Investor Lawyers Blog

UBS Financial Reaches $160M Settlement with the SEC and Justice Department Over Securities Fraud, Antitrust, and Other Charges Related to Municipal Bond Market

Published on: May 16, 2011 | by Shepherd Smith Edwards & Kantas, LLP

UBS Financial Services Inc. has consented to a $160 million settlement over charges that it took part in anticompetitive practices in the municipal bond market. The Securities and Exchange Commission and the US Justice Department announced the settlement together. 25 state attorneys generals and 3 federal agencies had accused the financial firm of rigging a minimum of 100 reinvestment transactions in 36 states, which placed the tax-exempt status of over $16.5 billion in municipal bonds at peril. Justice officials say that the unlawful conduct at issue, which involved former UBS officials, took place between June 2001 and June 2006.

According to SEC municipal securities and public pensions enforcement unit chief Elaine Greenberg, ex-UBS officials engaged in “secret arrangements,” played various roles, and took part in “illegal courtesy bids, last looks for favored bidders, and money to bidding engagements” in the guise of “swap payments” to “defraud municipalities” and “win business.” The SEC contends that between October 2000 until at least November 2004, the financial firm rigged a minimum of 12 transactions while serving as bidding agents for contract providers, won at least 22 muni reinvestment instruments, entered at least 64 “courtesy” bids for contracts, and paid undisclosed kickbacks to bidding agents at least seven times. The SEC says that UBS indirectly deceived municipalities and their agents with their fraudulent misrepresentations and omissions and rigged bids to make them appear as if they were competitive when they actually weren’t.

UBS, which left the municipal bond market in 2008, says that the “underlying transactions” involved were in a business that is no longer a part of the financial firm and that the employees who were involved don’t work there anymore. Of the $160 million settlement, $47.2 million will go to the SEC, which in turn will give the money to the 100 muni issuers as restitution, about $91 million will go to the states, and $22.3 million will go to the IRS.

Related Web Resources:

United States Justice Department

Internal Revenue Service

Securities and Exchange Commission

More Blog Posts:
UBS Financial Services Fined $2.5M and Ordered to Pay $8.25M Over Lehman Brothers-Issued 100% Principal-Protection Notes, Institutional Investors Securities Blog, April 12, 2011

Securities Fraud Lawsuit Against UBS Securities LLC by Detroit Pension Funds Won’t Be Remanded to State Court, Says District Court, Institutional Investors Securities Blog, January 17, 2011

UBS to Pay $2.2M to CNA Financial Head for Lehman Brothers Structured Product Losses, Stockbroker Fraud Blog, January 4, 2011

Texas-Based AIG’s Largest Private Shareholder Says US Will Likely Sell Its Shares in the Insurer At Lower Price than Expected

Published on: May 13, 2011 | by Shepherd Smith Edwards & Kantas, LLP

Bruce Berkowitz, who is the Texas-based American International Group Inc.’s largest private shareholder, says he thinks the US government will sell its shares in the insurer at $27 to $29-that’s lower than the insurer’s “book value” and definitely lower than what he paid for most of his position. Berkowitz, who is the manager of the $17.5 billion Fairholme Fund, is the owner of approximately $1.2 billion in AIG stock. This week, the government said it would sell 300 million AIG shares to the public.

At the end of March, AIG’s book value was approximately $47.66 a share. It’s stock is currently trading at a deep discount to that figure. AIG share prices have gone down as of late-they hit a $50 plus high at the start of the year when warrants that the company issued were factored in-because of anticipation that the Treasury Department would start selling its 92.1% stake in the insurance giant during a large share offering. The US has so many AIG shares because it intervened with a $182 billion bailout after the insurer was hit by the financial crisis in 2008.

The Treasury had paid $47.5 billion for approximately 1.66 billion AIG shares. Break-even price was $27.70/share. If investors are wanting to pay lower than this, the government might decide to share a smaller amount of shares to start. Closing price of AIG shares on Tuesday was $29.62, meaning the US’s 300 million shares were worth approximately $8.89 billion.

If demand for the shares turns out to be high, the US could make a profit. Approximately $4.3 billion in AIG shares are held by investors other than the US government.

Our Texas securities fraud lawyers represent institutional and individual investors throughout the state.

Related Web Resources:
AIG Price: Bad News For A Big Investor, Wall Street Journal, May 10, 2011
Business in Brief: AIG, Inside Bay Area, May 12, 2011

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AIG Trying to Get More Investors to Buy Life Settlements, Institutional Investors Securities Blog, April 26, 2011 AIG Reorganizes Property and Casualty Insurer Chartis, Institutional Investors Securities Blog, March 31, 2011 Continue Reading ›

Wells Fargo Advisors LLC Agrees to $1 Million FINRA Fine for Securities Charges Related to Mutual Fund Prospectus Delivery

Published on: May 12, 2011 | by Shepherd Smith Edwards & Kantas, LLP

FINRA is fining Wells Fargo Advisors LLC $1 million over the allegations that the financial firm did not deliver mutual fund prospectuses within the three days (as required by federal securities laws) and delays in the updating of material information about former and current representatives. Wells Fargo has agreed to the fine.

Per FINRA, about 934,000 clients who bought mutual funds two years ago were affected when Wells Fargo did not deliver prospectuses within three days of the transactions. Prospectuses were given to clients anywhere from one to 153 days late. The SRO contends that even after a 3rd provider notified the broker-dealer about the delay, Wells Fargo allegedly did not take corrective action to remedy the problem.

FINRA also says that the financial firm did not abide by the SRO’s rules when it wasn’t prompt in reporting required information about its representatives, both past and present. Securities firms must make sure that the information on their representatives’ applications for registration on Forms U4 are current in FINRA’s CRD (Central Registration Depository). Termination notices, known as Forms U5, must also be updated. Financial firms have 30 days from finding out about a “significant event” to update the forms. Examples of such events are customer complaints, formal investigations, or an arbitration claim against a representative. FINRA says that Wells Fargo did not update 7.6% of its Forms U5 and about 8% of its Forms U4 between 7/1/08 and 6/30/09. This resulted in almost 190 late amendments.

By agreeing to settle, Wells Fargo is not denying or admitting to the securities charges. The broker-dealer has, however, consented to the entry of FINRA’s findings.

Related Web Resources:
FINRA Fines Wells Fargo Advisors $1 Million for Delays in Delivering Prospectuses to More Than 900,000 Customers, FINRA, May 5, 2011
FINRA fines Wells Fargo $1M for prospectus delays, Forbes/AP, May 5, 2011
CRD, Financial Industry Regulatory Authority

More Blog Posts:
AG Edwards & Sons (Wells Fargo Advisors) to Settle Securities Charges it Sold Variable Annuities that Lacked Proper Documentation to Elderly Client, Stockbroker Fraud Blog, May 4, 2011
Wells Fargo Settles SEC Securities Fraud Allegations Over Sale of Complex Mortgage-Backed Securities by Wachovia for $11.2M, Institutional Investor Securities Blog, April 7, 2011
Wells Fargo to Pay $30M in Compensatory Damages to Four Nonprofits for Securities Fraud, Stockbroker Fraud Blog, June 30, 2010 Continue Reading ›

Madoff Trustee Files Securities Lawsuit Against Safra National Bank of New York Seeking to Recover Almost $111.7M for Ponzi Scam Investors

Published on: May 12, 2011 | by Shepherd Smith Edwards & Kantas, LLP

This week, Madoff trustee Irving Picard has filed a securities complaint against Safra National Bank of New York. Picard is seeking to recover about $111.7 millions for the investors who lost money in the Bernard Madoff Ponzi scheme.

The funds he is trying to get back were allegedly transferred to Safra by a number of Fairfield Greenwich Group funds. Fairfield Greenwich was the largest feeder fund to Madoff’s financial scheme, and Picard says that the commercial banking unit should have or knew about the different irregularities involved in investing through Bernard L. Madoff Investment Securities.

In his securities complaint, Picard says that Fairfield Sentry Ltd. made $95.9 million in improper transfers to Safra and that the remaining moneys came from feeder funds Fairfield Sigma Ltd. and two Kingate Management Ltd funds called Kingate Euro Fund Ltd. and Kingate Global Fund Ltd.

In addition to filing the complaint against Safra, which is a unit of a Brazilian private bank, Picard reached a settlement with the liquidators of the Fairfield Greenwich funds, who have agreed to give up claims their investors lost $1 billion. Instead, Picard and the liquidators will join forces to pursue the owners of Fairfield Greenwich. Both parties have agreed to divide future recoveries from an alleged fraud by fund operators and others. Most of the proceeds, however, will go to the Madoff Ponzi scam victims.

Picard has filed over 1,000 securities lawsuits, and he is trying to recover about $100 billion. So far, he has recovered over $7.6 billion, with most of it tied up in litigation.

Related Web Resources:

Safra National Bank of New York Sued For $111 Million By Madoff Trustee, Bloomberg, May 10, 2011

Irving H. Picard, Madoff Trustee

More Blog Posts:
Morgan Keegan & Co. Inc. Must Pay $250K to Couple that Lost Investments in Hedge Fund with Ties to Bernard L. Madoff Investment Securities, Stockbroker Fraud Blog, March 16, 2011

Texas Congressmen Seek Answers from SEC Chairwoman Regarding Conflict of Interest Related to Madoff Debacle, Stockbroker Fraud Blog, March 8, 2011

SEC, NASD, FINRA & SIPC: New SEC Report Card on Madoff Catastrophy Further Reveals How Investor Protection Is Severely Flawed!, Stockbroker Fraud Blog, September 3, 2009

Derivative Use by Investment Companies Will be Harder to Oversee in Coming Years, Warns SEC Official

Published on: May 10, 2011 | by Shepherd Smith Edwards & Kantas, LLP

According to SEC official Susan Ervin, fund directors are going to be find it increasingly harder to oversee derivative use by investment companies because the markets will become more differentiated. Ervin is the senior adviser to the SEC’s Division of Investment Management director. She made her statements before the Mutual Fund Directors Forum in Washington on April 28 but noted that the views she was expressing are her own.

Ervin said that in the coming years, derivative contracts could be traded on swap execution facilities, exchanges, or over the counter and that it will be hard for fund advisers to manage these different venues. Because of this, fund directors will have to engage in effective oversight.

Another panelist, ProFunds Group general counsel Amy Doberman, says that this oversight will have to be determined by the complexity and kind of funds and the types of derivatives (and their uses). Doberman, however, did also say that directors need to understand certain basics, such as:

• How derivatives move their funds’ investment objectives forward.
• The monitoring, disclosure, and approval processes for derivative use.
• The types of reports that fund advisers can provide regarding derivative use.
• The internal limits and thresholds regarding derivatives use established by fund advisers.

Currently, the SEC is looking at whether there should be new rules or amendments to regulate fund use of derivatives or whether the 1940 Investment Company Act should continue to suffice.

Related Web Resources:

Mutual Fund Directors Forum

More Blog Posts:
Ex-Employee Accuses Bank of America of Securities Fraud Involving Complex Derivatives Products, Stockbroker Fraud Blog, October 29, 2010

Whistleblower Lawsuit Claims Taxpayers Were Defrauded When Federal Government Bailed Out Houston-Based American International Group in 2008, Stockbroker Fraud Blog, May 5, 2011

SEC ALJ Finds Several Brokers Liable for Unlawful Penny Stock Sales

Published on: May 9, 2011 | by Shepherd Smith Edwards & Kantas, LLP

A Securities and Exchange Commission administrative law judge has found several brokers liable for their alleged involvement in the unlawful sale of penny stocks to investors. In re Bloomfield, the SEC had filed securities charges against Robert Gorgia, Ronald S. Bloomfield, Victor Labi, John Earl Martin Sr. and Eugene Miller. Labi, Martin, and Bloomfield were Leeb Brokerage Services registered representatives, while Miller and Gorgia were president and chief compliance officer. Leeb is no longer in operation.

The SEC contends that the defendants let customers regularly deliver blocks of privately obtained penny stocks shares into their Leeb accounts. The clients would then sell the securities to the public through unregistered securities transactions.

While Martin, Labi, and Bloomfield allegedly did not conduct reasonable inquiry prior to allowing the public sale of the stock and violated securities law registration requirements, the other two men are accused of failing to reasonably supervise the registered representatives. The SEC claims that the men let the unlawful penny stock sales occur without doing enough to investigate whether they were “facilitating illegal underwriting.” As a result, the defendants allegedly caused Leeb’s failure to submit Suspicious Activity Reports that are mandated under the Bank Secrecy Act.

ALJ Brenda P. Murray noted that the securities fraud resulted in significant financial losses for the investing public. She ordered the three stockbrokers to pay $1.39M in disgorgement. The three brokers were also ordered to pay a $100,000 civil penalty and cease and desist from future misconduct. Miller, who settled the securities charges against him last year, has agreed to supervisory suspension, a cease and desist order, and a $50,000 penalty.

Related Web Resources:
SEC Litigation (PDF)

Brokers Found Liable on Charges They Aided Unlawful Penny Stock Sales, BNA – Securities Law Daily, Alacra Store, April 28, 2011

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FINRA Orders Charles Schwab to Pay $18M to Fair Fund for YieldPlus Investors, Stockbroker Fraud Blog, March 12, 2011
Texas Securities Fraud: SEC Halts Alleged Ponzi Scheme in the Dallas-Fort Worth Area, Texas Stockbroker Fraud Blog, March 2, 2011
SEC Securities Settlements Often Don’t Come with Admission, Institutional Investor Securities Blog, March 29, 2011 Continue Reading ›

Commodity Options Fraud Charges by CFTC Prompts District Court to Freeze Assets and Records of 20/20 Trading Co. Inc. & 20/20 Precious Metals Inc.

Published on: May 6, 2011 | by Shepherd Smith Edwards & Kantas, LLP

Following the Commodity Futures Trading Commission’s decision to charge 20/20 Precious Metals Inc. and 20/20 Trading Co. Inc. with commodity options fraud and other violations, the U.S. District Court for the Central District of California has frozen the assets and records of the defendants. The commission contends that since 2006, the defendants defrauded prospective clients and customers of at least $4M.

Also named as defendants are Bharat Adatia, Todd Krejci, and Sharief McDowell. They and 20/20 Precious Metals are accused of unlawfully offering, entering, or confirming leveraged copper and palladium transactions. The three employees and 20/20 Trading allegedly committed fraud related to purported leveraged metals transactions.

The CFTC also claims that from 1/1/2006 through 10/2009, 20/20 Trading, McDowell, and Adatia made fraudulent solicitations to the public to sell and buy commodity options through 20/20 Trading while failing to disclose that the complex trades they were recommending made the chances of profit not likely if not impossible. Of the nearly $3.8M that 20/20 customers are said to have lost, about 63% of that went to 20/20 Trading commissions. Over $1.9M was lost by almost half of 20/20 Trading customers, who used individual retirement account funds to open accounts.

After 20/20 Trading closed in October 2009, Adatia established 20/20 Precious Metals. The CFTC says that Adatia closed 20/20 Trading after finding out that the National Futures Association was looking at the company for possible NFA rule violations. The agency says that as customers deposited over $1 million, 20/20 Precious Metals made over $400,000 in commissions.

More Blog Posts:
Commodities Industry Fears being held to Regulatory Standards of Securities Industry, Stockbroker Fraud Blog, February 4, 2011
CFTC Files Charges in Alleged California Ponzi Scam Involving the Fraudulent Solicitation of $14 million in Commodity Futures, Stockbroker Fraud Blog, January 18, 2011
Texas Securities Fraud: M25 Investments Inc., M37 Investments LLC, and Two Individuals Must Pay $16.2M Over Alleged Forex and Ponzi Scams, Stockbroker Fraud Blog, November 8, 2010 Continue Reading ›

Whistleblower Lawsuit Claims Taxpayers Were Defrauded When Federal Government Bailed Out Houston-Based American International Group in 2008

Published on: May 5, 2011 | by Shepherd Smith Edwards & Kantas, LLP

Last week, a whistleblower lawsuit claiming that taxpayers were defrauded when the federal government bailed out American International Group was unsealed. The complaint accuses the Houston-based AIG and two banks of taking part in speculative and fraudulent transactions that resulted in losses worth billions of dollars. They then allegedly convinced the Federal Reserve Bank of New York to bail them out with two rescue loans for AIG that were used to unwind hundreds of failed loans.

The complaint focuses on the two emergency loans of about $44 billion that AIG received in October 2008 (The remaining $138 that it got in bailout funds are not part of this case). The money went toward settling trades involving complex, mortgage-linked securities. Some of the AIG-guaranteed securities were underwritten by Goldman Sachs and Deutsche Bank. Both financial institutions join AIG as defendants in this case. The two loans were extended to buy the troubled securities and place them in Maiden Lane II and Maiden Lane III, both special-purpose vehicles, until AIG’s crisis subsided.

The plaintiffs, veteran political activists Nancy and Derek Casady, contend that the rescue loans were improper because the government made them without obtaining a pledge of high-quality collateral from AIG. They maintain that the Fed board does not have the authority to “cover losses of those engaged in fraudulent financial transactions.”

Their whistleblower lawsuit was filed under the False Claims Act. This federal law lets private citizens sue on behalf of government agencies if they know of a fraud that occurred. Plaintiffs are able to attempt to recover money for the government and its taxpayers. Plaintiffs usually receive a percentage if their claim succeeds.

According to the New York Times, senior fed officials have admitted to taking unusual actions in 2008 because the global financial system was on the verge of falling apart.

Related Web Resources:
Claiming Fraud in A.I.G. Bailout, Whistle-Blower Lawsuit Names 3 Companies, The New York Times, May 4, 2011
False Claims Act, Cornell University Law School

Related Web Resources:
Texas Commodity Trading Advisor FIN FX LLC Now Subject to NFA Emergency Enforcement Action, Stockbroker Fraud Blog, April 27, 2011
Texas Securities Fraud: FINRA Suspends Pinnacle Partners Over Failure to Comply with Temporary Cease and Desist Order Involving “Boiler Room” Operation, Stockbroker Fraud Blog, April 19, 2011
SEC is Finalizing Its Whistleblower Rules, Says Chairman Schapiro, Stockbroker Fraud Blog, April 28, 2011 Continue Reading ›

Lancer Management Group LLC Hedge Fund Manager Acquitted of Charges He Ran Market Manipulation Scam

Published on: May 5, 2011 | by Shepherd Smith Edwards & Kantas, LLP

A jury has acquitted Lancer Management Group LLC hedge fund manager Michael Lauer of securities fraud charges accusing him of running a stock-pricing scheme believed to cost investors of more than $200 million. After over three days of deliberation, Lauer was found not guilty of conspiracy in connection with the alleged scam and the charge of wire fraud.

The government had accused Lauer and an associate of buying restricted stock of shell companies as far back as 1999 and telling brokers to purchase a smaller quantity of shares from the same company at higher, open-market prices so that a targeted price could be hit. Lauer allegedly would then falsely value the firm’s securities at higher closing prices. Prosecutors said this would artificially inflate the investment returns of the funds, resulting in lucrative fees for fund officials as new investors were drawn in. Lauer was also accused of creating bogus portfolios of the securities that Lancer Group held and getting falsely inflated appraisals of the shell companies. He and others allegedly made over $40 million.

In 2008, the Securities and Exchange Commission was granted summary judgment in its civil case against Lauer over related alleged misconduct. The court ordered him to pay about $62 million in disgorgement plus prejudgment interest. That securities fraud case is under appeal.

Lauer has always maintained that it was a shady consultant that damaged the hedge fund. Also acquitted of related criminal charges was Lancer manager Martin Garvey.

Related Web Resources:
Lancer Group Founder Michael Lauer Acquitted of Stock Fraud in Hedge Funds, Bloomberg, April 27, 2011

Lancer Founder Wins Acquittal, Hedgefund.net, April 27, 2011

Michael Lauer to Pay More Than $62 Million in Hedge Fund Fraud Case, SEC, May 8, 2009

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Juno Mother Earth Asset Management LLC and Its Founders Face SEC Securities Fraud Lawsuit Over Alleged $1.8M Looting of Hedge Fund Assets, Institutional Investors Securities Blog, March 23, 2011

Trueblue Strategies LLC Owner Settles SEC Charges that He Hid Investor Trading Losses in Hedge Fund Case, Institutional Investor Securities Blog, December 18, 2010

Allegations Against Goldman Sachs in $56M Securities Fraud Lawsuit Meet Morrison Standard, Says Australian Hedge Fund, Institutional Investor Securities Blog, September 14, 2010

AG Edwards & Sons (Wells Fargo Advisors) to Settle Securities Charges it Sold Variable Annuities that Lacked Proper Documentation to Elderly Clients

Published on: May 4, 2011 | by Shepherd Smith Edwards & Kantas, LLP

Missouri Secretary of State Robin Carnahan says that A.G. Edwards & Sons LLC will pay $755,000 to settle charges over improper annuity sales. The financial firm allegedly sold variable annuities without the necessary documentation to elderly clients. The Missouri’s Securities Division, AG began its investigation because an 18-year-old Missouri resident reported noticing irregularities after the liquidation of a variable annuity.

Per the investigation’s findings, AG Edwards, now known as Wells Fargo Advisors after Wachovia Corp. acquired it and the latter was later acquired by Wells Fargo & Co. (WFC), sold the annuities to elderly clients but failed to maintain proper records of transactions. This lack of proper documentation prevented the annuity sales, which occurred between July 2006 and June 2007, from being in compliance with company policy and state law.

At least 31 Missouri investors were affected by this oversight. They will receive $381,993. The Missouri Investor Education and Protection Fund will get $375,000. The Missouri’s Securities Division will be reimbursed the $50,000 it cost to probe the investor complaint.

In a release issued last month, Carnahan said that she appreciated AG Edwards’s willingness “to work with my office.” She also reminded investors that if they believe their investment is at risk, they can always contact her office for help. Meantime, Wells Fargo Advisors says it is pleased that these “legacy issues” have been resolved.

More Blog Posts:
Protect Yourself from Texas Securities Fraud by Making Sure that the Company or Agent that Sells You Annuities Has a Valid Insurance License, Stockbroker Fraud Blog, March 13, 2010
Market Timing Violations Against AG Edwards & Sons Inc. Supervisors and Broker Upheld by the SEC, Stockbroker Fraud Blog, October 17, 2009 Continue Reading ›