Financial Firms

Judge Gives Lower Sentence to Former Credit Suisse Broker Convicted of Auction-Rate Securities Fraud

Published on: January 30, 2010 | by Shepherd Smith Edwards & Kantas, LLP

Eric Butler, a former Credit Suisse Group AG broker, has been sentenced to five years in prison for securities fraud. A jury found the ex-stockbroker guilty of misleading clients into thinking that they were buying student loan-backed, low-risk auction-rate securities when they were actually buying ARS that were high-risk and backed by home mortgage assets. He modified the trade confirmations to conceal this discrepancy. His securities fraud scam collapsed when the ARS market did, but not before investors sustained $1.1 billion in losses.

The government asked that Butler be ordered to serve a 45-year prison sentence pay stiff penalties. However, U.S. District Court Judge Jack Weinstein sentenced him to just five years, imposed a $5 million fine, and ordered that he forfeit $500,000.

Following the guilty verdict, Weinstein expressed concern about placing all of the blame on Butler. He said that he gave the ex-Credit Suisse broker a reduced sentence because the financial services industry has a “pernicious and pervasive” corrupt culture.

Troubled GunnAllen Securities to be Acquired by Progressive Asset Management as Lawyers for Investors Investigate the Sale.

Published on: January 29, 2010 | by Shepherd Smith Edwards & Kantas, LLP

After undergoing major litigation costs, GunnAllen Financial Inc. has agreed to be acquired by Progressive Asset Management Inc., which already controls a smaller broker-dealer. Progressive claims to be a “socially conscious” investment firm.

The combination of the firms would appear to create a broker-dealer with about 1,000 independent advisors and brokers in more than 200 offices nationwide. If so, the resulting firm would be ranked in the 30 largest independent broker-dealers, according to information available from InvestmentNews.

The terms of the acquisition have not been disclosed, according to David Levine, executive vice president of Progressive, who also did not specify whether his firm would be acquiring GunnAllen’s broker-dealer firm or only its advisers and assets. Often buyers of troubled securities firms seek to buy only the assets leaving behind creditors with little or nothing, including former clients of the firm who have ongoing suits and claims.

Former Evergreen Investment Adviser Settles SEC Insider Trading Charges Involving Ultra Short Opportunities Fund

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

Charles Marquardt, Evergreen Investment Management Co. LLC’s former chief administrator, has settled charges filed by the US Securities and Exchange Commission that he sold Evergreen Ultra Short Opportunities Fund shares after obtaining insider information that a number of the MBS holdings were going to drop down in value. Marquardt worked for Evergreen at the time he allegedly engaged in insider trading and served as the Evergreen Ultra Short Opportunities Fund’s investment adviser. The mutual fund mostly invested in mortgage-backed securities.

On June 11, 2008, he allegedly found out about the likely decrease in value of several of its MBS holdings and that there was a possibility that the Ultra Fund could end up shutting down. Marquardt is accused of having redeemed all of his shares the following day. One of his family members also sold Ultra Fund shares. Marquardt and his relative avoided incurring $4,803 and $14,304 in financial losses, respectively. The fund was liquidated on June 19 of that year.

To settle the charges against him, the investment adviser has agreed to a bar from future violations, as well as to a two-year industry bar. He will pay a $19,107 civil penalty, $1,242 in prejudgment interest, and $19,107 in disgorgement. By settling, Marquardt is not admitting to or denying wrongdoing.

Former Southwest Securities Broker’s Lifetime Industry Bar for Texas Securities Fraud is Affirmed, Says Appeals Court

Published on: January 26, 2010 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. Court of Appeals for the Fifth Circuit has affirmed the Securities and Exchange Commission’s lifetime bar against a former Southwest Securities Inc. stockbroker. Scott Gann, who allegedly committed Texas securities fraud, is no longer allowed to associate with dealers, investment advisers, and brokers.

The SEC imposed the permanent bar against Gann because of his alleged involvement in a mutual fund market timing scheme. The appeals court says that the SEC’s ruling is not an abuse of discretion and is supported by the record.

Gann and George Fasciano, also a former Southwest Securities broker, are accused of engaging in market timing trades for Haidar Capital Management and Capital Advisor. They allegedly got around the rules of some of the mutual funds that prohibit market timing by using multiple representatives and account numbers. Despite receiving 69 block notices from 34 mutual funds, their strategy allowed them to continue executing market timing trades.

The SEC filed an enforcement action in federal district court accusing the two men of violating the 1934 Securities Exchange Act Section 10(b). Fasciano settled before the case went to trial.

The district court held that Gann was in violation of Section 10(b). An SEC administrative law judge then entered a permanent associational bar against the ex-Southwest Securities broker. The SEC affirmed the bar, as did the appeals court.

The appeals court also noted that as Gann is convinced he did not engage in any wrongdoing even though the SEC and two courts found that Gann acted wrongfully-there is no guarantee he won’t commit future violations.

Related Web Resources:
Gann v. SEC, SEC.gov (PDF)

1934 Securities Exchange Act, Cornell University Law School Continue Reading ›

Court Stops Results One Financial LLC Adviser’s Alleged Investment Fraud Scam

Published on: January 21, 2010 | by Shepherd Smith Edwards & Kantas, LLP

Per the Security and Exchange Commission’s request for emergency relief, the U.S. District Court for the Northern District of Illinois has halted an alleged investment fraud scam involving Results One Financial LLC adviser Steve W. Salutric. He is co-founder of the financial firm. Hon. William J. Hibbler ordered that all assets under Salutric’s control be frozen and he issued a temporary restraining order against him. Hibbler is also granting other emergency relief.

The SEC complaint accuses Salutric of making unauthorized withdrawals from clients’ accounts that were located in another financial institution that was the custodian of Results One Financial’s client assets, forging client signatures on withdrawal request forms, and submitting the signed forms to the account custodian.

The SEC is charging the investment advisor with misappropriating several million dollars of his clients’s finds. Beginning in 2007, Salutric allegedly misappropriated more than $2 million from at least 17 clients to support entities and businesses that are linked to him. Funds that were allegedly misdirected include $610,000 to a film distribution company, $259,000 to two restaurants, and $321,000 to the church where he is treasurer. The SEC is accusing Salutric of misappropriating over $400,000 from a 96-year-old nursing home resident who has dementia. He also allegedly made Ponzi-like payments to certain clients.

Courthouse News Service says that Salutric managed over $16 million through Results One. The SEC says that there may be more clients who were defrauded and additional funds may have been misappropriated.

The SEC is seeking penalties, disgorgement, and an injunction.

Dismissal of Lone Star’s $60 Mortgage-Backed Securities Texas Fraud Action Against Barclays is Affirmed by Federal Appeals Court

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

The U.S. Court of Appeals for the Fifth Circuit has affirmed the dismissal of LSF5 Bond Holdings LLC and Lone Star Fund V (U.S.) L.P.’s $60 million securities fraud claims against Barclays Capital Inc. and Barclays Bank PLC. The court noted that Barclays never represented that the mortgage pass-through certificates purchased by the private equity firms did not have delinquent mortgages. Also, the court said that seeing as the language used in the parties’ agreement obligated Barclays to substitute or repurchase delinquent representation, Lone Star failed to allege misrepresentation.

In 2006, Barclays bought mortgage loans from then-subprime lender New Century Capital Corp. Barclays then pooled about 10,000 mortgage loans into the BR3 and BR2 Trusts. The trusts then gave out pass-through certificates or mortgage-backed securities. $60 million of the securities were bought by LSF5.

Although trust offerings supplements and prospectuses included representations and warranties that as of “transfer service dating” the mortgage pools did not have any 30-day delinquencies, Lone Star found that nearly 300 of the BR2 mortgages were at least 30 days delinquent beginning the date of purchase. 850 mortgages in the BR3 Trust were also over 30 days overdue.

Lone Star filed a Texas securities fraud lawsuit against Barclays claiming that the delinquent loans were misrepresentations on the investment bank’s part. Barclays sought to have the lawsuit dismissed, arguing that if there were delinquent loans then Barclays must either substitute or repurchase them.

The district court turned down Lone Star’s remand request and agreed with Barclay’s interpretation of the language in the agreement. The court dismissed the case. The appeals court upheld the dismissal.

Related Web Resources:
Lone Star Fund V (U.S), LP et al v. Barclays Bank PLC et al, Justia Federal District Court Filings and Dockets
Read the 5th Circuit Opinion (PDF)
Continue Reading ›

For Role in $2.4 Billion Refco Investor Fraud Scheme, Former Mayer Brown Partner Receives 7-Year Prison Sentence

Published on: January 15, 2010 | by Shepherd Smith Edwards & Kantas, LLP

Joseph P. Collins, a former Mayor Brown partner, has been sentenced to seven years in prison for his role in a $2.45 billion investment fraud scheme involving Refco Inc. He had hoped to obtain a more lenient sentence.

In July 2009, a jury found Collins guilty of wire fraud and securities fraud, as well as conspiracy to commit wire fraud, securities fraud, money laundering, bank fraud, and making false filings with the SEC. During his criminal trial, his defense attorneys argued that he did not know about the Refco fraud scam. However, while Southern Judge Patterson said that he believes Collins did not commit his crimes out of greed, Patterson noted what he called the firm partner’s “excessive loyalty” to his biggest client. According to Assistant U.S. Attorney Christopher J. Garcia, Collins brought in over $40 million to his law firm from his work with Refco.

Collins provided legal counsel and drafted documents that Refco principals used to conceal the company’s actual financial state while they made themselves wealthier. The government says that the documents were used to defraud Thomas H. Lee Partners, which owned a majority stake in Refco, and investors who purchased IPO shares in 2005.

SunTrust Robinson Humphrey Ordered to Pay $4.1 Million to Former Institutional Salesperson for Alleged Defamation and Wrongful Termination

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

A FINRA arbitration panel is ordering SunTrust Robinson Humphrey, Inc. to pay $4.1 million to a former institutional salesperson who claims he was defamed in a regulatory filing and wrongfully terminated. SunTrust Robinson Humphrey is the corporate and investment bank services unit of SunTrust Banks, Inc.

Lance B. Beck, who worked for the company 19 years and sold debt securities, claims he was slated to gross more than $3 million when, following the auction-rate securities market collapse, he was let go. According to a regulatory filing for the former institutional salesman, his case against his former employer involves a $2.9 million ARS transaction with a institutional customer. SunTrust later decided to repurchase the securities.

Beck is accusing SunTrust of making disclosures on his Form U5 that were “devastating,” and prevented him from getting hired by other companies or take his book of business with him. Beck wanted certain language in the form, which brokerage firms have to submit to regulators when a broker leaves the company, expunged.

Goldman Sachs Executives Sued by Pension Fund Over Bonuses

Published on: December 31, 2009 | by Shepherd Smith Edwards & Kantas, LLP

A shareholder derivative complaint filed by Security Police and Fire Professionals of America Retirement Fund and Judith A. Miller Living Trust is accusing Goldman Sachs Group Inc. executives of breaching their fiduciary duties for failing to modify the investment firm’s compensation policies according to the best interests of shareholders.

Goldman’s usual policy is to place 44-48% of its net revenue in employee compensation, which includes bonuses. The plaintiffs say these breaches were even greater this year because of federal funding that the investment bank received in 2008 and 2009. According to the complaint, this means that although the firm’s revenues are not related to employee performance, Goldman executives are still being rewarded for corporate performance.

Goldman Sachs is expected to pay its employees about $22 billion (including bonuses) this year. Now, the plaintiffs are seeking to recover billions of dollars in compensation.

Goldman Sachs was the recipient of a $10 billion TARP loan. Pension fund officials claim the investment firm’s revenue for the year can largely be attributed to taxpayer money. In 2008, Goldman generated $29 billion in cash by issuing debts that the Federal Deposit Insurance Company had insured. It then obtained money from contractual counterparties that got their assets from taxpayers.

Meantime, Goldman Sachs says the claim is without merit. Earlier this month, the investment firm announced that its 30 most senior executives would receive their bonuses in the form of restricted stock instead of cash.

Goldman Sachs CEO Lloyd Blankfein is one of the executives named as defendants in the lawsuit.

Related Web Resources:
Read the Shareholder Derivative Complaint (PDF)

Pension fund sues Goldman over executive pay, Pensions and Investments, December 15, 2009 Continue Reading ›

Judge Rejects ‘Fat Cat’ JPMorgan Chase’s $9,122 Bill for Producing Subpoenaed Documents

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

A judge has turn down JPMorgan Chase‘s request that a petitioner pay the investment bank $9,122 for providing subpoenaed documents to confirm an arbitration award. Instead, Judge Arthur Schack issued an 11-page ruling granting just $1.250.27 to JPMorgan Chase for producing 18,248 pages.

The investment bank had sought to bill Abraham Klein, who was granted a multimillion-dollar arbitration award against Caring Home Care Agency and Christine Persaud, $.25/page at $25/hour for 182 hours of research. JP Morgan Chase said it cost $4,550 to find and retrieve the documents and $4,580 to print them.

Schack called the astronomical bill an example of greed among Wall Street’s ‘fat cat bankers.’ He noted that the court does not serve as a collection agency for making rich bankers even richer and called JPMorgan Chase head James S. Dimon the investment firm’s “fattest cat,” considering that he was compensated almost $20 million last year.

Schack reduced JPMorgan Chase’s bill by lowering the quoted hourly fee to $6.55, which is Indiana’s minimum wage. He also awarded the investment bank 1 cent/ page based on page prices found on major stationary supplier Web sites. He also said that because JPMorgan Chase posted 16,317 of the 18,248 pages online, rather than printing them, the bank should receive payment for labor and not supplies for those pages.

Klein says that not only did JPMorgan Chase seek reimbursement for documents it never produced, but also it sent over thousands of documents that hd did not request. JPMorgan Chase is denying the allegations.

There have been too many occasions involving investment banks that have sought to take financial advantage of investors and other clients. You can obtain compensation for the financial harm that you have suffered.

Related Web Resources:
Judge Slashes ‘Fat Cat’ Bank’s Bill for Subpoenaed Documents, Law.com, December 28, 2009
Courts See Recession’s Toll; Judge Schack Strikes Again, The Wall Street Journal, December 28, 2009
Obama Slams ‘Fat Cat’ Bankers, Wall Street Journal, December 14, 2009
Judge Arthur Schack, NY Courts Continue Reading ›