Financial Firms

A.G. Edwards & Sons Stockbrokers Ordered to Pay $750,000 Fine for Market-Timing Scam

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

Three A.G. Edwards & Sons Inc. brokers are being ordered to pay $750,000 in fines for their participation in a market-timing scam that involved mutual funds that benefited certain customers.

The brokers, Thomas Bridge, James Edge, and Jeffrey Robles, were also ordered to serve suspensions from the securities industries. Bridge, a former registered representative in the firm’s Boca Raton, Florida office, must also disgorge $39,808.53. Edge was the branch manager at the same office. Robles worked as a branch manager at Edwards’ Back Bay office.

Securities and Exchange Commission Chief Administrative Law Judge Brenda Murray ordered the sanctions. The market-timing scam occurred from the Edwards’ branch offices in Lake Worth, Boca Raton, and Boston.

Countrywide Financial, Merrill Lynch, and Citigroup Executives Defend Their Hefty Compensations Following Subprime Mortgage Crisis

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

Appearing before the U.S. Congress last week, Countrywide Financial CEO and founder Angelo Mozilo, Ex-Citigroup CEO Charles Prince, and Ex-Merrill Lynch Chairman and CEO Stanley O’Neil gave their testimonies to the House Committee on Government and Oversight Reform.

The three men say that reports about their compensation are “grossly exaggerated” and that they too have lost millions of dollars from the mortgage debacle. On Thursday, the Congressional issued a report stating that the three men earned $460 million between 2002 and 2006.

All three men say their income from the firms are tied to the profits that the companies made in the years prior to the mortgage crisis and that their company stock has dropped dramatically since then.

Fidelity To Pay $8 Million Fine To Settle SEC Charges Regarding Traders’ Improper Gift Taking

Published on: March 6, 2008 | by Shepherd Smith Edwards & Kantas, LLP

Fidelity Investments has agreed to pay an $8 million fine to settle Securities and Exchange Commission charges that the company failed to properly supervise its stock traders that had improperly received gifts. 13 current and ex-Fidelity employees are targeted in the SEC investigation.

The gifts were given to traders by outside brokers who were soliciting Fidelity’s business. Fidelity has had a policy that prohibits employees from engaging in business transactions influenced by gifts received. Employees are also not allowed to receive gifts valued at more $100 over a one-year period.

The SEC alleges that accepting the gifts affected the Fidelity traders’ ability to obtain the best stock trades for Fidelity’s mutual fund customers.

Oppenheimer & Co. Agrees to Settle FINRA Market Timing Charges for $4.5 Million

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

Oppenheimer & Co. has settled Financial Industry Regulatory Association charges regarding the market timing of mutual funds. The company has agreed to pay $4.25 million as restitution to five dozen mutual fund companies, as well as a $250,000 fine.

FINRA says that Oppenheimer failed to stop five traders’ engagement in improper, short-term mutual fund trading. The self-regulatory organization noted Oppenheimer’s failure to set up, manage, and enforce systems of supervision to detect and prevent market timing activities.

As a result, FINRA says that Oppenheimer disregarded hundreds of warnings and requests from mutual funds and life insurance companies that they stop making the improper trades. Some 65 mutual funds even warned Oppenheimer that short-term trades were not in the best interests of long-term shareholders.

Questar Executive Fired For Failure to Disclose Private Securities Transactions

Published on: February 26, 2008 | by Shepherd Smith Edwards & Kantas, LLP

Questar Capital Corp. has fired Jason Kavanaugh, its senior vice president of mergers and acquisitions, because he failed to disclose outside business activities and private securities transactions.

Kavanaugh recently came under fire when it was discovered that he paid E-M Management Co. LLC $57,000 for fake, unregistered securities. Kavanaugh also set up JASTAR, LLC, which acted as the official subscriber to the deals.

E-M Management Co. LLC, which is owned by Edward May. The Securities and Exchange Commission has charged May with masterminding an investment scam involving fake Las Vegas casino and resort telecommunications contracts. Some 1200 investors became victims of May’s $250 million scam.

Ex-Credit Suisse Investment Banker Appeals Insider Trading Charges Conviction

Published on: February 24, 2008 | by Shepherd Smith Edwards & Kantas, LLP

Former Credit Suisse Securities USA LLC investment banker Hafiz Naseem says he will appeal his conviction for insider trading charges, which include 1 count of conspiracy and 28 counts of securities fraud involving stolen nonpublic data allegedly used for insider trading that generated at least $7.5 million. He faces a maximum 5-year prison sentence and fines two times the gross loss or gain of the violation.

The Justice Department says that the ex-Credit Suisse Securities investment banker told Ajaz Rahim, a Pakistan resident and the former head of Faysal Bank, about nine upcoming merger and acquisition deals from April 2006 to February 2007 including:

– Apollo Management LP’s Jacuzzi Brands acquisition – NorthWestern Corp.’s acquisition by Babcock & Brown Infrastructure – Veritas DGC Inc.’s acquisition by Compagnie Generale de Geophysique SA

Goldman Sachs, Merrill Lynch, Lehman Brothers, and Other Investment Firms Deal with Frozen Auction-Rate Securities

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

This week, Goldman Sachs told a number of investors that they could not withdraw money from their auction-rate securities investments. This move by Goldman came as a shock to investors-but the firm was not alone. Merrill Lynch, Lehman Brothers, and other banks have also found themselves notifying their investors that the market for these types of securities are frozen-along with their money. Just this week, there were nearly 1,000 failed auctions. The banks are now refusing to support the auctions and many investors are not sure when they’ll recover their investments.

Usually, auction-rate securities are considered safe alternatives to cash-and banks frequently recommend these bonds, considered long-term securities-to rich individuals and corporations. Banks regularly hold auctions to establish the interest rates and give holders an opportunity to sell their securities.

Auction-Rate Securities

Goldman Sachs Settles Enron Fraud Lawsuit with University of California for $11.5 Million

Published on: February 13, 2008 | by Shepherd Smith Edwards & Kantas, LLP

Goldman Sachs & Co. says it will settle a class action suit filed by the University of California (UC) over the purchase of Enron Corp. securities for $11.5 million. The University of California Board of Regents has approved the terms of the settlement.

Goldman allegedly marketed Enron 7% exchangeable notes via a registration statement that was false and misleading-this is a violation of the 1933 Securities Act.

UC says that it has so far received over $7.4 billion in settlements for Enron investors, including:

Pondering the SEC’s Role in the Subprime Mortgage Crisis

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

What was the role of the Securities and Exchange Commission in the collapse of the subprime mortgage bubble? Although mortgage brokers, investment banks, and ratings agencies are frequently held responsible for the demise, little is said about the roles of the Financial Industry Regulatory Industry (FINRA) and the SEC-both watchdog agencies that are responsible for monitoring complex credit derivatives and their suitability requirements for investors.

Yet where was the SEC when it was time to oversee investment banks and determine whether they had sufficient capital for their balance sheets, trading positions, and the appropriate risk management systems so that major losses could be avoided?

One notable problem is that there is not enough clear data available about the credit derivatives market. Structured finance products, including collateralized debt obligations (CDOs) are traded over-the-counter in the United States. This means that price information for these products is not easily accessible.

Banc One Securities Will Settle FINRA “Unsuitable” Deferred Variable Annuities Charges for $225,000

Published on: February 7, 2008 | by Shepherd Smith Edwards & Kantas, LLP

Banc One Securities Corp. (BOSC) says it will pay $225,000 to settle Financial Industry Regulatory Authority (FINRA) charges that it made “unsuitable” sales of deferred variable annuities to 23 clients-21 of them elderly customers over 70 years of age.

FINRA says that BOSC representatives told clients that they should exchange their fixed annuities for variable annuities, which all 23 clients did. The SRO says that the clients then placed 100% of their assets into the variable annuity’s fixed-rate fixture. The payment was 3% maximum.

FINRA says that considering each client’s age, financial situation, investment goals, and income needs, the recommendations were inappropriate. FINRA says that BOSC should have properly supervised these transactions and that oversight procedures and policies failed to require that supervisors look at and assess certain information.