Financial Firms

UBS and Citigroup to Pay Nearly $30 Billion to Tens of Thousands of ARS Investors

Published on: December 22, 2008 | by Shepherd Smith Edwards & Kantas, LLP

UBS Financial Services, Inc., UBS Securities, LLC, and Citigroup have reached finalized settlements with the Securities and Exchange Commission to pay tens of thousands of ARS investors almost $30 billion. The settlements will resolve SEC charges that the companies misled investors about the risks involved with auction rate securities.

The SEC’s complaint accused UBS and Citigroup of misleading customers by telling them ARS were liquid, safe investments and failing to warn them of the growing dangers when the market started to fail. When the ARS market froze in February, the SEC says both firms left tens of thousands of clients holding billions of dollars in illiquid ARS.

These finalized settlements will restore about $22.7 billion in liquidity to UBS clients who invested in ARS and some $7 billion to Citigroup investors. SEC Chairman Christopher Cox says investors will get back “100 cents on the dollar on their ARS investments.” Both firms will buy ARS from affected customers at PAR. Customers that sold their ARS under the par difference will be paid between par and the ARS sale price. This is the largest settlement in SEC history.

UBS and Citigroup are not admitting to or denying the SEC’s allegations by agreeing to settle. Both investment firms, however, have agreed to enjoinment from future violations.

The U.S. District Court for the Southern District of New York still needs to approve the settlements, and additional SEC penalties could still arise for UBS and Citi. The SEC is also waiting to finalize the settlements-in-principle it reached with Merrill Lynch, Bank of America, Wachovia, and RBC Capital Markets.

Related Web Resources:
SEC Finalizes ARS Settlements With Citigroup And UBS, Providing Nearly $30 Billion in Liquidity to Investors, SEC, December 11, 2008
SEC Complaint Against UBS (PDF)

SEC Complaint Against Citigroup (PDF)
Continue Reading ›

Senior Investor’s Claim Against Wells Fargo is Remanded on Fraud in Execution by California Court of Appeal

Published on: December 19, 2008 | by Shepherd Smith Edwards & Kantas, LLP

The California Court of Appeal has remanded a lawsuit filed by an elderly woman accusing Wells Fargo of defrauding her and her husband. The case now goes back to the Los Angeles Superior Court, where a judge must determine whether Wells Fargo engaged in fraud when its employees executed its agreement with the couple.

Los Angeles Superior Court Judge Shook had previously concluded that the arbitration clause in the brokerage agreement between Ronnie and Ira Brown and Wells Fargo Bank, NA was unconscionable. However, he had decided that it was up to a jury to decide whether constructive fraud occurred. If Shook now decides that Wells Fargo did engage in the alleged fraud, the arbitration clause and any other portion of the agreement could then be determined unenforceable.

Sometime between 2003 and 2004, Wells Fargo assigned company vice president and trust administrator Lisa Jill Tepper to serve as Ira and Ronnie Brown’s “relationship manager.” Ira Brown, who was 93 at the time and suffering from health issues (he has passed away since), founded the Save-On Drug chain. His wife, Ira, was 81.

Tepper, who is now a defendant in this case, visited the Browns regularly to assist with their financial paperwork. She eventually began providing the couple with investment advice. At one point, she recommended that they open a Wells Fargo brokerage account because she believed that their other investments were inappropriate due to their advanced age. Through Tepper, the couple began working with Wells Fargo stockbroker Jack Harold Keleshian, who is now also a defendant in the case.

With Tepper and Keleshian’s help, the couple opened up a number of investment accounts, including a “Brown Family Trust.” An arbitration clause was included among the documents.

In 2006, Ronnie sued Wells Fargo. She claimed that when she was under duress while caring for her ailing husband, the bank pressured her into selling nearly 75,000 stock shares at $24.71. She says Keleshian told her that if she didn’t sell, the stock’s value would drop dramatically.

Instead, the stocks increased in value while Ronnie experienced an increase in capital gains taxes. Ronnie claims her damages were over $1 million (including Wells Fargo’s commission from the stock sale). Wells Fargo wants to resolve the dispute through arbitration.

Related Web Resources:

C.A. Orders Hearing on Claim Bank Defrauded Drug Chain Founder, MetNews.com, November 26, 2008
Brown v. Wells Fargo Bank N.A., Cal. Ct. App., No. B196258 (PDF)
Continue Reading ›

Former NEXT Financial Group Stockbroker’s Claim that He Was Fired for Refusing to Conceal Churning is Subject to Arbitration

Published on: December 16, 2008 | by Shepherd Smith Edwards & Kantas, LLP

The Texas Supreme Court says that former NEXT Financial Group Inc. stockbroker Michael Clements’s claim that the brokerage firm fired him for refusing to cover up churning activity must be arbitrated. Clements was hired as a NEXT Financial regional supervisor in September 2006. Nearly a year later, the brokerage firm fired him because he allegedly failed to perform his required broker responsibilities related to an NASD audit.

Clements filed a lawsuit against the company, claiming he was terminated from his job because he refused to conceal the fact that a NEXT trader had violated federal securities laws by churning client accounts. NEXT pushed for arbitration, claiming that Clements had signed a Form U-4 when he was hired, which requires that he resolve any claims with the brokerage firm through arbitration-per the Federal Arbitration Act.

Clements has maintained that because his claim was based on at-will employment and wrongful termination, rather than a contract connected to a commercial transaction, his claim is exempt from the FAA’s arbitration requirement. He also asserted that his claim resulted from NEXT’s alleged illegal behavior, not its business dealings, and that a recent change in NASD code (following the National Association of Securities Dealers’s merger with the Financial Industry Regulatory Authority) indicated an intent to exclude disagreements involving employment matters from arbitration. Clements noted Sabine Pilot Services v. Hauck, (1 687 S.W.2d 733, 1985), a case where the Texas Supreme Court held that an employer had to pay an ex-employee damages because the worker was fired for refusing to perform an illegal act.

The Texas Supreme Court, however, upheld that the FAA was applicable in this case, NEXT could compel arbitration, and the NASD rule 13200 (a) did not exclude employment and termination-related claims. The court’s decision reverses the trial court’s ruling, which denied NEXT’s request, as did the court of appeals.

Related Web Resources:

Next Financial Group Inc.
Continue Reading ›

Do Broker-Dealers Hire Brokers Already Suspected of Securities Fraud?

Published on: December 11, 2008 | by Shepherd Smith Edwards & Kantas, LLP

Even though regulators are calling on broker-dealers to employ stricter hiring standards when it comes to screening brokers who have already gotten in trouble for alleged broker misconduct, many firms continue to hire these suspect workers. It doesn’t help that broker-dealers have a tendency to not reveal key details when a registered representative leaves the company under suspect circumstances in order limit the firm’s liability from potential investor lawsuits and arbitration claims.

For example, in 2003, Jeffrey Southard was working for American Express Financial Advisers (now Ameriprise Financial Inc.) when he was accused of selling unregistered securities and combining client funds with his own money. At the time, Southard accused American Express Financial Advisors of falsely accusing him of misdeeds and acting unprofessionally by violating his personal confidentiality. He left the firm to join Gunn-Allen Financial Inc. In July 2008, GunnAllen fired him.

Last month, the New Jersey Bureau of Securities accused the former GunnAllen broker of stealing $1.3 million from 16 senior investors. The state regulators also barred Southard from the securities business and ordered him to pay $50,000 in restitution.

The New Jersey regulators say American Express Financial Advisors failed to properly disclose to clients the problems that could have arisen from working with Southard. The regulators’ order also accuses Southard of misleading his clients. Many of them switched to GunAllen when he left American Express Financial Advisors after he told them that he was leaving was to pursue better opportunities. The New Jersey regulators say that while working with GunnAllen, Southard continued to engage in broker misconduct by selling fake bonds as tax-free investments.

Opinions among industry members are mixed about whether broker-dealers are doing enough to weed out broker candidates with already questionable performance records.

Related Web Resources:

Busted brokers continue bilking clients at new firms, Investment News, December 7, 2008
Ex-GunnAllen broker bilked $1.3M from seniors, Investment News,
Continue Reading ›

Stockbroker Fraud Law Firm Shepherd Smith Edwards & Kantas LTD LLP Investigate Securities Fraud Claims Involving Former World Group Securities Representatives David Olson and Edward Allen

Published on: December 9, 2008 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority says that former World Group Securities representative David Olson was named in a customer complaint filed in October 2008. The customer claims Olson persuaded him to buy real estate, which was leased back to the representative. The customer alleges that Olson agreed to pay the customer mortgage payments plus interest.

The customer says Olson defaulted on their deal and stopped making payments. The customer is also accusing the representative of soliciting three promissory notes for purchase and earmarking proceeds to buy other real estate properties.

It is considered improper for a FINRA registered representative to issue promissory notes, borrow money from clients, or engage in undisclosed, outside business.

Shepherd Smith and Edwards is investigating securities fraud claims involving David Olson and business partner Edward Allen, as well as their business entities WFG and A&O Companies. Allen also used to work for World Group Securities.

World Group Securities
World Group Securities brokers have been in the headlines recently following news that the US Securities and Exchange Commission was suing five of them due to allegations that they persuaded investors to use subprime mortgages to refinance their homes. The brokers allegedly were compensated for securities sales and mortgage refinancings.

Related Web Resources:

Shepherd Smith Edwards & Kantas LTD LLP Investigates Claims for Clients of David Olson, Edward Allen and World Group Securities, Inc., Marketwatch.com, December 3, 2008
Securities and Exchange Commission Sues Five World Group Securities Brokers For Persuading Clients to Refinance Homes With Subprime Mortgages, Stokbroker Fraud Blog, October 16, 2008 Continue Reading ›

Merrill Lynch NY Branch Manager is No Longer with the Firm

Published on: December 5, 2008 | by Shepherd Smith Edwards & Kantas, LLP

Merrill Lynch & Co. is confirming that Branch Manager Joseph Mattia no longer works for the investment firm’s global wealth-management group. Mattia supervised 200 financial advisors in Merrill Lynch’s 5th Avenue office.

A spokesperson for Merrill Lynch refused to provide details. CNN reports that Mattia left the firm. Investment News, however, says that Mattia was escorted from the building on Monday. Industry insiders say there are a number reasons why a branch manager might be let go. Personnel problems and compliance issues are just two reasons.

Also on Monday, Merrill Lynch severed ties with Rosalie H. Fields, an adviser who also worked at the New York branch. Fields was one of 900 female brokers that filed a class action lawsuit against Merrill Lynch accusing the firm of gender discrimination. A settlement was reached with almost all of the plaintiffs.

Meantime, Bank of America, Corp. is still expected to acquire Merrill Lynch during the first quarter. Merrill Lynch is one of the bigger investment firms that took huge financial hits because of the credit crunch. Today, several hundred people showed up at a meeting at Merrill Lynch’s New York offices to vote on the merger between Bank of America and Merrill Lynch.

Bank of America shareholders also got together today to ratify the $50 billion acquisition. Because of Bank of America’s falling share price, however, the value of the deal has dropped by $30.3 billion since September and is now worth $19.7 billion. Continue Reading ›

Securities Fraud Class Action Lawsuit Against Hartford Financial Services Group Inc. is Reinstated in Appeals Court

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

This month, the U.S. Court of Appeals for the Second Circuit issued a decision granting class action plaintiffs another opportunity to make their securities fraud claims against Hartford Financial Services Group Inc. The district court had previously dismissed the class action lawsuit as untimely under the 1934 Securities Exchange Act.

That court had found that based on all media reports, regulatory filings, and information about several lawsuits available, the plaintiffs could have and should have filed their securities fraud lawsuit before the two-year statute of limitations had run out on July 25, 2001. Instead, the plaintiffs filed their complaint more than one year after the deadline had passed.

The securities fraud lawsuit, filed by Steve Staehr and a number of other plaintiffs who had acquired Hartford stock between August 6, 2003 and October 13, 2004, accuses the life and property/casualty insurer of acting fraudulently by concealing price manipulation and kickbacks involving insurers and commercial brokers. The plaintiffs also claim that because of the firm’s misrepresentations, omissions, and fraudulent concealments, they acquired Hartford stocks at artificially inflated prices. They filed their lawsuit soon after then-New York Attorney General Eliot Spitzer filed a lawsuit against Marsh, Inc., a Hartford broker.

Second Circuit Judge Colleen McMahon reversed the district court’s decision saying the information the plaintiffs had was not enough to place them on notice by July 2001 that Hartford was likely going to be investigated for “contingent” commissions. The appeals court also noted that Spitzer’s lawsuit connected Hartford to Marsh’s activities and that in 2003, Hartford revealed it paid brokers $145 million in kickbacks.

Related Web Resources:

Securities Fraud Class Action Lawsuit Against Hartford Financial Services Group Inc. is Reinstated in Appeals Court, Reuters, November 17, 2008
N.Y. Attorney General Spitzer Sues Marsh Over Contingent Commissions, Insurance Journal, October 25, 2004 Continue Reading ›

Massachusetts Top Securities Regulator Charges Oppenheimer & Co with Unethical Conduct and Fraud

Published on: November 20, 2008 | by Shepherd Smith Edwards & Kantas, LLP

Massachusetts Secretary of State William Galvin is charging Oppenheimer & Co. with unethical conduct and fraud. The state’s top securities regulator is accusing the investment bank of continuing to market and sell auction rate securities to clients even as Oppenheimer executives were getting rid of their own ARS holdings, worth $3 million, before the collapse.

Galvin says that Oppenheimer Chairman and Chief Executive Albert Lowenthal and other firm executives kept clients and other firm employees “in the dark” about the collapsing ARS market. His office is seeking to revoke Lowenthal’s broker-dealer registration in Massachusetts because he says that the CEO and other Oppenheimer executives “betrayed” their clients’ trust. This is the first time that a state regulator has charged one of the smaller brokers for its alleged involvement in the sale of auction-rate securities while the market was failing.

Galvin says that Oppenheimer clients in Massachusetts are unable to access some $56 million because their ARS investments have been frozen since February. Also named in Galvin’s complaint are ARS Managing Director Greg White and Senior Managing Director Robert Lowenthal.

Oppenheimer and its firm executives are denying Galvin’s allegations. On Tuesday, the investment bank issued a statement claiming that its employees had no knowledge of the kinds of actions that their larger firm counterparts engaged in that contributed to the ARS market collapse. The investment bank also maintains that its executives personally bought and sold ARS during the period noted in Galvin’s complaint, and they continue to hold a number of these securities.

Oppenheimer says it is working with financing sources and regulators to help investors cash out of their ARS.

Related Web Resources:

Massachusetts sues Oppenheimer & Co over ARS sales, Reuters, November 18, 2008
Galvin blasts Oppenheimer & Co. over auction-rate securities, Boston Herald, November 18, 2008

Related Web Resources:

View the Exhibits (PDF)

Oppenheimer & Co.
Continue Reading ›

NASAA Says Investors with Frozen Auction-Rate Securities Should Ask Investment Firms About Buyback Opportunities

Published on: November 19, 2008 | by Shepherd Smith Edwards & Kantas, LLP

The North American Securities Administrators Association is reminding investors to ask the investment firms that sold them any now-frozen auction-rate securities about repurchase opportunities. Following the ARS market collapse, securities regulators in 12 US states joined together to form a multi-state Task Force dedicated to finding out whether Wall Street investment firms had misled investors when persuading them to invest in the ARS market.

As part of their settlement agreements reached with the firms in question, 11 major Wall Street investment banks have said they will buy back over $51 billion in ARS from charities, retail investors, and small companies. However, these repurchase offers may not be available indefinitely.

NASAA President Fred Joseph says the best way to avail of any redemption offers is to contact the investment firms as soon as possible. So far, 11 firms have agreed in principle to buy back over $50 billion in ARS. NASAA says additional repurchase opportunities are expected to become available in the coming months.

Investment Firms with ARS Hotlines:

Bank of America 1-866-638-4183 Deutsche Bank 1-866-926-1437 Citi 1-866-720-4802 JP Morgan 1-866-450-8470 Goldman Sachs 1-888-350-2857 Merrill Lynch 1-888-706-1381 UBS 1-800-253-1974 Morgan Stanley 1-800-566-2273 Wachovia 1-866-283-794
Meantime, more investigations are under way into the sales practices of US firms that marketed and sold auction-rate securities to investors. Unfortunately, many investors who were told ARS were liquid investments are now dealing with frozen securities and cannot access their funds.

If you invested in the auction-rate securities industry and your ARS became frozen during the market’s collapse, you may be the victim of securities fraud.

Related Web Resources:
Small firms caught in ARS buyback vise, November 16, 2008 Continue Reading ›

Citigroup Global Markets Ordered to Pay FINRA Fine for Inadequate Supervision

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

The Financial Industry Regulatory Authority Inc. says it is fining Citigroup Global Markets Inc. $300,000 for its failure to reasonably supervise the commissions that clients were charged for stock and options trades. Citigroup Global Markets is Citigroup Inc’s brokerage and securities arm.

FINRA says that between April 2002 and January 2006, then-Citigroup representative Juan Carlos Hernandez charged 27 clients unreasonable commissions that substantially exceeded the firm’s calculated rate for appropriate charges. One client was reportedly overcharged about $1.2 million.

Citigroup let Hernandez go in February 2006 and one month later, without admitting to or denying FINRA charges, he consented to the findings made against him and was barred by FINRA.

FINRA contends that Hernandez was able to overcharge clients because Citigroup neglected to properly supervise him. FINRA also found that it wasn’t until October 2007 that Citigroup told its brokers about its calculated commission rates or that they weren’t allowed to charge commissions higher than these rates. In the cases when commissions were greater than Citigroup’s calculated rates, FINRA says the firm lacked the proper procedures and policies for determining whether a commission was inappropriate.

By agreeing to settle, Citigroup is consenting to FINRA’s findings but is not admitting or denying the charges. The firm offered to reimburse customers who were affected.