Financial Firms

Citigroup Settles Securities and Exchange Commission Charges Over Accounting Issues Related to Argentine Bonds

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

Without admitting to our denying any wrongdoing, Citigroup has agreed to settle Securities and Exchange Commission charges that it took part in improper accounting related to specific Argentine bonds. According to the SEC, Citigroup was able to avoid paying another $479 million in pre-tax charges during the 4th quarter of 2001.

Citigroup became affected by Argentina’s economic and political problems because the bank owns Argentine government bonds and over $1 billion in Argentine-related consumer loans. Because of the crisis, the South American country’s government had to default on certain sovereign debt obligations and devalue the country’s currency.

Citibank had to make several accounting decisions, including those involving Argentine government bonds that were not eligible for bond swap, government-sponsored exchanges involving bonds for loans, the sale of Banco Bansud S.A. (a bank subsidiary that Citigroup had acquired), and the result of government actions that lead to the conversion of $1 billion in Citigroup loans to Argentine pesos.

SEC Judge Slaps Next Financial Group With $125,000 Fine Over Recruiting Practices

Published on: June 18, 2008 | by Shepherd Smith Edwards & Kantas, LLP

Securities and Exchange Commission Administrative Law Judge James T. Kelly is ordering Next Financial Group Inc. to cease and desist from recruiting practices that violate privacy laws. He also has slapped the company with a $125,000 penalty.

Recruiting practices that need to stop included those involving use of clients’ private information. Next has been known to ask recruits to provide their user id and password so that the firm could enter the computer systems of the recruits’ brokerage firms and collect clients’ non-public personal information.

The SEC had originally requested that the judge impose a $325,000 on Next. Judge Kelly, however, acknowledged that there is general confusion within the securities industry about Regulation S-P, which implements stricter privacy laws under the Gramm-Leach-Bliley Act of 2000. However, even Next’s expert witnesses agreed that using the passwords and user ID’s of recruits in this way is not in line with normal industry practices.

Former JP Morgan Chase and Credit Suisse Banker is Sentenced to 10 Years in Prison for Insider Trading Tip Scam

Published on: June 12, 2008 | by Shepherd Smith Edwards & Kantas, LLP

In the U.S. District Court for the Southern District of New York, former JP Morgan Chase and Credit Suisse investment banker Hafiz Muhammed Zubair Naseem was sentenced to 10 years in prison for his involvement in an insider tip scam.

Prosecutors say that Naseem retrieved insider information from the internal bases of both Credit Suisse and JP Morgan Chase. Confidential information that he pulled from Credit Suisse’s files included data related to possible deals with TXU Corp., John H. Harland Co., Caremark Rx Inc., Hydril Co., Trammell Crow Co., Jacuzzi Brands Inc., Veritas DGC Inc., Energy Partners Ltd., and Northwestern Corp.

Insider information from JP Morgan Chase dealt with possible transactions in Engineered Support Systems, Computer Science Systems, Alliance Data Systems, K2 Inc., Education Management Corp., Aramark Corp., Huntsman Corp., and Northwestern Corp.

Piper Jaffray Accused of Giving Faulty Advice in Two Bond Offerings

Published on: May 27, 2008 | by Shepherd Smith Edwards & Kantas, LLP

Earlier this month, the U.S. Court of Appeals for the Eighth Circuit refused to hear an interloculatory appeal regarding attorney-client privilege related to the lawsuit accusing Piper Jaffray & Co of giving faulty advice in two bond offerings. The lawsuit names Union County, Iowa as the petitioner.

The case involves a soybean crushing plant in Union County. CF Processing, owned by Crestland Cooperative, was supposed to construct the plant. Union County says that Piper Jaffray gave the county advice regarding the issuance of two general capital loan notes-bond offerings worth $5.865 million-related to the construction project.

The mill was going to be assessed for property tax purposes. CF Processing agreed to pay any shortfall so the county could make its necessary debt service payments if the tax revenue generated from the assessment did not cover them. Crestland also gave its guarantee regarding CF Processing’s performance. The two companies, however, defaulted on all their obligations when they filed for bankruptcy in 2001.

GunnAllen Financial Settles FINRA Charges Over the Firm’s Alleged Involvement in Trade Allocations

Published on: May 14, 2008 | by Shepherd Smith Edwards & Kantas, LLP

GunnAllen Financial Inc. has settled Financial Industry Regulatory Authority charges that it was allegedly involved in a trade allocation scheme, in addition to several reporting, anti-money laundering, supervisory, and recordkeeping deficiencies. The trade allocation scheme was allegedly conducted by Alexis J. Rivera, the former head trader at GunnAllen.

FINRA says that in 2002 and 2003 and acting through Rivera, GunnAllen participated in a “cherry picking” scam. Rivera took profitable stock trades and put them into his wife’s personal account instead of GunnAllen customer accounts. Rivera allegedly made over $270,000 in illegal profits.

The ex-trader has been barred from FINRA. The trade allocation scheme violated FINRA rules and the federal securities laws’ anti-fraud provisions. Rivera’s supervisor, Kelley McMahon, has agreed to a six-month suspension from taking part in a principal role with any FINRA-registered company. She has also agreed to a $25,000 fine.

Wachovia Securities LLC Sued For Alleged Fraud Involving the Sale of Le Nature’s Senior Subordinated Notes

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

In Los Angeles Superior Court, a number of life insurance companies, mutual funds, retirement systems, and other investors are suing Wachovia Securities LLC for alleged fraud related to the sale of senior subordinated notes for beverage maker Le Nature’s Inc. The Pennsylvania-based company filed for bankruptcy in 2006.

Causes of action include fraud, negligent misrepresentation, aiding and abetting fraud, and fraudulent inducement. California Public Employees’ Retirement System (CalPERS) and the Nature Conservancy are among the scores of plaintiffs.

The plaintiffs are accusing Wachovia of knowing about the fraud and financial problems at Le Nature’s but keeping this information from investors so that the beverage company would keep paying the firm substantial fees. They say the lack of disclosure also helped Wachovia’s high-yield debt business.

Ex-Southwest Brokers Found Liable for Concealing Market Timing Trades

Published on: April 30, 2008 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. District Court for the Northern District of Texas says that two ex-Southwest Securities Inc. brokers acted fraudulently when they purposely tried to circumvent policies designed to prevent market timing trades. The Securities and Exchange Commission had brought the case against the two men.

The brokers were aleged to have violated Act’s Section 10(b) and Rule 10b-5.

The court also found one culpable under the act’s antifraud provisions and ordered him to disgorge $56,640.67 in commissions. The court also ordered a $50,000 civil penalty and granted the SEC’s request for injunctive relief.

AARP Financial Inc. Survey Says Investors Find Financial Lingo “Technical and Confusing”

Published on: April 28, 2008 | by Shepherd Smith Edwards & Kantas, LLP

An AARP Financial Inc. survey says that many U.S. investors make investment errors and miss out on opportunities to invest because they find financial jargon confusing, technical, and hard to understand. GfK Custom Research North America of New York interviewed 1,203 adults by phone for the survey.

Findings included:

*Over 52% of respondents said they made an investment mistake because they did not understand or were confused about the investment.

Schwab YieldPlus Fund Investors File Securities Class Action Lawsuit Alleging Marketing Misrepresentation in Funds’ Offering Documents

Published on: April 15, 2008 | by Shepherd Smith Edwards & Kantas, LLP

A class action law suit has been filed on behalf of those who bought Schwab YieldPlus Investor Funds Investor Shares and Schwab YieldPlus Funds Select Shares against the Schwab Corporation, the underwriter and investment adviser connected to the funds, and several Schwab officers and directors. However, many smart investors are instead seeking greater recovery by filing their own cases.

The investor plaintiffs in the class action claim the defendants misled them when they provided false statements about the funds’ lack of diversification and the degree to which the funds were exposed to subprime-backed securities. The plaintiffs say that the funds-marketed as a safe alternative to money market funds-actually had more than half of its fund assets invested in the mortgage industry.

The funds are down significantly. Through March 26, The Schwab YieldPlus Investor Fund (SWYPX) has fallen 17% , while the Schwab California Tax-Free YieldPlus Fund (SWYCX) has dropped by 9% . Investors say that the defendants were in violation of Section 11 of the Securities Act of 1933 when they misrepresented the funds to investors, marketing them with the goal of looking for high current income coupled with minimum share price changes.

Wachovia Securities Analyst Comments on Bear Stearns’ Sale and Calls Merrill Lynch the “Riskiest” Investment Bank

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

In a note to investors, Wachovia Securities Analyst Doug Sipkin commented on the state of the leading Wall Street securities firms in light of the worsening global credit crisis.

Sipkin blamed the “The failure of Bear Stearns” on a “management issue” rather than a “market issue.” JP Morgan Chase & Co. recently purchased Bear Stearns, the fifth largest securities company, for $236 million-that’s $2/share-a 90% market drop in just two days. The securities firm ran out of money after clients took away funds.

Sipkin, however, reassured investors that the action taken by the Federal Reserve to reduce emergency lending rates will keep the other four big securities firms in business.