Class Action Lawsuits

Court Rejects Defendants’ Challenge to Poptech LP’s Lead Plaintiff Status in Class Securities Fraud Lawsuit

Published on: November 10, 2010 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. District Court for the District of Connecticut has rejected defendants Stewardship Investment Advisors LLC and Marlon Quan’s challenge to the appointment of Poptech LP as the lead plaintiff in a class securities fraud lawsuit filed by investors. The plaintiffs are accusing the investment firm and Quan of violating federal securities law antifraud proscriptions by allegedly misrepresenting that the fund would employ certain investment strategies. The fund is also accused of investing the majority of its assets in a Thomas Petters-operated Ponzi scam. Poptech, not long after filing its class securities lawsuit, published notice in Business Wire stating that there wasn’t a dispute that the notice appropriately notified members of the proposed class about the pending action and the purported class period.

In their challenge, the defendants argued that the notice did not satisfy Private Securities Litigation Reform Act requirements, including failing to completely and “adequately” notify proposed class members of all the claims asserted in the complaint, not providing enough details about the defendants’ alleged misrepresentations, and failing to “adequately facilitate” additional action and inquiry by potential members. The court, however, found that the PSLRA requires just a “reasonably detailed summary” of claims made.

Shepherd Smith Edwards & Kantas LTD LLP Founder and Securities Fraud Lawyer William Shepherd had this to say about the ruling: “If this Court’s decision survives appeal, it could be helpful to victims of securities fraud. Some courts have carried ‘pleading securities fraud with particularity’ to extremes before discovery could even begin. Also, while these pleading requirements apply to class action litigation, many judges have been requiring absurd pleading requirements in all types of securities actions. Hopefully, fewer defrauded investors will be thrown out of court in the future based on pleading technicalities.”

UBS AG Motion to Dismiss Class Securities Case Test’s US Supreme Court’s Ruling Regarding Extraterritorial Transactions

Published on: October 13, 2010 | by Shepherd Smith Edwards & Kantas, LLP

UBS AG has filed a motion to dismiss a class securities case against it. The move is putting the US Supreme Court’s recent ruling in Morrison v. National Australia Bank Ltd. to the test.

In this securities fraud case, four institutional investors—three of them foreign—are charging UBS and a number of individual defendants with violating Section 10(b) of the 1934 Securities Exchange Act. This is based on misstatements that were allegedly made regarding its auction rate securities-related and mortgage-related activities. They are seeking relief for all purchasers of UBS stock on all worldwide exchanges. Most of the statements in question were issued from the bank’s headquarters in Switzerland.

In 2008, the defendants asked the court to dismiss the allegations due to lack of subject matter jurisdiction. They cited the decision made in Morrison by the U.S. Court of Appeals for the Second Circuit, which had dismissed the action.

Now that the US Supreme Court issued its ruling in Morrison, with the justices concluding that Section 10(b) only applies to securities transactions on domestic exchanges and in other securities, the defendants are attempting to also have the securities case against them dismissed per Morrison’s “bright-line, location-of-the transaction rule.”

The defendants say that the plaintiffs have advised them that they will use the Supreme Court’s use of the word “listed” to end-run Morrison. Per the justices’ decision, Section 10(b) applies to transactions involving securities that are “listed on an American stock exchange.” UBS shares can be found on the NYSE.

However, the defendants are contending that there isn’t any support in the “the test of Section 10(B), its legislative history, or Morrison” for this type of unprecedented interpretation. They say that the word “listed,” as it is used in Morrison is only applicable to two kinds of securities that can be purchased in the US—an unlisted security that trades over the counter in this country and a listed one that trades on a US exchange. The defendants claim that the plaintiffs are misreading the word “listed” in order to authorize international class action lawsuits based on securities purchases on a foreign market and that this “flies in the face of Morrison’s statements that Section 10 (b) doesn’t “regulate foreign securities exchanges.”

Related Web Resources:
Morrison v. National Australia Bank Ltd., Supreme Court (PDF)

1934 Securities Exchange Act

Class Auction-Rate Securities Lawsuit Against Raymond James Financial Survives Dismissal

Published on: September 27, 2010 | by Shepherd Smith Edwards & Kantas, LLP

In the U.S. District Court for the Southern District of New York, U.S. District Judge Lewis A. Kaplan has allowed some of the investor claims in the class action auction-rate securities lawsuit against broker-dealer Raymond James Financial Inc. (RJF) and its broker-dealer subsidiary to proceed. This is the first ARS class action case filed since the auction rate securities market failed in 2008 to survive a dismissal motion. The case can now go to the discovery stage.

Kaplan, who had dismissed an earlier lawsuit in this case, let the plaintiffs move forward with their auction-rate securities case on the claim that Raymond James & Associates Inc. (RJA) violated antifraud provisions between November 2007 and February 13, 2008. A claim against RJF was allowed to proceed because of its “operational and management control” of RJA during this time. Other claims were dismissed.

Investors had filed the initial class action in April 2008 against RJA, RJF, and Raymond James Financial Services Inc. (RJFS), another Raymond James broker-dealer subsidiary. The plaintiffs contended that between April 8, 2003 and February 13, 2008, the two subsidiaries told financial advisers that ARS were extremely liquid, short-term investments that could work well for any investor with at least $25,000 and with as little as a week to invest. However, when the auction-rate securities market failed, over $300 million in ARS became illiquid. Per Kaplan, RJA sold $2.3 billion of ARS, underwrote $1.2 billion, and was the auction dealer for over $725 million.

Auction-rate securities cases filed by individual investors have been faring better than class-action ARS lawsuits. Of the class-action and group complaints filed against some 19 underwriters and broker-dealers since the ARS market failed, Bloomberg.com reports that Citigroup, Deutsche Bank AG, and at least six other financial firms have managed to get the lawsuits thrown out by judges ruling that the complaints failed to meet pleading requirements. Some plaintiffs were told to refile their lawsuits and provide more details.

Raymond James Auction Rate Class-Action Fraud Suit Is First to Be Upheld, Bloomberg, September 8, 2010
Court Clears Lawsuit Against Raymond James, FA-Mag.com, September 9, 2010 Continue Reading ›

Securities Fraud Lawsuit Against Calamos Investments Filed on Behalf of Calamos Convertible Opportunities and Income Fund Shareholders

Published on: September 17, 2010 | by Shepherd Smith Edwards & Kantas, LLP

Calamos Asset Management, Inc., the Calamos Convertible Opportunities and Income Fund (NYSE: CHI), Calamos Advisors LLC, current trustees, and one former Fund trustee are now the defendants of a putative class action securities complaint purportedly submitted on behalf of a class of common fund shareholders. The securities fraud lawsuit is alleging breach of fiduciary duty, the aiding and abetting of that breach, and unjust enrichment related to the redemption of auction rate preferred securities (ARPS) after the ARS market collapsed in 2008.

In the securities fraud lawsuit filed by Christopher Brown, Calamos Holdings LLC founder John Calamos Sr. is accused of allowing the investment firm and its management team to benefit from investors’ losses. Brown’s complaint is a refiling of a lawsuit filed in federal court last July. That complaint was withdrawn earlier this month and the claims resubmitted in state court.

Brown contends that Calamos and others were aware they were breaching their fiduciary duty when they let fund advisers benefit while investors sustained financial losses in the “multiple millions of dollars.” Brown wants all losses restored.

He claims that even as the ARS market failed, a burden was not placed on the Calamos Convertible Opportunities and Income Fund, which held auction market preferred shares. However, in June and August, Calamos managers allegedly redeemed some of the funds’ holdings, which were replaced with debt financing that was “less favorable.” Brown says that because this advanced the interests of the managers, the funds’ investment advisors and affiliates but not the interests of common shareholders, it was a breach of fiduciary duty.

Brown is seeking class-action status for any investors in the fund since March 19, 2008. He wants a judge to prevent Calamos trustees from earning fees from the fund or acting as advisers.

Related Web Resources:
Calamos Investments Statement on ARPS Lawsuit for Convertible Opportunities and Income Fund, Centredaily.com, September 15, 2010
Calamos founder sued by investor who claims bad fund management, Chicago Business, September 14, 2010 Continue Reading ›

Charles Schwab & Co. Defendant in Class-Action Securities Fraud Lawsuit Filed on Behalf of Schwab Total Bond Market Fund Investors Over CMOs and Mortgage-Backed Securities

Published on: September 7, 2010 | by Shepherd Smith Edwards & Kantas, LLP

A class-action securities complaint has been filed against Charles Schwab & Co. on behalf of investors that own Schwab Total Bond Market Fund (Nasdaq: SWBLX) shares that were purchased after May 31, 2007. The securities fraud lawsuit accuses Charles Schwab of causing the fund to deviate from its fundamental business objective, which was to track the Lehman Brothers U.S. Aggregate Bond Index, and of violating the California Business & Professions Code.

According to the plaintiffs’ legal representation, the defendant caused investors to suffer financial losses when it started investing in high-risk mortgage backed securities without letting shareholders know. Per the fund’s prospectus, Charles Schwab is supposed to obtain shareholder approval through a vote.

The plaintiffs contend that by investing 25% of the fund’s portfolio assets in high-risk, non-agency collateralized mortgage obligations (CMO’s) and mortgage-backed securities that were not part of Lehman’s US Aggregate Bond Index, Charles Schwab failed to stay true to its stated fundamental investment objective. They claim that this deviation led to tens of millions of dollars in shareholder losses because of the decline in the non-agency mortgage-backed securities value. According to their lawyers, the investors ended up experiencing a negative 12.64% in differential in total return for the fund compared to the Lehman Bros. U.S. Aggregate Bond Index from August 31, 2007 to February 27, 2009.

The investor plaintiffs are seeking restitution for all class members and for the return of management and other associated fees collected after the fund’s alleged deviation from its fundamental business objective.

Related Web Resources:
Class Action Lawsuit Filed Against Charles Schwab & Co., Star Global Tribune, September 7, 2010
Plaintiffs charge Total Bond Market Fund deviated from stated investment strategy, Investment News, September 7, 2010

Related Blog Stories Resources:
Schwab Must Pay SSEK Client $604,094 Over California Yield Plus Fund Investments, Says FINRA Arbitration Panel, https://www.stockbrokerfraudblog.com, April 22, 2010
Securities Law Firm Shepherd Smith Edwards & Kantas LTD LLP Investigates Investor Claims Related to Short Term Bond Funds, https://www.stockbrokerfraudblog.com, August 9, 2008 Continue Reading ›

Securities Class Action Against Morgan Stanley by Xerox and Kodak Retirees Dismissed by Appeals Court

Published on: July 20, 2010 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. Second Circuit Court of Appeals in New York has upheld a lower court’s ruling to dismiss that the securities class action filed by Eastman Kodak Co. and Xerox Corp. against Morgan Stanley. The plaintiffs, retirees from both companies, are accusing the broker-dealer of advising them that if they retired early their investments would be enough to support them during retirement. They also claim that the investment bank persuaded them to open accounts that cost them the bulk of their wealth. According to the plaintiffs’ attorney, the retirees gave up job security and employment rights after they were told that if they retired early they could avail of a 10% withdrawal rate from their individual retirement accounts.

However, upon retiring, the retirees that invested lump-sum retirement benefits with Morgan Stanley experienced “disastrous” value declines. Also, they had invested with two Morgan Stanley broker, Michael Kazacos and David Isabella, that were later barred from the securities industry. Last year the broker-dealer settled FINRA charges over the two men’s activities by paying over $7.2 million.

The appeals court says that because of the 1998 Securities Litigation Uniform Standards Act, the plaintiffs are precluded from pursuing class state law claims, including misrepresentation claims. While the statute lets plaintiffs file lawsuits in state court to get around 1995 Private Securities Litigation Reform Act’s securities fraud pleading requirements, federal preemption of class actions claiming “misrepresentations in connection with the purchase or sale of a covered security” are allowed. The three-judge panel also said that because the retirees waited too long to file their securities fraud lawsuit, they cannot raise other federal securities law claims.

Related Web Resources:
Xerox, Kodak retirees lose Morgan Stanley appeal, Reuters, June 29, 2010
Morgan Stanley to Pay More than $7 Million to Resolve FINRA Charges Relating to Misconduct in Early Retirement Investment Promotion, FINRA, March 25, 2009
1998 Securities Litigation Uniform Standards Act, The Library of Congress Continue Reading ›

Securities Class Actions are No Longer the Fad as Investors Hire Their Own Attorney to Recover Far More!

Published on: January 23, 2010 | by Shepherd Smith Edwards & Kantas, LLP

According to Advisen Ltd, 910 securities lawsuits were filed in 2009 in the wake of the economic crisis-a 13% increase from the 804 complaints filed in 2008. 239 securities fraud class action lawsuits were filed in 2009-the same number filed in 2008. Advisen reported a 22% increase in the number of regulator-filed securities fraud complaints last year compared to the year before.

The author of Advisen’s report, John W. Molka III, says lawsuits over the Madoff ponzi scam and the credit crisis kept regulators and litigators busy during the first half of last year. Plaintiffs’ lawyers then had a backlog of other complaints to work on during the second half of the year.

Molka says that even though there wasn’t a change in the number of securities class action complaints filed, overall they made up a smaller percentage (about 25%) of the total number of lawsuits submitted. This decline in securities class action lawsuits has been going on since 2005, when they comprised about 50% of all securities complaints.

Advisen says that meantime, regulators continue to increase their enforcement efforts with lawsuits and actions. Securities actions filed in state courts and breach of fiduciary complaints are also growing in number.

To obtain the maximum recovery for your securities case, you should speak with a securities fraud law firm about your legal options. Our securities fraud lawyers represent clients with arbitration claims and securities lawsuits against negligent financial firms and other liable entities.

Related Web Resources:
Advisen, Ltd.

Read the Report, Advisen Continue Reading ›

Number of Securities Lawsuits Increased During 3rd Quarter

Published on: November 20, 2009 | by Shepherd Smith Edwards & Kantas, LLP

According to commercial insurance consulting firm Advisen, 169 securities lawsuits were filed during 2009’s third quarter-an 11% increase from the 152 complaints that were filed during the previous quarter. 249 securities lawsuits were filed in the 1st quarter.

The most common kind of securities lawsuit filed this past quarter was securities fraud lawsuits that were brought by law enforcement agencies and regulators. 70 securities fraud complaints and 55 securities class actions were filed during 3Q. 50 securities fraud complaints and 38 cases were filed in the 2Q.

Advisen Executive Vice president Dave Bradford says the percentage of securities fraud lawsuits is expected to grow now that the Securities and Exchange Commission appears to be increasing its securities fraud enforcement initiatives under President Barack Obama. The SEC has been attempting to recoup from its failure to detect the $50 billion Ponzi scam that Bernard Madoff ran for years.

Disgruntled Investors Continue to File Securities Fraud Litigation Against Merrill Lynch Even Eight Months After Its Acquisition by Bank of America Corp.

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

The plaintiffs of some 166 of the 221 cases filed against Merrill Lynch & Co. since January 1, 2009 are alleging securities fraud-related violations. This means that Bank of America Corp, which acquired the broker-dealer at the beginning of the year, has assumed responsibility for the outcome of these civil cases. Some of these investor fraud claims were filed as late as last month.

Some cases discuss Merrill’s involvement in the marketing, underwriting, and selling of securitizations, or asset-backed securities. Other cases delve into Merrill’s dealings in the auction-rate securities market. A number of the securities fraud cases against Merrill are class action lawsuits. Merrill Lynch is the lead defendant in many of the cases and one of several financial firms named in the other complaints.

Some of the Securities Fraud Cases Against Merrill Lynch:

Morgan Stanley Court Case Demonstrates Why Securities Arbitration is Often a Better Forum

Published on: February 27, 2009 | by Shepherd Smith Edwards & Kantas, LLP

Many lawyers and investors complain about securities arbitration. According to Shepherd Smith Edwards & Kantas LTD LLP Founder and Stockbroker Fraud Attorney William Shephard, however, the following Morgan Stanley case is “one of many cases filed in court which would have likely not been dismissed in securities arbitration.”

Earlier this month, the U.S. District Court for the Southern District of New York tossed out a securities class action lawsuit filed against Morgan Stanley, Morgan Stanley DW Inc. (MSDWI), Morgan Stanley & Co. Inc. (MS&Co.), the Technology Fund, the Information Fund, Morgan Stanley Investment Management Inc., Morgan Stanley Investment Advisors Inc. (MSIA), and Morgan Stanley Distributors Inc. The class action case is on behalf of investors in the Morgan Stanley Information Fund and Morgan Stanley Technology Fund over alleged improprieties in initial public offering shares allocations, as well as alleged conflicts of interest between Morgan Stanley’s research and investment banking departments.

According to the court, the investors claim they lost millions of dollars in the purchase of the funds as a result of violations of the 1933 Securities Act. The plaintiffs are also claiming that Morgan Stanley, MSDWI, and MS&Co. publicly said that they kept a “Chinese Wall” between their research and investment banking departments so there wouldn’t be any conflicts of interest when, in fact, this wall had fallen and MS & Co. was acting to benefit its investment banking departments. They also claim they were told that analyst recommendations and research were not influenced by the interests of Morgan Stanley or its affiliates.

Among the conflicts of interest, the investors are alleging that the defendants engaged in at least one of the a number of roles involving companies that with shares included among the funds’ portfolio securities for the class periods, including:

• As underwriters for certain securities.
• As investment bankers for certain companies with securities in the funds’ portfolios.
• Preparing and sending out research reports and recommendations about companies that had shares in the funds’ portfolios.
• Trying to get first-time or more underwriting and additional business from the companies that had shares in the portfolios.

The plaintiffs contend that MS & Co. factored in how much investment bank business research analysts were able to secure when determining their total compensation. This resulted in MS & Co.’s promotion of Morgan Stanley shares or those of potential clients, which then would lead to the price inflation of the companies’ shares. They also claimed that the portfolio funds had a substantial amount of Morgan-Stanley sponsored-stocks and that Morgan Stanley took part in “laddering,” which involved rewarding customers with “hot” IPO shares when they went after research tie-ins that artificially inflated an IPO stock’s aftermarket share price.

The court, however, dismissed the lawsuit saying that the plaintiffs failed to plead material omissions that Morgan Stanley should have disclosed. Continue Reading ›