Financial Firms

Voya Financial Advisors, Cetera Advisors, and Six Other Broker-Dealers to Pay $12.5M in Fines and Restitution For Allegedly Not Properly Supervising The Sale of L-Share Variable Annuities

Published on: November 2, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority is fining eight brokerage firms $6.2M for not supervising the sale of L-share variable annuities to customers. Five of the firms must pay another $6.3M to customers because the variable annuities that they were purchased were potentially not compatible with the latter’s investment goals and accounts.

The firms, and their sanctions, include: Voya Financial Advisors Inc., for $2.75M fine, First Allied Securities, Inc., for $950K fine, VSR Financial Services, for $400K fine, Cetera Financial Specialists LLC, for $350K fine, Cetera Advisors Networks LLC, for $750K fine, Summit Brokerage Services, Inc., for $500K fine, Kestra Investments, for $475K fine, and FTB Advisors, for $250K fine. The firms that have to pay restitution are: Voya, for $1.8M, while first Allied, Cetera Advisors Networks, VSR, and Summit Brokerage Services will collectively pay $4.5M. All the firms are settling, but they are not denying or admitting to any of the alleged claims.

At issue was the sale of the L-share annuities, which are “potentially incompatible, complex and expensive long-term minimum-income and withdrawal riders.” L-share annuities are more likely to pay registered representatives and their firms higher compensation than more traditional instruments.

Ex-Oppenheimer Broker Pleads Guilty in Insider Trading Case

Published on: October 25, 2016 | by Shepherd Smith Edwards & Kantas, LLP

David Hobson, an ex-Oppenheimer & Co (OPY) investment adviser, has pleaded guilty to the criminal charges of securities fraud and conspiracy to commit securities fraud. The 47-year-old Rhode Island broker admitted that he engaged in insider trading using information given to him by investment client Michael Maciocio in order to make illegal profits. Maciocio has already pleaded guilty to the charges in the insider trading case against him.

According to Preet Bharara, the United States Attorney for the Southern District of New York, between 5/2008 to 4/2014 Hobson and Maciocio sought to trade on insider information regarding acquisitions that a particular pharmaceutical company was considering. Although Bharara’s release doesn’t name the company, Law360 identified the company as Pfizer Inc. Bharara said that Maciocio, who was master planner in Pfizer’s active pharmaceutical ingredient supply chain group, would find out about the upcoming acquisitions and tip Hobson.

Bharara’s statement said that even though Maciocio was not given access to the acquisitions that the pharmaceutical company was targeting, he would use the code name of the acquisition, the drug indication, the dose, the clinical trial phase, and/or the drug’s chemical structure to find out the name of the company that Pfizer was considering acquiring. Maciocio would trade based on this information and share the information with Hobson. The two men have been friends since childhood.

Deutsche Bank Settles Silver Rigging Allegations for $38M

Published on: October 24, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Deutsche Bank (DB) has agreed to pay $38M to settle a securities lawsuit alleging that it colluded with other banks to manipulate silver prices. According to Reuters, this agreement could compel other banks that have been accused of the same misconduct to settle.

According to the complaint, investors are accusing the German lender, Bank of Nova Scotia (BNS), and HSBC Holdings (HSBC) of fixing silver prices. They purportedly did this during a secret meeting conducted daily known as the Silver Fix. The silver manipulation scam allegedly began in 2009 and the alleged colluders suppressed prices on about $30B of silver financial instruments and silver that were traded annually. As a result of the alleged silver manipulation scam, banks were purportedly able to make returns that could exceed 100 percent annualized.

Investors claim that UBS AG (UBS) exploited the silver rigging. However, U.S. District Judge Valerie Caproni dismissed the Swiss lender from the case. She said that even if UBS profited from the silver manipulation there was no evidence provided to show that the Swiss bank had rigged prices.

Wells Fargo, Deutsche Bank, and Neuberger Berman Grapple with 401K lawsuits

Published on: October 18, 2016 | by Shepherd Smith Edwards & Kantas, LLP

A plaintiff who is a participant in Wells Fargo’s 401(K) plan is suing the bank. The individual claims that the company’s cross-selling scandal has caused its stock price to drop significantly and this has resulted in hundreds of millions of dollars in damages to the retirement plan.

It was just last month that regulators imposed a $185M fine on Wells Fargo for setting up 2.1 million credit card accounts and unauthorized deposits for banking customers so as to satisfy sales quotas. Some employees allegedly set up debit cards for customers without their knowledge, even assigning them PIN numbers.

Although Wells Fargo is settling with the Los Angeles City Attorney, the U.S. Office of the Comptroller of the Currency, and the U.S. Consumer Financial Protection Bureau, it is not denying or admitting to the allegations.

FINRA Actions: Former UBS Broker Is Barred for Overvaluing Customer’s Account by Up to $3M, Ex-Broker Allegedly Stole $400K From Parents, Wells Fargo Adviser is Suspended After Client is Victimized in Phishing Scam, and Former Stifel Broker is Accused of Unauthorized Payments

Published on: October 15, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Ex-UBS Broker is Accused of Inflating Customer’s Account

The Financial Industry Regulatory Authority has barred Jeffrey Hamilton Howell from the broker-dealer industry. The former broker is accused of giving a customer bogus weekly account statements that overvalued an account by up to $3M. The alleged misconduct is said to have occurred between 9/2008 and 11/2014.

According to FINRA, Howell sent the customer over 300 Stock Tracking Reports that misstated the client’s portfolio in amounts ranging from $289K to approximately $3M. He purportedly used his personal e-mail to send the customer some of the fake reports. This left UBS with records and books that were not accurate.

Deutsche Bank Reaches $9.5B Settlement With the SEC For Not Properly Safeguarding Information

Published on: October 12, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Deutsche Bank Securities (DB) will pay a $9.5B penalty to the U.S. Securities and Exchange Commission for not properly safeguarding material nonpublic research information. Even though it is settling, Deutsche Bank is not denying or admitting to the findings.

According to the regulator, Deutsche Bank urged its equity research analysts to communicate often with trading personnel, sales staff, and customers, but it did not have in place the proper procedures and policies to stop analysts from disclosing certain information, such as analyses and views that hadn’t been published yet, estimate changes, trading day squawks, short-term trading recommendations, non-deal road shows, and idea dinners. The SEC’s order also found that the bank had put out a research report that had a “BUY” rating for Big Lots, the discount retailer, but that the rating did not line up with the perspective of the analyst who had prepared and certified it as accurate.

This particular individual, analyst Charles Grom, had told others that the discount retailer should have gotten a downgrade. Grom was eventually charged by the SEC with certifying a stock rating in a manner that was not consistent with his own views. He settled the charges with a suspension from the securities industry and by agreeing to pay a $100K penalty.

RBS Securities Settles MBS Fraud Case With Connecticut for $120M

Published on: October 10, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Royal Bank of Scotland (RBS) subsidiary RBS Securities Inc. will pay the state of Connecticut $120M to settle allegations related to its dealings with mortgage-backed securities leading up to the 2008 financial crisis. According to state officials, RBS played a part in the crisis when it neglected to do the proper due diligence around certain tools for mortgage-backed investments. They accused the subsidiary of unethical and dishonest behavior, as well as of making false statements.

They contend that RBS, which was one of the largest underwriters of residential mortgage-backed securities, did not make sure that the information it offered about RMBS deals was accurate. Connecticut Attorney General George Jepsen said that he and the state’s Department of Banking worked together in investigating this matter.

RBS doesn’t securitize newly originated RMBSs anymore. It was, however, the lead underwriter for approximately 250 residential mortgage-backed securities between ’05 and ’08. Part of its job was to perform the due diligence on mortgage loans used for collateral. However, Connecticut claims that RBS’s due diligence was “inadequate,” causing “omissions and misstatements” to be made to the public and investors. They even contend that in certain instance, RBS rated certain loans that had already been lower rated by third-party vendors with higher-grade ratings.

Securities Cases: Hawaii-Based Investment Adviser is Accused of Cherry-Picking Trades, Broker Ordered to Pay $600K for Elder Financial Fraud, and FINRA Bars Ex-Axa Advisors Broker

Published on: October 6, 2016 | by Shepherd Smith Edwards & Kantas, LLP

SEC Charges Hawaii-Based Investment Adviser for Misleading Clients and Cherry Picking

The U.S. Securities and Exchange Commission has filed civil charges against Oracle Investment Research, which is based in Hawaii, and its owner Laurence I. Balter. The regulator claims that the investment adviser cherry picked trades that were profitable for his own accounts. He is also accused is misleading clients, including senior citizens, about the risks involved in the investments he recommended, as well as about the fees they would be charged.

According to the SEC Enforcement Division, Balter and Oracle Investment Research bought options and equities in an omnibus account but waited to distribute the trades until their execution. Then, he would allegedly move the profitable trades into his accounts and the unprofitable ones to the accounts of clients.

Credit Suisse Settles for $90M Allegations that It Misrepresented Performance Metric

Published on: October 5, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Credit Suisse Group AG (CS) has admitted wrongdoing and will pay a penalty of $90 M to the SEC settle civil claims accusing the firm of misrepresenting how much it brought into its wealth management business.

According to the regulator’s probe, Credit Suisse strayed from its methodology for figuring out NNA (net new assets), which it disclosed to the public. This is the metric that investors value to gauge a financial institution’s success in bringing in new business.

Although disclosures said that the bank was assessing assets individually according to each client’s goals and intentions, Credit Suisse would occasionally employ an undisclosed approach that was “results-driven” to determine NNA to satisfy specific targets that senior management had set. SEC Enforcement Division Director Andrew J. Ceresney said that the bank’s failure to reveal that it was employing a results-driven approach prevented investors from having the chance to properly judge Credit Suisse’ success in drawing in new money.

RBS Will Pay NCUA $1.1B in Mortgage-Backed Securities Probe

Published on: September 28, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Royal Bank of Scotland Group (RBS) will settle two civil residential mortgage-backed securities lawsuits for $1.1B. The payment will go to the National Credit Union Administration (NCUA) and resolves claims accusing the bank of selling faulty MBSs to two corporate credit unions, causing their failure. The federal actions were brought in California and Kansas, respectively. This is one of the largest settlements reached in mortgage-backed securities cases brought against banks.

The allegedly toxic RMBSs were sold to Western Corporate Federal Credit Union and the Central Federal Credit Union. By settling, however, RBS is not admitting fault.

It was just last year that Royal Bank of Scotland agreed to pay $129.6M to NCUA to resolve claims over its sale of mortgage-backed securities to Members United Corporate Federal Credit Union and Southwest Corporate Federal Credit Union. Both are now defunct, too.