Broker Fraud

Raymond James and RBC Capital Markets Fined $1.4 Million in Total Over Improper Stock Lending Activities

Published on: June 22, 2009 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority says that RBC Capital Markets Corp., Raymond James & Associates, Inc., and an RBCCMC head trader have settled charges over alleged broker misconduct connected to stock loan improprieties. RJF is to pay a $1 million fine, while RBC Capital Markets will pay $400,000.

Meantime, RBCCMC Stock Loan Department head trader Benedict Patrick Tommasino has agreed to a $30,000 fine, a 20-month suspension from working for a securities firm, and another two-month suspension from acting in a principal role.

According to FINRA, RJF allegedly executed payments that were improper and unjustified to finder firms even though the companies didn’t provide services to locate the securities and they weren’t involved in the stock loan transactions for which they were receiving payments. For example, in March and 2004, Raymond James paid two finder firms for 11 transactions even though they didn’t perform a service. A Raymond James loan trader’s son was employed at one of the finder firms.

FINRA is also accusing the two broker-dealers of allegedly letting Dennis Palmeri, Sr. perform stock loan functions. Only registered individuals are allowed to perform this role.

Palmeri is a non-registered person that had been barred from the securities industry. He was previously convicted of federal securities law violations in 1994. Following his conviction, the SEC barred him from working for an investment advisor, a broker dealer, or an investment company. While Palmeri can act as a non-registered finder, he cannot perform roles requiring that the individual be registered.

Susan Merrill, the FINRA enforcement chief, says the two firms exposed the market to an individual that was non-registered, unqualified, unsupervised, and was not allowed to work in the securities industry. FINRA also claims that the two broker-dealers failed to reasonably supervise their Stock Loan Departments. By agreeing to settle, Tommasino and the two broker-dealers are not denying or admitting misconduct.

Related Web Resources:
FINRA Fines Raymond James, RBC Capital Markets Corporation, Stock Loan Trader for Improper Stock Loan Practices, FINRA, June 17, 2009
FINRA fines Raymond James, RBC Capital Markets, Forbes, June 17, 2009 Continue Reading ›

To The SEC: Why It Is Necessary to Change Public Reporting Requirements on Stockbrokers

Published on: June 11, 2009 | by Shepherd Smith Edwards & Kantas, LLP

Recently, Shepherd Smith Edwards & Kantas LTD LLP Founder and Securities Fraud Attorney William Shepherd wrote a letter to the Securities and Exchange Commission voicing his support for needed changes to the public reporting requirements on stockbrokers. His letter was published on the SEC’s Web site and included a number of key facts and statistics, including:

· The # of registered US brokers: Over 500,000 brokers · The # of investors: More than 50 million, and nearly all of them have recently lost money on their investments · The # of US securities fraud claims filed in arbitration: About 5,000 claims · The # of investors that file for recovery: 1 out of every 10,000 investors

· The # of investors that contact Shepherd Smith Edwards & Kantas LTD LLP each year about a possible stockbroker fraud case: About 5,000 investors · The # of stockbroker fraud cases our securities fraud law firm takes on each year: About 150 cases

UBS Financial Services Misled Investors about Lehman Brothers Securities, Says New Hampshire Regulators

Published on: June 4, 2009 | by Shepherd Smith Edwards & Kantas, LLP

According to New Hampshire securities regulators, UBS Financial Services Inc., a unit of UBS AG, misled investors regarding complex securities that were issued by Lehman Brothers before the latter filed for bankruptcy protection in 2008. The Bureau of Securities Regulation says investors were misled when the representatives for the UBS unit told them that the securities were safe, while failing to let them know that Lehman Brothers was in trouble. The state regulators are also accusing UBS of failing to properly supervise the employees that sold the structured products and of engaging in improper sales practices.

Some 42 New Hampshire investors could lose more than $2.5 million from securities underwritten by Lehman Brothers. State regulators have filed a cease-and-desist order against UBS and they are seeking an unspecified sum from the financial firm.

UBS disputes the Bureau of Securities Regulation’s allegations. The investment bank claims it didn’t do anything improper when it sold the Lehman products to UBS clients and that its employees engaged in the proper sales practices, followed all regulatory guidelines, abided by client disclosure guidelines, as well as followed firm procedures and industry regulations. The investment bank contends that any losses experienced by investors occurred because Lehman Brothers failed unexpectedly. UBS vows to combat the New Hampshire regulators’ allegations.

Already, a number of investors have filed claims against Lehman Brothers. Last year, with $613 billion in debt, Lehman filed the largest bankruptcy in US history. Globally, the collapse of Lehman Brothers resulted in investor losses worth billions of dollars. Many clients have blamed lenders for failing to warn them that Lehman was in trouble.

Meantime, Credit Suisse has offered to pay $140.7 million to compensate more than 3,700 of its retail clients for their Lehman financial products that now have no value.

Securities Fraud Attorney Sam Edwards, partner of the law firm of Shepherd Smith Edwards & Kantas LTD LLP says: “While many smaller investors into Auction Rate Securities have now been paid, our firm is representing a number of larger investors, many of whom have millions of dollars that have been frozen for more than a year. Many of these are business which have been crippled by the loss of liquidity of these funds and are seeking resulting business losses.”

Related Web Resources:
UBS says will fight New Hampshire Lehman case, Reuters, June 4, 2009
UBS Sold Unsuitable Lehman Securities, New Hampshire Alleges, Bloomberg.com, June 4, 2009
Bureau of Securities Regulation
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Centaurus Financial Slapped with $175,000 FINRA Fine for Failing to Protect Confidential Client Info

Published on: May 10, 2009 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority says it is fining Centaurus Financial Inc. because the firm failed to protect customers’ confidential information. The California-based company must notify brokers and affected customers of the breach and give clients a year of free credit monitoring. Also as part of its settlement with FINRA, Centaurus has agreed to entry of the SRO’s findings. It will also certify with the SRO that its systems and procedures comply with privacy requirements. Centaurus, however, is not denying or admitting to the FINRA charges.

FINRA says that from April 2006 to July 2007, Centaurus neglected to make sure that the computer firewall, password system, and username for its computer fax server were providing the necessary protections. As a result, FINRA contends that persons that lacked the proper authorization were able to gain access to images stored on the faxes that included account numbers, social security data, personal information, and other sensitive, confidential client information.

An unauthorized party was even able to use Centaurus’s fax server to run a “phishing” scheme in July 2007. The scam was intended to fool computer users into giving out their personal information, including credit card information, banking data, passwords, and usernames. Over a 3-day period, 894 unauthorized logins by 459 unique IP addresses occurred after a file simulating a known Internet auction site was loaded to CFI’s fax server.

Phishing Scams
These schemes are designed to persuade recipients to reveal personal account data. For example, a target might be sent a Web site link or an attachment via email that asks for confidential personal and financial data. The sender or the Web site involved may appear to be legitimate but is actually illegal.

FINRA says that following the “phishing” incidents, Centaurus sent to some 1,400 clients and their brokers letters about the incident but that what they told them was misleading. The SRO contends that rather than admit that the breach of confidentiality occurred because the firm’s protections were inadequate and, as a result, unauthorized logins occurred, Centaurus reported that only one person had unauthorized access to the client information found on the server and that that data was not openly accessible.

Related Web Resources:
FINRA Fines Centaurus Financial $175,000 for Failure to Protect Confidential Customer Information, FINRA, April 28, 2009
Recognize phishing scams and fraudulent e-mail, Microsoft, September 14, 2006 Continue Reading ›

SEC Sues Broker-Dealer Morgan Peabody Inc Owner For Investment Fraud

Published on: April 30, 2009 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission is suing Morgan Peabody Inc. owner and chief executive officer Davis Williams for allegedly misappropriating investor funds that were raised in three public offerings. Also named in the complaint were Williams Financial Group, Sherwood, and WFG Holdings. The defendants are accused of violating federal securities laws, including Section 10(b) of the Securities Exchange Act of 1934, Section 17(a) of the Securities Act of 1933, and Rule 10b-5 thereunder.

The SEC says that from January 2007 – September 2008, Williams notified Morgan Peabody registered representatives that they should sell and offer LLC promissory notes and debentures from WFG Holdings Inc. and Sherwood Secured Income Fund. He then allegedly used millions of dollars (he’d raised $9 million from investors) for personal purposes, including rent at his residence that cost almost $50,000 a month, at least $175,000 in personal travel, and over $200,000 in entertainment and food.

The SEC claims that WFG Holdings investors thought that their money was being invested in Morgan Peabody. Meantime, Sherwood investors were notified that most of their money would go into real estate. Instead, the SEC contends that Williams moved the investors’ money into bank accounts that he oversaw and used the money for personal purposes.

More than 100 investors in nine states purchased the securities. The SEC is seeking disgorgement, injunctive relief, and civil penalties.

Obtaining Financial Recovery from Securities Fraud
Investors that are the victims of securities fraud may be entitled to financial recovery. An experienced stockbroker fraud law firmcan help you successfully get through arbitration or court proceedings so that you recover your lost funds.

Related Web Resources:
SEC sues L.A. broker for fraud, Dailybreeze.com, April 21, 2009
SEC Charges Owner of California Broker-Dealer with Misappropriating Millions in Investor Funds, TradingMarkets.com, April 21, 2009 Continue Reading ›

“Churning” Accounts by Brokers is Back in Vogue – Ask the Expert!

Published on: April 29, 2009 | by Shepherd Smith Edwards & Kantas, LLP

For over a decade, Wall Street firms gathered assets to charge management fees on ever-growing accounts. There was no need to buy and sell, in fact, ignoring clients’ accounts while gathering more assets was rampant. Yet, a funny thing happened on the way to the bank. The value of many of these accounts has plumited and gathering new assets faces strong resistance. With their income cut in half, how are brokers to maintain their standard of living? The answer is as old as the hills – or valleys of the market cycle: Churn clients’ accounts.

“Churning” is when brokers buy and sell to create commissions. It is not only a regulatory offense but an illegal activity. To cover this motive Wall Street has new talking points: “Buy and hold” is history! Investor account need “active management” of their accounts by professionals (them). See Advisers Ditch ‘Buy and Hold’ For New Tactics, Wall Street Journal, April 29, 2009.

Actually, nothing has changed. Active management of accounts by true professionals, using proper diversification, and watching for changes in the outlook for asset classes, industries and companies mitigates risk while providing growth and income. Under-management (ignoring portfolios) exposes investors to undue danger. Over-management (churning portfolios) creates undue costs robbing growth or income. “Trading” stocks depends on knowing when to zig or zag. Since these so-called experts already failed to call the downturn, when did they find a crystal ball? If “market timing” worked they wouldn’t need your money or mine to get rich!

There are simple strategies of investment which are tried and proven. The first is to diversify based upon your investment profile and tolerance, making adjustments as these change. The second is dollar cost averaging, adding to your portfolio through thick and thin, buying more shares with the same money at low prices than when shares are expensive. Beyond that is common sense. For example: Buy shares of solid companies which have not outpaced their earnings potential and hold these until such fundamentals change.

Portfolios need management, but not too much or too little. Quarterly or semi-annual reviews, with only emergency changes in between, are probably sufficient. Anything less is neglect anything more can be over-management, even churning. You should only do this ourself if you are well versed and have time to follow investments. Do not use an advisor who calls you more than once or twice per month. Either that person is trying to gin up commissions or has entirely too much time on his or her hands. But do not keep an advisor who does not contact you every two to three months.

Adding-up the commissions from time to time would be good, but many of these are hidden. Instead, ask that the total amount anyone and everyone has made on your account in the past 12 months be included (in writing) in an annual review each year. This should include that made by the advisor, his or her firm, fund or other third-party managers, plus any other fees fees and costs charged by anyone. This is a fair question. If refused, look for a new advisor.

One or two percent on the equity portion of a portfolio is about right. If the amount is more than 2%, be concerned. If more than 4%, be very concerned. If more than 6%, leave at once! (Fees could be higher on accounts under $100,000, but cut these guidelines in half if over a million.) Bond management costs should be MUCH lower. Note tha,t if you earn only 3% or 4%, a fee of 1% robs you of a third to a fourth of your income!
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Wells Fargo, Goldman Sachs, JP Morgan Chase, Citigroup, UBS Securities, Bank of America, Moody’s Investment Services, and Fitch Ratings are Among Defendants Sued On Behalf of Wells Fargo Certificate Investors for Alleged Securities Fraud Violations

Published on: March 5, 2009 | by Shepherd Smith Edwards & Kantas, LLP

The Boilermaker-Blacksmith National Pension Trust is suing a number of investment banks, credit rating agencies, and underwriters, including Wells Fargo, WFASC, Morgan Stanley & Co., Credit Suisse Securities (USA) LLC, Barclays Capital Inc., Bear Stearns & Co., Countrywide Securities Corp., Deutsche Bank Securities Inc., JPMorgan Chase Inc., Bank of America Corp., Citigroup Global Markets Inc., McGraw-Hill Cos., Moody’s Investor Services Inc., and Fitch Ratings Inc., over allegations that they made false statements in the prospectus and registration statement for certificates that were collateralized by Wells Fargo Bank, NA. The lawsuit, filed on behalf of thousands of investors that bought the certificates from Wells Fargo Asset Securities Corp., accuses the defendants of violating the 1933 Securities Act by engaging in these alleged actions.

According to the securities fraud lawsuit, the defendants concealed from investors that Wells Fargo revised its underwriting practices in 2005 and became involved in high risk subprime mortgage lending. The complaint contends that WFASC and a number of defendants submitted to the Securities and Exchange Commision prospectus and registration statements representing that the mortgages were backed by certificates that were subject to specific underwriting guidelines for evaluating a borrower’s creditworthiness. The plaintiffs contend that these prospectuses and registration statements were false because they neglected to reveal that the Wells Fargo-originated certificates were not in accordance with the credit, underwriting, and appraisal standards that Wells Fargo, per the companies, had supposedly used to approve mortgages.

The lawsuit also claims that because Wells Fargo decided to enter the subprime mortgage mortgage market in 2005, the investment bank had to take significant write-downs in 2008 because of its massive exposure to the subprime market and the WFASC certificates that these mortgages backed dropped significantly in value. The Boiler-Blaksmith fund reports that it lost about $5 million, which is more than half of what it invested.

Related Web Resources:
Read the Complaint

The Boilermakers National Funds
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Former Regions Morgan Keegan Investment Funds Revise Their Names to Include Helios Brand

Published on: January 7, 2009 | by Shepherd Smith Edwards & Kantas, LLP

Seven former Regions Morgan Keegan Investment Funds have changed their names. Each fund’s name now begins with “Helios,” to reflect the shift in management to Hyperion Brookfield Asset Management from Regions Financial.

Helios is Hyperion’s brand name. Hyperion took over Morgan Keegan’s beleaguered investment arm last year after a number of funds suffered serious value drops following the subprime mortgage collapse. Three open-end funds and four closed-end funds are affected by the name change:

New Names of Former Regions-Morgan Keegan Select Funds:
Helios Select High Income Fund: HIFAX (Previously MKHIX)
Helios Select Intermediate Income Fund: HSIBX  (Previously MKIBX)
Helios Select Short Term Bond Fund: Remains as MSBIX
New Names of Former RMK Funds:
Helios Advantage Income Fund: HAV (Previously RMA)
Helios High Income Fund: HIH (Previously RMH)
Helios Multi-Sector High Income Fund: HMH (Previously RHY)
HMH Helios Strategic Income Fund: HSA (Previously RSF)

Hyperion spokesperson Marion Hayes says it was important that the new names reflect the funds’ new management. Hyperion Brookfield President and Chief Executive Officer John Feeney also noted that the rebranding of the acquired funds is part of the company’s efforts to integrate them with its existing fund platform.

Shepherd Smith Edwards & Kantas LTD LLP Founder and Stockbroker Fraud Attorney William Shepherd, however, cautions, “It is not uncommon for mutual fund managers to change the name of funds in an attempt to escape negative publicity. Yet, if the goal is to hide widespread allegations of fraud from investors, this might be considered yet another fraudulent act!”

Related Web Resources:
Hyperion Brookfield Announces Changes to the Names and Ticker Symbols for its Closed-End Funds, MarketWatch, December 18, 2008
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Former Broker Charged with Conspiracy to Commit Wire Fraud Following Allegations He Helped Law Firm Founder Mark Dreier Defraud Hedge Funds Through Ponzi Scam

Published on: January 6, 2009 | by Shepherd Smith Edwards & Kantas, LLP

Former broker Kosta Kovachev has been charged with conspiracy to commit wire fraud for his alleged role in assisting New York law firm founder Marc Dreier with an alleged $380 million Ponzi scheme. Dreier is the founder of Dreier LLP. He was arrested last month on charges he convinced two hedge funds to give him over $100 million after he made false claims that he was selling discounted notes issued by Sheldon Solow, a New York developer.

According to prosecutors, Kovachev posed as the controller of Solow Realty for Dreier-even though he never worked for the company-after a hedge fund employee asked to meet with a Solow representative after the promissory notes were not paid back on time. Authorities are also accusing Kovachev of helping Dreier sell fake notes, totaling $113.5 million, to two other hedge funds last October, as well as posing as Solow’s CEO during a conference call to talk about financial statements. If convicted, Kovachev could spend up to five years in prison and have to pay $250,000 or twice the gross loss or gain as a result of his offense-whichever is greater.

At Kovachev’s bail hearing, Assistant US Attorney Jonathan Streeter says Dreier paid people that took part in “impersonations” for him up to $100,000 a phone call. Drier LLP filed for bankruptcy last December.

In 2006, the Securities and Exchange Commission filed a civil suit against Kovachev accusing him and several others of engaging in a different Ponzi scam and defrauding over 600 investors of over $28 million. Kovachev, who was accused of selling unregistered securities that were structured as hotel timeshare rental interests, was ordered to pay $350,000.

Dreier Case Leads to Charges Against Broker Kovachev, Bloomberg.com, January 5, 2008
Ex-Broker Charged With Helping New York Lawyer in Elaborate Fraud Scheme, New York Times, December 23, 2008

Related Web Resources:

SEC Charges N.Y. Attorney Marc S. Dreier With Multi-Million Dollar Fraud, SEC, December 8, 2008
“Ponzi” Schemes, SEC.gov Continue Reading ›

Number of Federal Securities Fraud Cases Prosecuted Drop Significantly

Published on: January 2, 2009 | by Shepherd Smith Edwards & Kantas, LLP

A recent New York Times article reports that according to new data, federal officials are prosecuting far fewer cases involving fraudulent stock scams than they did in 2000 before the Bush Administration came into office. According to financial and legal experts, less strict enforcement polices, Securities and Exchange Commission staff cutbacks, and a greater focus on fighting terrorism have led to the federal government’s laxer policing efforts when it comes to pursuing securities fraud cases.

The new information, based on Justice Department information and put together by a Syracuse University research group, says that there haven’t been so few securities fraud prosecutions in a year since 1991. Also:

• During the first 11 months of the 2008 fiscal year, there were 133 securities fraud prosecutions-compare this to 2002 when there were 513 prosecutions, spurred by the WorldCom and Enron scandals, and 2000 when there were 437 prosecutions for this same time period.