Current Investigations

Financial Firm News: Goldman Sachs Faces Criminal Fraud Charges in Malaysia and UBS is Fined $15M Over Poor Anti-Money Laundering Detection Systems and Multibillion-Dollar Fraud Involving 1MDB Fund Leads to Criminal Charges for Goldman

Published on: December 20, 2018 | by Shepherd Smith Edwards & Kantas, LLP

Prosecutors in Malaysia have filed criminal charges against a number of Goldman Sachs Group Inc. (GS) units and several people over a massive multibillion-dollar bond fraud involving the sovereign wealth fund the 1Malaysia Development Berhad (1MDB). The individuals charged including former Goldman managing directors Roger Ng Chong Hwa and Tim Leissner, financier Jho Low, who is accused of masterminding the fraud, and ex-1MDB general counsel Jasmine Loo Ai Swan.

Malaysia Attorney General Tuan Tommy Thomas said that the criminal charges are related to fake and misleading statements issued in order to steal $2.7B from the proceeds of three 1MDB subsidiary issued-bonds. The bonds, which Goldman organized and underwrote, were valued at over $6B.

The defendants are accused of conspiring together to bribe public officials in Malaysia so as to allow for Goldman’s involvement with the bonds. The investment bank earned about $600M in fees for its work with the Malaysian sovereign fund.

Merrill Lynch to Pay $300K to Settle Inadequate Supervision Allegations

Published on: December 14, 2018 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority (FINRA) is ordering Merrill Lynch to pay $300K after finding that it did not properly supervise former broker Eva Weinberg, who went to prison for defrauding former NFL football player Dwight Freeney. Merrill, which is now a wholly-owned Bank of America (BAC) subsidiary, consented to the fine and censure imposed for not properly investigating and overseeing Weinberg even after the firm had internally flagged three of her emails and a $1.7M default judgment had been rendered against her in a civil case. (It should be noted that this case is not listed on her BrokerCheck record but was reported by InvestmentNews.)

What Weinberg’s BrokerCheck record does state is that she began working in the industry in 1988, but then in 2004 she took several years away to work at a real estate company owned by a man named Michael Stern, who is also now in prison for defrauding Freeney. Even before Freeney, however, Stern already had a criminal record.

FINRA said that when Weinberg applied to Merrill for employment in 2009, she did not mention the years she had spent working for Stern. The broker-dealer went on to hire her in their Miami office where she worked with professional athletes, including Freeney. She is the one who introduced the former NFL player to Stern.

FINRA Suspends Ex-Securities America Broker

Published on: December 13, 2018 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority (FINRA) has suspended former Securities America broker Michael D. Jackson for six months following allegations that he traded options in one client’s account without telling the brokerage firm. Securities America has since fired Jackson.

According to the self-regulatory authority (SRO), in 2016, the ex-Securities America broker recommended that one customer set up an account at different firm to trade options. The customer followed his instructions. Over several months, Jackson allegedly:

Put in orders for over 42 options transactions sets—that’s over 100 orders—in the new account.

Ex-UBS Puerto Rico Broker Jose “Whopper” Ramirez Pleads Guilty to Bank Fraud

Published on: November 21, 2018 | by Shepherd Smith Edwards & Kantas, LLP

Jose G. Ramirez-Arone Jr. (also known as Jose G. Ramirez, Jr.), a former UBS Financial Services of Puerto Rico (UBS-PR) broker, has pleaded guilty to criminal charges accusing him of defrauding investors while making over $1 million in improper commissions through the sale of Puerto Rico closed-end funds. Ramirez-Arone is scheduled to be sentenced next year.

The former UBS broker, known to many on the island as “Whopper,” and UBS Puerto Rico have together been the subject of dozens of Financial Industry Regulatory Authority (FINRA) arbitration complaints brought by customers claiming they sustained massive investment losses because not only did UBS and Ramirez-Arone sell the customers Puerto Rico bonds while misrepresenting the risks, but also, the finer broker recommended that they borrow money to purchase even more of these securities when they could not afford them.

Ramirez-Arone was one of the top-selling brokers at UBS Puerto Rico. In his guilty plea, Ramirez-Arone admitted that he was involved in a scam to help his UBS customers fraudulently obtain non-purpose credit lines, which was a violation of the firm’s policy. The credit lines came from UBS Bank USA, which is a UBS Financial Services subsidiary based in Utah. According to the U.S. Department of Justice, Ramirez-Arone took advantage of the low interest rates at UBS bank to convince his customers to buy additional shares of UBS’s Puerto Rico closed-end funds (CEFs). The former UBS broker acknowledged being a part of a scheme that involved recommending to different clients that they take money from the UBS Bank credit lines to invest to in the UBS Puerto Rico closed-end bond funds. Since using a “non-purpose” loan to buy additional securities is not allowed, Ramirez-Arone admitted advising customers to misrepresent on their credit line application what they intended to use the credit line and having the clients take the borrowed money to their retail bank and then bring the money back to UBS to buy more securities.

IMS Securities Ordered to Pay Retirement Investors $1M in UDF REIT Case

Published on: November 18, 2018 | by Shepherd Smith Edwards & Kantas, LLP

A Financial Industry Regulatory Authority arbitration panel has awarded eight retirement investors $1,019,211 in a Texas real estate investment trust case involving three United Development Funding (UDF) REITs. United Development Funding is made up of private and publicly traded investment funds that use investor money to give loans to land developers and homebuilders.

According to the claimants, IMS Securities, a Houston-based brokerage firm that is no longer in operation, and its chief executive Jackie Divono Wadsworth recommended through a third party that investors purchase retirement accounts in the:

United Development Funding II

FINRA Bars Another Ex-Morgan Stanley Broker

Published on: October 31, 2018 | by Shepherd Smith Edwards & Kantas, LLP

For the third time this month, The Financial Industry Regulatory Authority has announced that it has barred yet another Morgan Stanley (MS) broker. The brokerage firm had fired financial adviser Bruce Plyer in late 2016 in the wake of allegations that he executed trades in a client’s account without authorization. Now, the self-regulatory organization is barring Plyer after he failed to appear and give testimony into FINRA’s probe into the matter.

Plyer has accepted and consented to FINRA’s findings, but he is not admitting to or denying any of them.

After being let go from Morgan Stanley, he was registered for a short time with International Assets Advisory until he left the industry early last year.

UBS to Pay $19.8M in Puerto Rico Bond Fraud Case

Published on: October 25, 2018 | by Shepherd Smith Edwards & Kantas, LLP

A Financial Industry Regulatory Authority panel is ordering UBS Financial Services Inc. (UBS) to pay restitution of almost $19.8M in an arbitration case involving Puerto Rico bonds and closed-end funds that were sold to investors. This is the largest amount that UBS has paid to date to claimants in a Puerto Rico bond fraud case.

The arbitration ruling involved not only the sale of the Puerto Rico bonds but also how credit lines were used as part of the investing strategies involving the investor accounts. Of the $19.8M: $14.9M is for compensatory damages, $745K is interest, $3.9M is legal fees, and $215K is for other costs.

This is just one of several Puerto Rico bond and closed-end bond fraud awards that UBS and its affiliated financial firm, UBS Financial Services of Puerto Rico (UBS-PR), have been ordered to pay in the last few years. In December 2016, A FINRA arbitration panel ordered UBS to pay $18.6M to two UBS clients who had alleged breach of contract, breach of fiduciary duty, and other violations over their Puerto Rico securities losses.

HSBC and Nomura to Pay $765M and $480M, Respectively to Settle RMBS Fraud Claims

Published on: October 19, 2018 | by Shepherd Smith Edwards & Kantas, LLP

HSBC will pay a $765M penalty over claims involving its packaging, marketing, and sale of residential mortgage-backed securities prior to the 2008 economic crisis. According to the US Attorney Bob Troyer, from the beginning HSBC employed a due diligence process that it knew was ineffective, “chose” to place faulty mortgages in deals, and disregarded these problems even as it sold the RMBSs to investors. As a result, contends the US government, investors, including federally-insured financial institutions that bought the HSBC Residential Mortgage-Backed Securities that were backed by faulty loans, sustained “major losses.”

HSBC had touted using a proprietary model that would choose 20% of the riskiest loans for further examination and another 5% that would be randomly chosen. The government, however, claims that the financial firm’s trading desk exerted undue influence on which loans would be securitized and sometimes failed to employ a random sample. Outside vendors then studied the chosen loans.

The US alleges that even when a number of loans were marked as low grade, HSBC “waived” them through or regraded them, and concerns about loans that had defaulted right away were purportedly disregarded. The bank even allegedly continued to buy loans from an originator who was found to likely be providing loans that were fraudulent.

Another Ex-Morgan Stanley Broker is Barred by FINRA

Published on: October 16, 2018 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority has barred another former Morgan Stanley (MS) broker. John Halsey Buck III consented to the industry bar after he did not provide the information and documents that the self-regulatory organization asked for related to its probe into his alleged involvement in unapproved private securities sales. Buck, who has over 50 years experience in the industry, was let go by the brokerage firm earlier this year.

Morgan Stanley reportedly fired him in the wake of disclosure-related issues, including those involving private investments that did not involve the broker-dealer. According to InvestmentNews, the allegations against Buck have to do with “selling away.” This is a practice that happens when a stockbroker, financial adviser, or a registered representative solicits the sale of or sells securities that his or her brokerage firm does not offer or hold. Broker-dealers usually have a list of approved products that its brokers are allowed to sell to firm clients.

Buck had been with the industry since 1965. Previous to working with Morgan Stanley, he was a registered broker with UBS Financial Services (UBS), Wachovia Securities, Prudential Securities Incorporated, Loeb Partners, and Hornblower, Weeks, Noyes & Trask.

FINRA Bars Former Morgan Stanley and Wells Fargo Brokers

Published on: October 11, 2018 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority announced this week that it is barring three former brokers. They are ex-Morgan Stanley broker (MS) Kevin Smith and former Wells Fargo (WFC) brokers Wilfred Rodriquez Jr. and Thomas A. Davis.

According to the self-regulatory authority’s order, the bar against Smith comes after he wouldn’t appear before FINRA to testify regarding allegations involving a structured products trade in a family member’s trust that he may have executed without checking with the client first.

Morgan Stanley fired Smith in 2016 in the wake of the broker fraud allegations.