Class Action Lawsuits

UBS Sued by New Orleans Employees’ Retirement System for Alleged Tax Scam that Helped the Rich While Causing Investor Losses

Published on: February 13, 2009 | by Shepherd Smith Edwards & Kantas, LLP

In the US District Court for the Southern District of New York, UBS AG was named as a defendant in a class action lawsuit alleging that the company engaged in a tax scam designed to help rich US investor avoid federal taxes. The plaintiff in the case is the New Orleans Employees Retirement System, which includes purchasers that publicly traded UBS securities between May 4, 2004 and January 26, 2009.

The 120-page complaint says that UBS would encourage analysts and investors to consider “new net money” that came to the investment bank during each reporting period as a major indicator of the company’s performance and future prospect. The securities fraud class action lawsuit, however, contends that UBS employed a fraudulent scam to lure a material amount of this “new net money.” This scheme also helped extremely rich US investors avoid federal taxes by placing billions of their dollars in undeclared Swiss bank accounts.

The New Orleans Employees’ Retirement System claims the investment bank’s Swiss bankers acted improperly and violated Securities and Exchange Commission regulations when they sold securities in the United States even though they lacked the necessary licensing. The plaintiff contends that UBS’s fraudulent actions led to the firm generating fees worth hundreds of millions of dollars each year and that these funds were used to create more loans through fractional lending.

The lawsuit also accuses UBS of taking action to conceal the tax scam from investors, the Internal Revenue Service, and the Department of Justice while purposely making it appear that the firm’s Wealth Management division was growing at an unprecedented pace.

The plaintiff says UBS’s claims that it had “robust internal controls” and “state of the art risk management tactics” were misleading and false because while UBS was providing these reassurances to investors, it was in fact engaged in its tax evasion scam.

In addition to UBS, defendants in the class action case include Marcel Ospel, Phillip Lofts, Peter Wuffli, Mark Branson, Peter Kurer, Martin Liechti, Peter Kurer, and Raoul Weil.

The putative Class is seeking billions of dollars in damages.

Related Web Resources:
UBS AG

New Orleans Employees’ Retirement System v. UBS AG, Justia Docket Continue Reading ›

Judge Approves Citigroup Falcon Fund Investors’ Decision to Withdraw Lawsuit

Published on: July 25, 2008 | by Shepherd Smith Edwards & Kantas, LLP

In New York, a judge has approved the decision by investors of a Citigroup Falcon Fund to drop their lawsuit asking for more data about how the bank plans to liquidate the fund.

On February 22, Citigroup announced it was providing the Falcon Funds a $500 million line of credit and consolidating $10 billion in liabilities and assets.
Citigroup began suspending distributions and redeptions and started closing down the fund in March. The fund’s value dropped by 80% and Citigroup offered to pay investors 45 cents for every dollar.

The investors had been asked to tender shares of Falcon Strategies Two LLC, but they wanted corrections made to the offering memo because misleading and missing information made it impossible for them to value their stakes. U.S. District Judge Sidney Stein, who this week approved the withdrawal of the investors’ class action suit, rejected their motion to push forward the lawsuit about the tender offer. He said the plaintiffs were trying to turn the securities laws’ anti-fraud provisions into provisions of broad disclosure.

The Falcon Funds mainly invested in fixed-income securities and other debt instruments, and they may have been exposed to weaknesses in the mortgage, credit, and bond markets. Citigroup brokers are accused of recommending the funds to investors looking for conservative investments when, in fact, the funds may have been accompanied by a high level of risk.

Related Web Resources:

The Law Firm of Shepherd Smith Edwards & Kantas LTD LLP Investigates Losses in Falcon Hedge Funds, Primenewswire.com, July 2, 2008
Citigroup Alternative Investments LLC : Falcon Strategies Two B LLC Hedge Fund, Stanford Law School Continue Reading ›

Class Action filed against Morgan Stanley on Behalf of Former Eastman Kodak Employees

Published on: January 17, 2008 | by Shepherd Smith Edwards & Kantas, LLP

Lawyers have filed a class action suit against Morgan Stanley for a group of former Eastman Kodak employees they say were persuaded to retire early and invest their retirement assets through Morgan Stanley.

According to the Dow Jones News Wire, the class action is seeking nearly a half billion dollars in damages from Morgan Stanley because its brokers advised the Kodak employees retire early with promises of financial security that never materialized. One of the attorneys estimates 1,000 investors or more are involved. If so, the claim seeks approximately $500,000 per former Kodak retiree.

Firms which report the results of class action cases estimate that recovery in securities class action cases is LESS THAN THREE PERCENT of the actual losses to investors! If one were to assume that 1,000 Kodak retirees lost, on average, $500,000, each may receive LESS THAN $15,000 according to this average.

Loss on Enron, Worldcom, etc.? It May Not Be Too Late!

Published on: July 31, 2007 | by Shepherd Smith Edwards & Kantas, LLP

Usually lawsuits must be filed within a few years after the wrongful acts, or when one knew or should have known of the wrongdoing. For example, federal and most state securities laws require lawsuits to be filed by 2 or 3 years after the problem is known or made public, but no later than 5 years in any event.

However, if a class action is filed on behalf of shareholders, this “tolls” the limit for filing a case for those the case seeks to represent. If, for example, if a shareholder decides to “opt out” of the class action, or it is later decided the class action can not be maintained, the “window” for such shareholders to file their own cases remains open. (Caution: The remaining time to file a case may then be quite short.)

WorldCom Inc. bondholders were in this position. A class action was filed, including a class of bondholders. Some of these bondholders decided to file their own case before the class was “certified” (when the court decides whether the class members have claims common to all of them, etc.) Using strange reasoning, the federal judge presiding over their case decided that, because these bondholders did not wait for the class to be certified, they could not use the tolling benefit of the class action. Because the case was otherwise filed too late, it was dismissed.

Securities Class Action Filings Fall Dramatically

Published on: July 20, 2007 | by Shepherd Smith Edwards & Kantas, LLP

WIth securities class actions being dismissed at an alerming rate and charges being filed against high-profile securities class action attorneys, it’s not suprising that securities class action filings fell 42% in the first half of 2007. In fact, this is the fourth consecutive semi-annual drop in filings of such cases, according to the Stanford Law School Class Action Clearinghouse and Cornerstone Research.

The study group has propounded a variety of possible theories for the precipitous drop in securities class actions. One absolutely preposterous theory, unsupported by data, is that securities fraud has dropped because of prior settlements and fines. A spokesman from the Stanford group states: “Economic theory suggests these factors should lead to a decline in the incidence of fraud–exactly what we have seen occur since the middle of 2005.”

Another of the group’s questionable explanations for the decrease in securities class action filings is a “strong stock market” hypothesis. Under that hypothesis, decreased levels of class action filings correlate to a strong stock market with low volatility. Yet, historical data also does not support this hypothesis.

Enron Victims, Now Victims of Their Own Government, Finally Find Friends in Former Regulators

Published on: July 19, 2007 | by Shepherd Smith Edwards & Kantas, LLP

Defrauded Enron shareholders recently lost again, this time as victims of federal judges who seem intent on helping Wall Street crooks rather than Wall Street victims. With their case before the U.S. Supreme Court, the Enron shareholders lost yet again when the SEC and Bush Administration, who had indicated they would intervene, missed a deadline. Now, three former SEC Commissioners are asking the Supreme Court to allow them to intervene to help.

In 2001, the total value of Enron shares plummeted from over $80 billion to almost zero. Enron officials and its auditors were indicted, several persons were convicted and some are now serving jail terms. The auditing firm of Arthur Anderson was forced to close. The scandal then turned to several Wall Street firms which are claimed ot have played a large role in assisting Enron to falsify its books.

Several individuals and firms were accused – and four former Merrill Lynch Brokers were convicted of by a jury – for arranging loans to appear as sales in order for Enron to book the loans as profits. Yet, just as the Enron shareholders’ claims against Merrill Lynch were headed for trial, business-friendly appointed appellate judges dismissed the case.

Update: Do Insurance Companies Use Scam Artists to Sell Unsuitable Annuities to the Elderly?

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

According to the Government Accounting Office (GAO) Americans over 65 hold more than $15 trillion in assets and, with “Baby Boomers” soon reaching retirement age, that figure will likely balloon. As financial firms, including insurance companies, design products aimed at this pot of gold, scam artists lick their chops for a piece of the action. Unfortunately, their paths cross.

As we very recently reported, a federal judge in Hawaii dismissed a class action suit against Midland National Insurance saying that, because different sales pitches were used by different salespersons, the claims by elderly Hawaiians can not go forward. Meanwhile, regulators warn that scam artists are selling insurance products to the elderly. Thus, it appears that insurance companies can simply look the other way while con artists victimize the elderly using their annuities. [OUR FIRM PURSUES CLAIMS ONE AT A TIME TO AVOID THIS PROBLEM.]

A NY Times article today reports that a Massachusetts insurance agent became a “certified senior adviser” then advertised this and other credentials to retirees. Yet, he did not mention how easily he received that title: He paid $1,095 for a correspondence course, then took a multiple-choice exam with dumbed-down questions. The agent, and over 18,700 other applicants since 1997, passed the course.

Judge Tosses Suit by Elderly Who Claim They were Misled into Annuity Losses

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

A judge in The U.S. District Court in Honolulu ruled that those who lost in annuities cannot bring a class-action suit against the annuity insurer, despite potential misleading and deceptive actions by the insurance firm. [Yokoyama et al. vs. Midland National Life Insurance Company.]

Lawyers representing the plaintiffs in the case alleged the defendant, Midland National Life Insurance Company, sold elderly Hawaiians inherently unsuitable, deceptive indexed annuity products that were designed to hide the true cost of an early contract cancellation.

The court cited two reasons it denied the class action against Midland. The first was that, whether or not Midland’s actions were misleading or deceptive, different sales pitches by different insurance salespersons were made to those purchasing the annuities, therefore the investors did not have similar claims. The second, said the judge, was that the losses were not caused by the alleged misleading actions, but by changes in the securities market.

Want to Make Big Bucks Without Responsibility? Become a Corporate Director

Published on: July 5, 2007 | by Shepherd Smith Edwards & Kantas, LLP

A Texas judge dismissed a shareholder class action against the directors of energy firm TXU, holding that, under Texas law, shareholders of a company can not sue that company’s directors. Thus, shareholders can only sue the company itself, which is really suing themselves. Meanwhile, the company can sue the board members but, since the board members would decide that, what is the likelihood? (An arcane action known as a shareholders derivative suit can be filed by the shareholders, if they can demonstrate the board should have initiated the action – against themselves – but did not.)

The lawsuit filed by the TXU shareholders claimed the directors violated their fiduciary duty in agreeing to acquisition of TXU by a private equity firm for $45 billion paid to the shareholders. Were the shareholders cheated? We will never know, will we, because the suit was dismissed, meaning that these and other shareholders can’t sue a company’s directors – at least not in Texas.

If you learn of job openings for Corporate Directors, apply fast – and give me a call!

Stockbrokers and Their Firms: The Story of Bad Apples from Bad Orchards

Published on: June 24, 2007 | by Shepherd Smith Edwards & Kantas, LLP

As a former Vice President and registered representative at several major brokerage firms for 20 years, I witnessed Wall Street in action. My assessment of Wall Street is that the majority of the 600,000+ registered representatives at over 5,000 brokerage firms are fairly honest people who seek the best interest of their clients. Unfortunately, there are some “bad apples” in that barrel – brokers who seek to line their own pockets with little regard for their clients.

Yet, it is not so much the apples but the “orchard” that is most troubling today. When I began my investment career in 1970, those running investment firms sought to take care of their clients and maintain their firm’s image. Over the following 20 years, I witnessed their profit motive increasingly outstrip those goals.

Today, it is clear that most financial firms pay little more than lip-service to their clients’ welfare. In the past decade, those who run these firms have discovered an important fact: Crime pays on Wall Street! The best example is the widespread research scandal which led to massive investigations, fines and lawsuits.