management, LLC Principal Pleads Guilty to Securities Fraud Involving Ponzi Scam, Institutional Investor Securities Blog, March 17, 2011 Continue Reading ›

Wells Fargo & Co. (WFC) has consented to pay $125 million to settle allegations that it misled investors about the risks involved in mortgage-backed securities. The plaintiffs in the class action securities lawsuit include a number of public pensions, including the New Orleans Employees’ Retirement System, Government of Guam Retirement Fund, Alameda County Employees’ Retirement Association, the General Retirement System of Detroit and the Louisiana Sheriffs’ Pension and Relief Fund. Wells Fargo is the biggest home lender in the country.

The securities in question were backed by mortgage loans that Wells Fargo or its affiliates had bought or originated, which were issued through Wells Fargo Asset Securities Corp. in July and October 2005 and September 2006. Per the investors’ securities fraud lawsuit, the bank misrepresented the quality of the loans in 28 offerings (they were accompanied by inflated appraisals), which resulted in artificially high ratings for the securities. Wells Fargo also allegedly neglected to disclose that it did not follow the proper underwriting standards. As a result, the true risks of investing in these mortgage-backed securities were not disclosed.

A judge must still approve the proposed MBS settlement. However, by agreeing to settle, Wells Fargo and the underwriters have been quick to emphasize that this is not an admission of wrongdoing.

Meantime, Wells Fargo must still deal with MBS lawsuits filed by federal home loan banks and individual investors in Illinois, California, and Indiana. The investment bank was one of several that were sued in 2009 over alleged securities violations related to the sale of $36 billion in mortgage pass-through certificates. It was just last month that Bank of America consented to pay investors $8.5 billion for their mortgage back-securities-related losses that the investment bank assumed after its acquisition of Countrywide Financial.

Wells Fargo settles MBS investors claims for $125 million, Housing Wire, July 8, 2011

Wells Fargo to Pay $125 Million to Settle Mortgage-Backed Securities Case, Bloomberg, July 7, 2011

More Blog Posts:
Bank of America Cop. (BAC)’s Merrill Lynch a Defendant of Class-Action Mortgage-Backed Securities Lawsuit Against at Least 1,800 Investors, Institutional Investor Securities Blog, June 25, 2011

National Credit Union Administration Board Files $800M Mortgage-Backed Securities Fraud Lawsuits Against JP Morgan Securities, RBS Securities, and Other Financial Institutions, Institutional Investor Securities Blog, June 23, 2011

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At the Securities Industry and Financial Markets Association conference on Wednesday, brokerage executives cautioned against imposing the standards of accountability for investment advisers on brokers. Rather than extending the Investment Advisers Act of 1940 to broker-dealers, this year’s SIMFA chair John Taft said that it would be better to create a new standard. Taft is also the head of Royal Bank of Canada’s US brokerage.

Right now, brokers and investment advisers are upheld to separate standards-even though many investors don’t realize that the two belong to different groups. As fiduciaries, investment advisers must prioritize their clients’ interests above that of their own or that of their financial firm. It wasn’t until 2008’s financial crisis when investors lost money on financial instruments that were lucrative for brokers that the call for a higher standard for these representatives grew louder.

At a conference panel, he said that imposing investment adviser accountability standards would not only be bad for the industry, potentially preventing some sales such as IPOs, but also he that this could harm investors.

Will brokers get their way on this? According to Shepherd Smith Edwards & Kantas LTD LLP Founder and Stockbroker Fraud Lawyer William Shepherd, the answer is, likely, yes:
“Decades ago, the difference between a ‘stock broker’ and ‘investment advisor’ was that stock brokers simply charged commissions to execute trades. At the time, there was also no online trading so investors could not do-it-themselves. In fact, May 1, 1975 (unaffectionately called “May Day”) was the first day stock commissions became negotiable. As commissions eventually eroded to just a few dollars per trade, stock brokerage firms migrated to higher charges on hidden-fee products, options, high volume trading, etc.

More recently, ‘stock brokers’ have dropped that moniker and simply become ‘investment advisors’ (whether called ‘financial consultants’, or whatever). Now that Wall Street’s agents have actually become investment advisors, and should be subject to the Investment Advisor Act of 1940, they instead want to escape the law, which has for 70 years been successful in regulating investment advisors. Why? Simply because they do not want to be responsible to their clients for cheating them.”

Related Web Resources:

Brokers say adviser standards could harm markets, Reuters, July 13, 2011
Is Wall Street Ready for Mayday 2?, The New York Times, April 28, 1985
Securities Industry and Financial Markets Association


More Blog Posts:

Do Brokers Owe a Fiduciary Duty to Clients?, Stockbroker Fraud Blog, January 27, 2011
Most Investors Want Fiduciary Standard for Investment Advisers and Broker-Dealers, Say Trade Groups to SEC, Stockbroker Fraud Blog, October 12, 2010
House and Senate Negotiators Can’t Seem to Agree on Fiduciary Standard in Financial Regulatory Reform Bill, Stockbroker Fraud Blog, June 17, 2010 Continue Reading ›

A Financial Industry Regulator Authority Panel has ordered WedBush Securities Inc. to pay one of its traders over $3.5 million for refusing to properly compensate him. According to claimant Stephen Kelleher, he worked for the financial firm for years without consistently getting the incentive-base compensation that he was promised as a municipal sales trader. Kelleher started working for Wedbush in 2007 until right before the arbitration ruling was made.

Kelleher claims that Wedbush withheld nearly $5 million from him. While he regularly received his base salary, the bulk of his income, which was incentive-based compensation, was unevenly distributed and issued to him in May 2008, October 2009, and April 2010. Even then Kelleher contends that he did not receive everything he was owed.

In his FINRA arbitration claim, Kelleher alleged violation and failure to pay per labor laws, breach of contract, unfair business practices, and fraud. He sought over $6.1 million, including $4.17 million in compensation owed, close to $878,000 in interest, and penalties of $1 million and $2,100 over labor code violations. He also sought damages for civil code law violations, as well as punitive damages.

During the FINRA hearing, witnesses testified that it was Wedbush president and founder Edward W. Wedbush who made decisions about paying and withholding incentive compensation. Another Wedbush employee said that there were two years when he too didn’t get the incentive-based compensation that he was owed. The FINRA panel blamed Wedbush’s “corporate management structure” that required that Edward Wedbush, as majority shareholder, approve bonus pay at his discretion.

In addition to the $3.5 million, the FINRA panel also told Wedbush it has to give Kelleher the vested option to purchase 3,750 Wedbush shares at $20/share and another $375 shares at $26/share. Wedbush also must pay the Claimant for the $200 part of the FINRA filing fee that is non-refundable.

Wedbush intends to appeal the securities arbitration ruling.

Related Web Resources:
Wedbush ordered to pay $3.5M for ‘morally reprehensible failure’, Investment News, July 11, 2011

More Blog Posts:
FINRA Panel Orders Merrill Lynch Professional Clearing Corporation to Pay $64M Over Losses Sustained by Rosen Capital Institutional LP and Rosen Capital Partners LP, Institutional Investors Securities Blog, July 14, 2011

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Merrill Lynch Professional Clearing Corporation must pay hedge funds Rosen Capital Partners LP and Rosen Capital Institutional LP $63,665,202.00 in compensatory damages plus interest (9% from October 7, 2008). A Financial Industry Regulatory Authority arbitration panel issued the order which found the respondent liable.

In their statement of claim, made by the claimants in 2009, the hedge funds accused Merrill Lynch of reach of contract, fraud, breach of the duty of good faith and fair dealing (the New York Uniform Commercial Code), and negligence related to the allegedly unexpected margin calls that caused the claimants to sustain financial losses.

Rosen Capital Partners and Rosen Capital Institutional had originally sought at least $90 million in compensatory damages, as well as punitive damages and other costs. Meantime, Merrill Lynch had sough to have the entire matter dismissed and that it be awarded all costs incurred from the suit and other relief as deemed appropriate.

Steven T. Kobayashi has pleaded guilty to money laundering and wire fraud. The former UBS financial adviser is accused of bilking his private investment fund investors. As part of his plea agreement, he will pay $5,431,600 in restitution and serve a 65-month prison term.

Per the criminal charges, beginning in 2006 Kobayashi, who regularly made financial trades authorized by clients whose account he had access to, started transferring some of these funds into his own bank accounts without the investors’ “knowledge or authorization.” In some instances, clients gave their authorization because they were told the withdrawals were necessary to make investments. On other occasions, he forged their signatures on authorization forms.

Earlier this year, the ex-UBS adviser settled SEC securities fraud charges. The agency says that Kobayashi set up Life Settlement Partners LLC, which is a fund that invested in life settlement polices. He was able to raise millions of dollars for the fund from his UBS customers. However, he also started using the money to pay for prostitutes, expensive cars, and pay off gambling debts.

The SEC says that to try and pay back the fund and investors before they discovered his misconduct, he convinced several other UBS clients to liquidate securities and transfer to the proceeds to entities under his control. This allowed him to steal more money from the investors. Kobayashi settled the SEC charges without denying or admitting to them.

Related Web Resources:

Ex-UBS Adviser Pleads Guilty To Charges He Bilked Private Fund Investors, BNA Securities Law-Daily, June 10, 2011
Ex-UBS Advisor Faces Criminal Charges, in Life Settlement Case, On Wall Street, March 3, 2011
SEC CHARGES FORMER UBS FINANCIAL ADVISER WITH DEFRAUDING LIFE SETTLEMENT FUND INVESTORS, SEC.gov, March 3, 2011

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Texas Securities Fraud: Planmember Securities Corp. Registered Representatives Accused of Improperly Selling Life Settlement Notes, Stockbroker Fraud Blog, June 27, 2011
Life Settlements or Viaticals should be Considered “Securities,” Recommends the SEC to Congress
, Stockbroker Fraud Blog, August 8, 2010
AIG Trying to Get More Investors to Buy Life Settlements, Institutional Investor Securities Blog, April 26, 2011 Continue Reading ›

According to US Securities and Exchange Commission chairman Mary Schapiro, the General Securities Administration will likely take over the SEC’s leasing space system following the agency’s $550 million deal for 900,000 square feet of office space that it ended up not needing. Schapiro made her statements during testimony before a House subcommittee that oversees public buildings. The subcommittee has been looking at the deal.

The SEC made a 10-year deal to rent space at the Constitution Center in DC. The agreement was reached after the 2010 Dodd-Frank Act suggested that the SEC would need to hire hundreds of new employees because of its new tasks. However, the SEC never received the entire $1.3 billion that the reform bill had authorized for this year and the agency had to tell the property owner that it didn’t need the leased space.

Schapiro said she leased the space after she was notified that there were no other leasing options and that the price was right. It was just weeks later that she realized that the SEC couldn’t afford that degree of expansion. Last fall, the agency backed out of about 600,000 of the square feet it had leased. Two other agencies ended up taking most of that space. Meantime, the rest of the space has not been subleased and the landlord is now claiming the agency owes it almost $94 million in damages.

Last May, SEC Inspector General H. David Kotz made available the findings of his offices’s probe into the deal. According to Investment News, Kotz said the agency’s analysis had been “deeply flawed and unsound” and that he wants to ensure that SEC officials who were responsible are held “appropriately accountable.” Schapiro and the SEC recently told Kotz about how they intend to fix the system.

Our securities fraud law firm represent clients throughout the US and abroad. We represent individual investors and larger investors with losses up to hundreds of millions of dollars.

Related Web Resources:
Schapiro says GSA will take over SEC leasing after $557M mistake, Investment News, July 6, 2011
UPDATE: Lawmakers Criticize SEC For Lease On Space Never Used, The Wall Street Journal, June 16, 2011
SEC Office of Inspector General

General Securities Administration


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According to ex- SEC’s Office of International Corporate Finance chief Sarah Hanks, there is the strong possibility that Congress or the Securities and Exchange Commission will modify the agency’s ban on the general solicitation for private securities offerings and the number of shareholders that trigger reporting requirements. Hanks says that comments made by lawmakers and SEC Chairman Mary Schapiro indicate congressional intent to loosen the requirements, as well as “regulatory momentum.” Such changes could happen in the next couple of years.

Restricted securities are securities that did not go through the SEC’s registration and public processes. Requirements don’t allow issuers of nonpublic offerings relying on Section 4(2) of the 1933 Act or its safe harbor—Rule 506 of Regulation to use advertising or general solicitation to draw investors to their placements. The 1934 Securities Exchange Act’s Section 12(g) mandates that an issuer register securities “held of record” by at least 500 individuals and if the issuer’s total assets are over $10 million.

It was just recently that it became known that the SEC was investigating Goldman Sachs Group Inc.’s (GS)’s reselling of Facebook-issued securities to investors. Earlier this year, the investment bank made the decision to limit the offering to offshore investors over concerns that the degree of media attention might result in a violation of US securities laws. According to The Wall Street Journal, although Facebook executives had to restructure the deal, the private offering of up to $1.5 billion in Facebook shares stayed on track. As of January, more than $7 billion in orders came through from foreign investors.

JPMorgan Chase & Co. will pay $211 million to settle charges that its JP Morgan Securities LLC Division rigged dozens of bidding competitions for reinvesting the proceeds from municipal bond transactions to win business from local and state governments. The settlement is for complaints that the US Securities and Exchange Commission, the Justice Department, the Internal Revenue Service, 25 state attorneys general, and bank regulators had filed against the investment bank. JPMorgan has also agreed to give back approximately $129.7 million to the municipalities that were harm.

JP Morgan Securities is accused of making at least 93 secret deals with companies that take care of the bidding processes in 31 states. The arrangement let the investment bank see competitors’ offers.

According to regulators, between 1997 and 2005, members of JPMorgan’s municipal derivatives desk made misrepresentations and omissions in the secret deals, which impacted the prices the governments ended up paying while jeopardizing the tax-exempt position of billions of dollars worth of securities in the billions. This alleged misconduct also undermined JP Morgan’s competitors, who, along with the financial firm, are supposed to offer cities and states the opportunity to bid for competitive interest rates when they invest their tax-exempt proceeds from municipal bonds in municipal reinvestment products. JPMorgan is accused of also sometimes turning in nonwinning bids on purpose to meet tax requirements.

While The New York Time reports that by agreeing to settle JPMorgan Chase is not denying or admitting to wrongdoing, Yahoo reports that the financial firm has admitted to the illegal conduct and agreed to cooperate with the Justice Department’s probe as long as it wasn’t prosecuted. JPMorgan, however, did blame the illegal activity on ex-employees at a division that is no longer in operation.

To settle, JPMorgan will pay $51.2 million to the SEC, $35 million to the Office of the Comptroller of the Currency, $50 million to the IRS, and $75 million to a number of state attorneys general. It also reached a settlement with the Federal Reserve Bank of New York.

Related Web Resources:

JPMorgan Settles Bond Bid-Rigging Case for $211 Million, NY Times, July 7, 2011
JPMorgan pays $211M to settle bid-rigging charges, Yahoo, July 7, 2011

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JP Morgan Chase Agrees to Pay $861M to Lehman Brothers Trustee, Stockbroker Fraud Blog, June 28, 2011
Citigroup Ordered by FINRA to Pay $54.1M to Two Investors Over Municipal Bond Fund Losses, Stockbroker Fraud Blog, April 13, 2011
UBS Financial Reaches $160M Settlement with the SEC and Justice Department Over Securities Fraud, Antitrust, and Other Charges Related to Municipal Bond Market, May 16, 2011 Continue Reading ›

In Erica P. John Fund Inc. v. Halliburton Co., the US Supreme Court said that securities fraud plaintiffs don’t have to demonstrate loss causation to receive class certification. The unanimous ruling reinstated claims made by investors that defendant Halliburton Inc. (HAL) made material misrepresentations and misstatements.

In its securities complaint, Archdiocese of Milwaukee Supporting Fund Inc.—now known as Erica P. John Fund Inc.—wanted to certify as a class all investors who had obtained Halliburton stock between June 3, 1999 and December 7, 2001. The plaintiff contends that investors in the proposed class lost money because of securities fraud committed by the defendant, including making material misstatements about litigation expenses, a merger’s benefits, and accounting methodology changes, making misrepresentations in order to up Halliburton stocks’ price rise, and making corrective disclosures to make the price fall.

The district court, however, refused to give class certification on the ground that the plaintiff did not demonstrate loss causation regarding the claims it made. The U.S. Court of Appeals for the Fifth Circuit affirmed that ruling.

The Supreme Court, however, said that even though private securities plaintiffs must show that the defendant’s misconduct was the cause of their economic loss, loss causation does not have to be demonstrated to obtain class certification. Chief Justice John G Roberts authored the decision, which also said that the court didn’t have to address questions related to its in 1988 ruling Basic Inc. v. Levinson, 485 U.S. 224.

Related Web Resources:
Erica P. John Fund Inc. v. Halliburton Co. (PDF)


More Blog Posts:

Securities Fraud: Mutual Funds Investment Adviser Cannot Be Sued Over Misstatement in Prospectuses, Says US Supreme Court, Stockbroker Fraud Blog, June 16, 2011

Number of Securities Class Action Settlements Reached in 2010 Hit Lowest Level in a Decade, Says Report, Stockbroker Fraud Blog, March 31, 2011

Sonoma Valley Bank Shareholders File Both a Class Action Lawsuit and An Insurance Claim Seeking to Recoup Millions, Institutional Investor Securities Blog, June 30, 2011

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