Financial Firms

Edward Jones and Merrill Lynch Brokers Like Where They Work, While UBS Representatives are the Least Happy

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

According to Registered Rep magazine’s latest Broker Report Card, 98% of Edward Jones brokers say their securities firm is the best place to work. 78% of Merrill Lynch brokers ranked their investment firm as the number the one workplace.

Findings were compiled from Internet surveys taken by 898 captive brokers last October. Other results:

• 73% of Morgan Stanley Smith Barney representatives gave their firm the top spot.

UBS Loses Lehman Arbitration Note Claim by Small Investor

Published on: December 9, 2009 | by Shepherd Smith Edwards & Kantas, LLP

In an arbitration case that could affect numerous cases that are still pending, a Financial Industry Regulation Authority panel awarded a small investor $200,000 after finding that a UBS Financial Services broker acted inappropriately when he sold high-risk Lehman Brothers Holdings Inc. principal-protected notes to the claimant.

The case involving Lehman notes is one of the first to be decided by a FINRA panel. While the ruling won’t establish a precedent, it could be an indication of how similar rulings may go in the future. “There are many cases pending against UBS and other firms that sold Lehman notes shortly before Lehman failed,” said stockbroker fraud attorney William Shepherd, whose firm, securities fraud firm Shepherd Smith Edwards & Kantas LTD LLP, is handling a number of such cases. “These cases often involve misrepresentations and omissions as well as unsuitability, since the investments were sold to clients who sought safety and income,” he added.

The claimant filed the arbitration claim accusing UBS of recommending structured products that are not suitable for “unsophisticated investors.” The broker purchased for the client a $75,000 return optimization note and a $225,000 guaranteed principal protection note. The FINRA panel determined that the claimant should be compensated for the principal protected note, in addition to legal fees and interest.

Although the amount awarded is less than what the investor hoped to recover, a UBS spokesman said the securities firm was disappointed that the claimant was awarded any damages and maintains the investor’s financial losses were a result of the collapse of Lehman Brothers.

Investor Wins Lehman Note Arbitration, Wall Street Journal, December 5, 2009
FINRA awards US investor in Lehman notes $200,000, Reuters, December 5, 2009 Continue Reading ›

SEC Submits Amended Complaint Against Bank of America Over Merrill Lynch Merger and Executive Bonuses

Published on: December 3, 2009 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission’s amended complaint regarding the acquisition of Merrill Lynch by Bank of America Corp. last January includes one new assertion. In addition to the SEC’s original allegations against Bank of America, the agency now says that the investment bank was in violation of proxy regulations when it did not provide a merger agreement schedule, as well as a list identifying what would have been included in the schedule.

At the center of the SEC lawsuit is Bank of America’s proxy disclosure to shareholders that it wouldn’t pay year-end bonuses to Merrill executives. Yet, even as Merrill posted a record $27.8 billion loss last year, its executives were paid $3.6 billion.

BofA and the SEC initially attempted to settle the allegations for $33 million. Federal Judge Rakoff, however, wouldn’t sign off on what he considered both a swift resolution to an embarrassing situation for the bank and an attempt to make it appear as if the SEC was engaged in enforcement.

Rakoff accused SEC of not being hard enough on Bank of America, which it is supposed to regulate, even as shareholders suffered. He also accused the defendant of neglecting to take responsibility for its actions, which forced taxpayers to bail out the investment bank. A trial is scheduled to begin on March 1.

The US Congress and New York Attorney General Andrew Cuomo are also investigating the merger between Bank of America and Merrill Lynch.

Throughout the US, our securities fraud law firm represents investors who have suffered financial losses because of broker-dealer misconduct.

Related Web Resources:
SEC’s Amended BofA Complaint: New Claims, but No New Defendants, Law.com, October 23, 2009
Judge Rejects Settlement Over Merrill Bonuses, NY Times, September 15, 2009
SEC Fines Bank Of America $33 Million Over Bonuses, Consumer Affairs, August 3, 2009 Continue Reading ›

Braintree Appeals to Keep Auction-Rate Securities Lawsuit Against Citigroup in Court

Published on: November 28, 2009 | by Shepherd Smith Edwards & Kantas, LLP

Braintree Laboratories Inc. is asking the U.S. Court of Appeals for the First Circuit to keep its auction-rate securities lawsuit against the brokerage division of Citigroup Inc. in court. A federal court had ordered the proceedings into arbitration.

Last April, the pharmaceutical company sued Citigroup for securities fraud, accusing the investment bank of misrepresenting $33.2 million in ARS as “liquid,” government-supported “money market” investments that could be sold following seven days notice when Citigroup allegedly knew that the investments were auction-rate securities that were illiquid, subject to failed auctions, and not redeemable until 2030.

Braintree also contends that Citigroup used misleading and false descriptions to prevent clients and regulators from finding out that it was still selling these “toxic instruments.” The pharmaceutical company is accusing Citigroup of destroying key evidence related to the alleged fraud.

Braintree purchased the ARS from Citigroup between June and August ’08. The ARS market froze in early 2008.

Citigroup has agreed to give back $7.5 billion to individual clients, charities, and small businesses that suffered ARS losses when the market collapsed. The broker-dealer is also promising to put its best efforts toward liquidating some $12 million in ARS that were purchased by institutional investors, including retirement plans, by the end of 2009.

As Shepherd Smith Edwards and Kantas Founder and Stockbroker Fraud Lawyer William Shepherd points out, “Most securities firms have agreed to repurchase Auction Rate Securities from smaller investors, but our firm is representing many large investors who remain in ‘ARS limbo.’ It is very important for these investors to hire skilled attorneys to protect their rights before time limits expire to take action! We have found many firms are dragging out discussions with investors but only paying those who take legal action.”

Related Web Resources:
ARS Investor Fights To Keep Citigroup In Court, Law 360, November 11, 2009
Citi sued over auction-rate securities, Reuters, April 17, 2009 Continue Reading ›

FINRA Bars Former Piper Jaffray & Co. Broker from Industry for Insider Trading

Published on: November 25, 2009 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority is barring a former Piper Jaffray & Co. broker from the securities industry. The broker was accused of insider trading. He has agreed to the ban and has settled the FINRA charges without denying or admitting wrongdoing.

From 2007 until this July, the broker worked in Piper Jaffray & Co.’s investment banking department. Piper Jaffray was the confidential adviser of SoftBrands while the company considered potential buyers. Those at the advisory firm with access to information about the acquision were not allowed to buy SoftBrands shares. Yet on June 4 and 5, this broker bought 27,161 SoftBrands shares. On June 12, when SoftBrands announced its acquisition by Golden Gate Capital and Infor Global Solutions-an $80 million transaction. SoftBrands’s stock price almost doubled.

The shares at issue, previously bought at $.42 and.$.45 per share, were then sold at $.89 per share resulting in a profit of $11,955 on the transactions.

JP Morgan Chase to Pay $75 Million in Penalties and Forfeit $647 Million to Settle SEC Charges Over Alleged Municipal Bond Payment Scam

Published on: November 16, 2009 | by Shepherd Smith Edwards & Kantas, LLP

JP Morgan Chase has settled Securities and Exchange Commission charges that the securities firm was allegedly involved in an illegal payment scam to get municipal securities business from Jefferson County, Alabama. As part of its settlement with the SEC, JP Morgan Chase agreed to pay penalties of $75 million and forfeit $647 million in termination fees that it says the county owes. JP Morgan Securities will also pay Jefferson County $50 million, as well as a $25 million penalty. By agreeing to settle, the securities firm is not admitting to or denying the commission’s charges.

The SEC had accused JP Morgan Securities and former managing directors Douglas MacFaddin and Charles LeCroy of making over $8 million in undisclosed payments to friends of certain Jefferson County commissioners. These friends either worked for or owned broker-dealers in the area. The SEC says that these payments led to the commissioners voting for JP Morgan Securities as its managing underwriter of bond offerings. They also voted for JP Morgan Securities’s affiliated bank as the transactions’ swap provider.

The SEC claims JP Morgan Securities charged Jefferson County higher interest rates on swap transactions. This allowed it to pass on the unlawful payments’ costs. According to Robert Khuzami, SEC Enforcement Director, senior bankers with JP Morgan made illegal payments to earn fees and garner business.

The SEC has filed a civil lawsuit against LeCroy and Macfaddin. The SEC is accusing the two men of committing securities fraud for allegedly directing the illegal payments to the Jefferson County commissioners’ associates.

The commission claims the two men knew that the transactions, which occurred between October 2002 and November 2003, were “sham transactions.” The SEC says the men’s failure to disclose these payments or related “conflicts of interest” to either Jefferson County or bond offering investors or the county in the challenged swap agreements deprived those involved of swap agreement negotiations and bond underwriting processes that were impartial and objective. The SEC is seeking disgorgement plus prejudgment interest and permanent injunctions against the two men.

Related Web Resources:
JPMorgan to Pay $75 Million in Alabama Case, NY Times, November 4, 2009
Read the civil complaint (PDF)

Read the administrative complaint (PDF)
Continue Reading ›

Stifel Financial Corp. Sees 73% 3rd Quarter Earnings Rise and Completes Purchase of 56 UBS Financial Services Inc. Branches

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

Even as Stifel Financial Corp. continues to deal with securities fraud lawsuits and claims accusing the broker-dealer of misrepresenting the risks associated with investing in auction-rate securities, the company exhibited a 73% increase in 3rd quarter earnings due to a growth in transaction revenue.

Its profit posted at $22.1 million, an increase from earlier this year when it’s posted profit was $12.8 million. Net revenue hit $289.7 million-a 32% increase. Principal transaction revenue went up 81%, hitting $123.2 million. Commissions went up to $90.9 million-that’s a 2.5% increase.

Stifel has been working to turn its business into a full-service investment bank and its subsidiary, Stifel, Nicolaus, & Co., recently completed its buy of 56 UBS Financial Services Inc. branches, which it purchased for at least $46 million. Stifel says the deal should increase the company’s earnings within the first year.

Securities America & Ameriprise Financial Inc. Sued For Selling Allegedly Faulty Private Settlements

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

A securities fraud lawsuit filed in federal court is suing Securities America and parent company Ameriprise Financial Inc. for selling allegedly faulty private placement offerings even after W. Thomas Cross, a Securities America executive, expressed concerns that the sales could result in a “panicked run on the bank.” The lawsuit’s plaintiff, Florida resident Ilene Grossbard, invested $112,000 in Medical Capital’s fifth deal in March and April. The complaint may become a class action lawsuit.

According to the complaint, Securities America advisers was still selling Medical Capital securities in the form of notes worth hundreds of millions of dollars in October of last year. Securities America, however, is discounting the claim that the company’ advisers continued selling the Med Cap notes even after Cross voiced his concerns.

Last July, the SEC charged Medical Capital Holdings with securities fraud over the sale of $77 million in private securities as notes. Now, a court receiver is questioning the worth of the medical receivables’ holding company. The company has raised $2.2 billion from investors.

Stifel, Nicolaus & Co. and AXA Advisors Broker Charged in Ponzi Scheme Victimizing Church Members

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

Former Stifel, Nicolaus & Co. and AXA Advisors broker Kenneth Neely has pled guilty to one count of mail fraud for setting up a Ponzi scheme that targeted at least 16 investors. Yesterday, Missouri Secretary of State Robin Carnahan announced that she has shut down the scam.

The 56-year-old St. Peters, Missouri broker got his clients to invest in a bogus St. Charles real estate investment trust. He promised high return rates and “no risk,” raising over $640,000 in investor funds. Federal prosecutors say clients paid about $3,000/share or unit.

At the time Neely was committing securities fraud (from 2001 – July 2009) he worked for broker dealers AXA Advisors and Stifel, Nicolaus & Co. He told clients to make checks payable to him and his wife.

Missouri Securities Law makes it illegal for a broker to “sell away,” which involves selling investments off a firm’s books.

Neely has 30 days to respond to Missouri’s cease-and-desist order. Federal brokers have barred him from working as a broker. Investor victims that lost some $400,000 included people that belonged to his church, friends, relatives, and acquaintances. Some people lost their savings because of the Ponzi scheme. Nealy used some of the money to pay for his personal expenses and debt.

Neely’s sentencing is scheduled for January 2010. He faces up to 20 years in prison, restitution, and up to $250,000 in fines.

Related Web Resources:
Carnahan Uncovers Ponzi Scheme in Saint Charles, SOS.Mo.Gov, November 4, 2009
St. Peters broker admits Ponzi scheme, St. Louis Business Journal, November 4, 2009
FINRA Permanently Bars Former Broker for Stifel, Nicolaus & Co. Inc and AXA Advisors For Ponzi Scheme, Stockbroker Fraud Blog, August 3, 2009 Continue Reading ›

Scottrade Fined $600,000 by FINRA for Inadequate Anti-Money Laundering Program

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

This week, the Financial Industry Regulatory Authority announced that it is fining Scottrade $600,000 for failing to put into place and work with an adequate anti-money laundering program that would have allowed it to identify and report suspect transactions. FINRA says that by failing to meet this requirement, Scottrade violated the Bank Secrecy Act and FINRA rules.

According to FINRA, each broker-dealer must have its own anti-money laundering procedures, policies, and controls that are customized to its business model. FINRA says that between April 2003 and April 2008, Scottrade neglected to implement an AML program that did this. Scottrade’s business model is primarily online.

Scottrade was handling about 49,000 trades daily in 2003. By 2007, the brokerage firm was handling some 150,000 trades a day.

FINRA says that the brokerage firm’s online business model and growing trade volume increased the chances of hacking, identity theft, money laundering, and securities law violations. Yet, according to FINRA Enforcement chief and executive vice president Susan Merrill, Scottrade did not even have an automatic or systematic surveillance system in place until January 2005-and she says the new system proved inadequate. Before then, Scottrade used a manual system for monitoring accounts and relied on cashiering, branch, and margin employees to identify and report possibly suspect activity.

FINRA also says that the brokerage firm’s AML procedures did not provide adequate written guidelines for employees on how to identify when a transaction was suspicious. Its AML analysts also allegedly did not receive sufficient written guidelines on detecting and probing possibly suspect trade activity.

Scottrade is not agreeing to or denying the allegations. However, the brokerage firm has agreed to an entry of FINRA’s findings. A Scottrade spokesperson says enhancements to the broker-dealer’s anti-money laundering program have now been made.

Related Web Resources:
Scottrade Fined $600,000 for Inadequate Anti-Money Laundering Program, FINRA, October 26, 2009
Anti-Money Laundering (AML) Source Tool for Broker-Dealers, SEC
The Bank Secrecy Act, IRS.gov Continue Reading ›