Financial Firms

Houston Stockbroker Fraud Law Firm to Represent Stanford Bank Investors Living in Latin America

Published on: February 22, 2009 | by Shepherd Smith Edwards & Kantas, LLP

In the wake of the US Securities and Exchange Commission’s accusations that R. Allen Stanford allegedly operated multibillion-dollar fraud scheme through Stanford Group. Co., Stanford investors in Ecuador, Panama, and Venezuela have been contacting the Stanford International Bank’s affiliates in their countries in an attempt to close their accounts. Stanford has Latin American offices in Mexico, Venezuela, Peru, Ecuador, Colombia, and Panama. Stanford and his cohorts are accused of selling securities worth $8 billion in certificates through a bank in Antigua.

Among the reactions from certain Stanford affiliates and Latin American governments:

Stanford Bank Venezuela SA, a separate bank that is commercially affiliated with Stanford Financial Group. Co, says it possesses enough liquidity to be in compliance with international and local standards. In Panama, the country’s banking authority says Stanford Bank of Panama SA had $41.8 million in capital in January 2009 (The Panamanian government, however, does not insure the deposits). In Bogota, the securities exchange says that stock transactions by the Stanford Financial Group’s brokerage unit In Columbia appeared to operating per usual last week. Unfortunately, however, thousands of Stanford clients in Latin America may be victims of this international, multibillion-dollar scam.

Wachovia Fined More than $4.5 Million by FINRA for Sales Violations Involving Mutual Funds and Trusts

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

Two Wachovia units have agreed to fines totaling over $4.5 million for violations related to the sales of unit investment trusts and mutual funds. The Financial Industry Regulatory Authority announced the fines last week. By agreeing to settle, Wachovia, which is now owned by Wells Fargo Bank, is not admitting to or denying wrongdoing.

Wachovia Securities is being fined $4.4 million for failing to give investors sales-charge discounts for eligible unit-investment-trust-transactions, for not making sure investors were given the benefit of net-asset-value transfer programs whenever they were applicable in mutual fund purchases, and for unsuitability violations involving Class B and Class C mutual fund shares.

FINRA also says Wachovia Securities neglected to provide breakpoint and rollover discounts connected to over 20,000 unit-investment-trust purchases. As a result, customers ended up paying excess sales charges worth about $2.7 million.

When a customer pays a sales charge, NAV transfer programs let clients redeem fund shares and use these proceeds to purchase shares in a different mutual fund without having to pay another sales charge. FINRA cites Wachovia’s failure to ensure that investors availed of these kinds of programs as the reason customers ended up paying front-end charges they shouldn’t have or purchasing share classes that were accompanied by higher fees. Also, Wachovia Securities Financial Network must pay a $150,000 fine for the improper sale of Class B shares. Both firms were cited for inadequate supervisory procedures connected to the transactions.

According to FINRA enforcement chief Susan Merrill, failing to recommend an appropriate share class or present existing discounts creates additional costs to investors. She cautioned that regulated firms should take into account all applicable factors when making recommendations to clients.

Wachovia says that its units have returned over $5.4 million to customers affected by the violations.

Financial Industry Regulatory Authority Continue Reading ›

Multibillion-Dollar Stanford Securities Fraud Scam Has Investors Contacting Houston Stockbroker Fraud Lawyers for Help

Published on: February 19, 2009 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission is charging Robert Allen Stanford and three of his companies for their alleged involvement in a multibillion dollar investment fraud scheme. His companies that are named in the complaint include Stanford International Bank (SIB), Stanford Group Company (SGC), which is a Houston-based investment adviser and broker dealer, and Stanford Capital Management, which is based in Antigua. The SEC is asking for emergency relief for the investors that have been victimized by the alleged scheme.

The SEC complaint, filed in Dallas, Texas accuses Stanford and friends and family that he works with of orchestrating the investor scam. The SEC claims that SIB used SGC financial advisers to sell some $8 billion worth of “certificates of deposit” to investors with the promise they would receive high interest rates that were, in fact, unsubstantiated and improbable. The SEC says the defendants misrepresented these CD’s when they told investors that they were safe.

The SEC complaint also contends that another scam involving $1.2 billion in sales of Stanford Allocation Strategy (SAS), which is a proprietary mutual fund wrap program, involved the use of materially bogus historical performance information that helped SGC to grow the SAS program from under $10 million in 2004 to over $1 billion. In 2007 and 2008 , SGC earned fees of about $25 million as a result. The program’s bogus performance was used to bring in registered investment advisers with substantial books of business. These advisers were then provided with substantial incentives to transfer client assets to SIB’s CD program.

Merrill Lynch, Pierce, Fenner & Smith Inc To Settle SEC Charges of Pension Consulting Business-Related Violations for $1 Million

Published on: February 18, 2009 | by Shepherd Smith Edwards & Kantas, LLP

Merrill Lynch, Pierce, Fenner & Smith Inc has reached a $1 million settlement agreement with the Securities and Exchange Commission over charges that the broker-dealer misled its pension consulting clients by neglecting to disclose conflicts of interest. By agreeing to settle, Merrill Lynch is not denying or admitting wrongdoing. The investment firm will, however, cease and desist from committing future violations.

According to the SEC, Merrill Lynch recommended that clients pay hard dollar fees using directed brokerage. The firm’s investment advisers, however, failed to mention that choosing this option-which would direct trades to be executed through Merrill-could allow the company and its investment adviser representatives to receive substantially higher revenues. The SEC also accused Merrill Lynch of neglecting to reveal a similar conflict of interest when it recommended to clients that they utilize the firm’s transition management desk and of making misleading statements about the firm’s process for identifying new money managers.

SEC charges against Merrill Lynch include anti-fraud provision violations, failure to maintain specific records, and failure to supervise its investment advisers in the Ponte Vedra South office in Florida.

Also cited by the SEC for misleading pension consulting clients about the way Merrill identified new money managers is Jeffrey Swanson. The former Merrill adviser agreed to case and desist from violating the 1940 Investment Advisers Act in the future. By agreeing to the censure, however, Swanson is not admitting to or denying wrongdoing.

The SEC also censured former Merrill Lynch adviser Michael Callaway for breach of fiduciary duty when he made misrepresentations about the manager identification process and his compensation related to transition management services. The SEC says Callaway should have made sure that any conflicts of interest should have been revealed to clients. Both Callaway and Swanson were from the Florida office.

The SEC says that the outcome of this case should remind investment adviser representatives that they must disclose all conflicts of interest when offering advice to clients.

Wachovia and SEC’s Finalized Auction-Rate Securities Settlement Will Provide Over $7 Billion in Liquidity to Investors

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

Wachovia Securities, LLC and the Securities and Exchange Commission have reached a finalized settlement to resolve charges that the company mislead investors when selling billions of dollars worth of auction-rate securities. Under the terms of the agreement, Wachovia would purchase ARS from non-profit organizations, individuals, and clients with accounts worth up to $10 million. This phase ended on November 28, 2008 and Wachovia has bought back over $6.2 billion in ARS from clients as of that date.

During a second buyback phase running from June 10 – 30, 2009, Wachovia will repurchase ARS it sold to its other clients. Fulfillment of the terms of the settlement will give thousands of investors over $7 billion in liquidity.

The terms of Wachovia’s agreement with the SEC are similar to the ones it reached with the North American Securities Administrators Association and New York Attorney General Andrew M Cuomo’s office, which mandated that Wachovia pay a $50 million fine and buy back the ARS it sold to investors. Following completion of this latest settlement’s terms, the SEC will determine whether Wachovia needs to pay a fine. By agreeing to settle, Wachovia is not admitting to or denying wrongdoing.

The SEC, the North American Securities Administrators Association, and Cuomo have alleged that sales representatives purposely misled investors about ARS liquidity in 2008 (even though they knew as early as late 2007 that the ARS market was beginning to collapse) when they claimed the securities were equivalent in liquid to cash. The market fell on February 14, 2008 when Wachovia and other broker-dealers stopped supporting the auctions, causing segments of the ARS market to freeze and leaving thousands of clients without any means of recovering their funds.

Just recently, Cuomo’s office concluded its probe into Wachovia’s ARS activities and issued an Assurance of Discontinuance.

NY State Attorney General Andrew Cuomo’s Office
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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 ›

Merrill Lynch Pierce Fenner & Smith Does Not Have to Halt Redemption of ARS Clients, Says Court

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

In the U.S. District Court for the Southern District of New York, Judge Shira Scheindlin said that TGS- GS-NOPEC Geophysical Co failed to convince the court that the institutional investor would suffer irreparable harm if Merrill Lynch Pierce Fenner & Smith Inc. continues redeeming clients’ ARS under the investment firm’s current procedures. The judge refused to stop the redemptions and said that the geographical exploration company has admitted that any harm caused by an improper redemption procedure can later be remedied.

Following the collapse of the auction-rate securities market, Merrill Lynch devised a redemption plan to help restore some liquidity to investors, whose ARS were now frozen. The scheme allows the investment bank to redeem partial liquidity to its clients. Anytime an issuer declared a partial redemption, Merrill would note a $25,000 share from each client account before giving out the remaining shares through a proportionate lottery.

Since October 2008, GS-NOPEC Geophysical Co held some $64.5 million in ARS accounts with Merrill. The company claims that Merrill’s redemption scheme is not in its favor.

TGS began FINRA arbitration proceedings against Merrill in November. The company wants to repurchase its ARS with interest, recession purchases, or the actual damages of its holdings’ par value. TGS later filed for injunction pending arbitration and asked the court to mandate that Merrill Lynch allocate prior and future partial redemptions solely in proportion to holdings.

The court refused. The judge said that any harm that TGS incurs can be remedied financially, which is what the company is seeking via arbitration.

TGS-NOPEC Geophysical Company v. Merrill Lynch, Pierce, Fenner & Smith, Inc., Federal District Court Filings and Dockets, Justia

Related Web Resources:
TGS-NOPEC Geophysic Continue Reading ›

Merrill Lynch, J.P. Morgan and Others fail to Obtain Dismissal of IPO Case by Houston Judge

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

In Texas, a Houston judge has ruled that a would-be class securities lawsuit filed against JP Morgan Securities, Inc., Merrill Lynch, Pierce, Fenner and Smith and a number of other defendants can move forward. The plaintiffs were investors in Superior Offshore International Inc., a company that collapsed following a failed initial public offering. The four other defendants are former Superior company executives.

In the US District Court for the Southern District of Texas, Judge Nancy Atlas found that the plaintiffs met their burden when pleading material misrepresentations and omissions in Superior’s registration statement. She denied the defendants’ request to dismiss the complaint.

Superior Offshore International Inc. had provided commercial diving services and subsea construction to the natural gas and crude oil industry in the Gulf of Mexico. The company began IPO proceedings of about 10.2 million commercial shares at $15/share in April 2007. Merrill Lynch and JP Morgan acted as the primary underwriters. It was after this that Superior experienced major losses and its price dropped until it reached $1.08/share in April 2008. Soon after, Superior announced that it was shutting down operations.

In their consolidated class action, the plaintiffs claimed that while the registration statement revealed that the Superior board chairperson’s two sons were receiving salaries of $48,000 and $120,000, it failed to note that the two men weren’t doing any significant tasks for their respective incomes. The plaintiffs also questioned Superior’s claims that there was a high demand for its services and that certain hurricane-related projects were expected to continue for a number of years when, in fact, that work had declined significantly. They challenged Superior’s claim that it had multiple customers and maintained that the company had provided materially misleading data about its management team.

The defendants had tried dismissing the complaint by citing a failure to state a claim. They said they could not be held liable for events that transpired after the IPO. While the Texas court said it recognized that Superior’s registration statement included warnings about possible risks that could arise, it determined that the plaintiffs were not questioning the accuracy of the potential risks that were noted. Rather, the court said they were challenging the completeness and accuracy of the information Superior had provided about its current state at the time of the IPO. Continue Reading ›

Merrill Lynch Ends Investor and Employee Class Action Lawsuits with $550 Million Settlement

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

Last month, Merrill Lynch & Co. reached a $550 million settlement with investors and employees over losses related to investments in subprime mortgage-backed assets. A court must approve the proposed settlements.

In the securities class action case, the plaintiffs have accused Merrill Lynch of using statements on collateralized debt obligations and other assets to inflate the market price of its own shares. As a result, the plaintiffs contend, investors lost money.

The Ohio State Teachers Retirement System is the lead plaintiff in the class action lawsuit, which represents investors who bought preferred shares between October 17, 2007 and December 31, 2008. The agreed upon settlement is $475 million in cash.

Plaintiffs of the Employee Retirement Income Security Act class action have agreed to settle for $75 million in cash. Participants in the ERISA lawsuit are Merrill Lynch employees with Merrill Lynch stock in specific retirement plans. The plaintiffs have accused Merrill of failing to adequately reveal subprime-related losses that impacted its retirement accumulation plan, its savings and investment plan, and its employee stock ownership plan.

By agreeing to settle, Merrill Lynch says it is not admitting to any wrongdoing.

Fallout from the Subprime Mortgage Crisis
The subprime mortgage crisis has resulted in millions of dollars in losses for investors. If you believe that you were a victim of investor fraud or broker dealer misrepresentation and that these inappropriate actions caused you to sustain investor losses, you may be entitled to the recovery of those losses.

Related Web Resources:
Ohio announces $475M Merrill Lynch settlement, Forbes.com, January 16, 2009 Continue Reading ›

Wachovia Corp Sued by Carolinas Health Care System for More than $19 Million in “Bad” Investments

Published on: January 19, 2009 | by Shepherd Smith Edwards & Kantas, LLP

Carolinas Healthcare System (CHS) is suing Wachovia Corp for alleged bad investments that resulted in losses valued at over $19 million. CHS is also accusing the bank of “directly misleading” it, misrepresenting the risks associated with the investments, and failing to follow the hospital system’s orders that it be withdrawn from the securities-lending program. Wachovia spokesperson Mary Eshet says that the company disagrees about the allegations, was always in compliance, and only made appropriate investments for CHS.

In 2003, according to the investment fraud lawsuit, Wachovia recommended that CHS take part in a securities-lending program. As a participant, a third party would borrow securities from CHS’s portfolio in return for collateral that would be invested by Wachovia until the securities were returned. This would also hopefully result in additional returns.

Per the agreement, Wachovia was only supposed to invest in safe, liquid, quality securities. Any time CHS opted to withdraw from the program, the hospital system was supposed to get all of its investments back within five business days. Also, Wachovia would be allowed to keep 40% of the profits on one account and 35% on the other account.

Last summer, CHS determined that the securities-lending program was proving too risky, especially with the markets collapsing. In September, CHS notified Wachovia to return all borrowed securities right away.

Wachovia couldn’t return all of the securities immediately. Wachovia had invested for CHS $14.9 million in Sigma Finance Corp-issued floating rate notes (now worth $750,000) and $5 million in Pricoa Global Funding floating-rate notes (now worth $4.95 million).

The lawsuit contends that Wachovia never notified Carolinas HealthCare System that the investments were not appropriate until CHS decided to end its participation in the securities-leading program. 5 days after Sigma went into receivership last October, Wachovia told the hospital system for the first time that its investment was, at that time, worth just $1.8 million. CHS says there is now no market for the Pricoa-related securities.

CHS contends that Wachovia gained 40% of the profits but did not suffer any of the losses. The hospital system is solely responsible for returning the lost collateral to its borrowers.

CHS files suit vs. Wachovia over losses on investments, Charlotte Business Journal, January 9, 2009

Related Web Resources:
Carolinas HealthCare System

Wachovia Corp
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