Financial Firms

Securities Cases: More Brokers Identified by SEC in Stock Rigging Case, Former Ameriprise Broker Gets Prison Term for Fraud, and Boeing Settles 401K Case for Almost $57M

Published on: November 4, 2015 | by Shepherd Smith Edwards & Kantas, LLP

SEC Names More Brokers in Penny Stock Rigging Case Filed Last Year
The Securities and Exchange Commission is charging three more people related to a $300M penny stock rigging case that it filed last year. In federal court, the regulator sought to lift the stay in its civil case to submit an amended lawsuit and now also name brokers Ronald Heineman and Michael Morris, as well as lawyer Darren Ofsink.

The SEC says that Morris and Heineman executed the scam through their brokerage firm awhile Ofsink made money illegally by selling unregistered shares even though no exemption for registration was valid. Meantime, the U.S. Attorney’s Office in New York is fling criminal charges against Ofsink ad Morris.

Per the amended SEC complaint, in 2013 Abraxas Discala, Marc Exler, and brokers Craig Josephburg and Matthew Bell were involved in a scam to raise the price of CodeSmart Holdings stock. The men intended to make money at the expense of Josephberg’s customers and Bell’s clients. Heineman and Morris, who own Halcyon Cabot Partners-the firm where Josephberg was employed-allegedly were involved in the securities scam. The two men are accused of secretly consenting to buy shares of CodeSmart at pre-set prices so that Discala could liquidate his positions at prices that were artificially raised. Meantime, Ofsink, who played a part in the execution of the company’s reverse merger into a public shell company, made money by illegally selling securities of CodeSmart that were not registered.

Trading in CodeSmart has been suspended because the company hasn’t submitted periodic reports since late 2014 and due to purportedly suspect market activity.

Former Ameriprise Adviser Gets Prison Term for Defrauding Clients of Over $1M
Former Ameriprise (AMP) adviser Susan Elizabeth Walker wills serve more than seven years behind bars for defrauding at least 24 retirement accounts of over $1.1M. Walker was convicted of tax evasion and mail fraud. She pled guilty last year to the criminal accounts.

Walker offered financial planning services through the firm from October 2008 through March 2013. She also was registered with the Financial Industry Regulatory Authority and was a securities agent under the Minnesota Department of Commerce.
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Securities News: J.P. Morgan Face Restrictions on Raising Clients Funds In the Wake of Improper Product Disclosures to Investments, Intel Sued Over Improperly Investing 401K Funds, and Citigroup, Bank of America, Other Big Banks Get New Bailout Rules

Published on: October 30, 2015 | by Shepherd Smith Edwards & Kantas, LLP

SEC Seeks to Limit JP Morgan’s Ability to Raise Client Money
An Over $200K settlement between J.P. Morgan Chase & Co. (JPM) and regulators has stalled because of efforts by federal regulators to limit the firm’s ability to raise money for clients. The move is an attempt to place a wider variety of consequences on financial firms accused of breaking regulations.

J.P. Morgan had settled allegations accusing it of failing to make proper disclosures when marketing its investment products to clients over the products offered by competitors. Now, the SEC wants the firm to say yes to limits on its ability to sell bonds or stocks through private placements for several years. Such a restriction could hamper its private bank’s efforts to raise funds for hedge funds and other clients through a key channel or sell bonds or stocks privately to rich investors and other sophisticated investors.

While banks are allowed to conduct private placement offerings, firms that violate the rules that these securities are under will lose privilege unless they are given a waiver.

Lawsuit Accuses Intel of Investing 401K Monies Improperly
An ex-Intel Corp. employee is suing company officials for breach of fiduciary duty. According to Christopher M. Sulyma, the company invested defined 401K participants’ retirement funds in high risk, costly private equity funds and hedge funds.

Goldman Consents to Three-Year Bar On Certain Advisory Work, Settles Leak Case with NY Fed for $50M

Published on: October 28, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Goldman Sachs Group Inc. (GS) will pay a $50M fine to the New York Federal Reserve as part of a settlement over document leaks. The firm also consented to be barred from some advisory work in the state for three years. It admits that it did not properly supervise an employee.

The leak involves former Fed employee Rohit Bansal who worked for Goldman. According to a statement from the New York Department of Financial Services, while there he was assigned to work with a midsized bank as his client. He’d regulated the same bank while at the Fed—this was a bank that the Fed had specifically told him he couldn’t work with until early this year.

Bansal, however, held about 20 meetings with Jason Gross, a former co-worker at the Fed, who purportedly gave him about 35 documents with confidential regulatory information. Bansal is accused of using those documents to assist the Goldman client.

After Goldman management found out about the way he had gotten the confidential information, they fired him and started their own probe. (Meantime, sources tell Bloomberg, the Fed also let go of Gross.)

Massachusetts Regulator Says Fidelity Let Unregistered Advisers Trade on Its Broker-Dealer Platform

Published on: October 27, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Commonwealth William Galvin has filed an administrative complaint against Fidelity Brokerage Services. The firm is accused of letting at least 13 unregistered investment advisers trade on its broker-dealer platform, which caused Fidelity and the advisers to earn fees.

This practice, which involved unregistered advisers having their clients turn in trade authorizations to the brokerage firm so that they could access the accounts, purportedly took place for more than ten years beginning in 2005. For example, the state regulator contends that over twenty Fidelity customers paid one unregistered investment adviser $732,000 in fees over ten years in which he made over 12,000 trades in his account and nearly 29,000 trades in client accounts.

Galvin believes that Fidelity knew that this person was acting as an unregistered adviser, even at one point pressing him to register. However, claims the regulator, despite remaining unregistered, the trader was rewarded because of referrals he made to the broker-dealer. Seven Fidelity customers paid him $732,000 as compensation for his services.
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Edward Jones, AXA Advisors, Stifel Nicolaus, and Others to Pay $13M to Retirement Accounts, Charities for Mutual Fund Overcharges

Published on: October 27, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority says that another five firms must pay restitution to specific retirement and charitable accounts for overcharging them for mutual funds. Edward D. Jones will pay $13.5M, Stifel Nicolaus (SF) will pay $2.9M, AXA Advisors will pay $600K, Janney Montgomery Scott will pay $1.2M, and Stephens Inc. will pay $15K.

The announcement comes just a few months after the self-regulatory organization fined five other firms over $30M for similar violations. Those firms were LPL Financial LLC (LPL), Raymond James Financial Services (RJF), Raymond James & Associates, Wells Fargo Advisors Financial Network, LLC (WFC), and Wells Fargo Advisors, LLC. Due to their purported oversight, over 50,000 charitable organizations and retirement accounts ended up paying too much for their mutual fund shares.

Securities News: Deutsche Bank to Pay $2.5M For Swaps Violations, Fifth Street Finance Sued in Class Action Lawsuit, and Countrywide’s $8.5B MBS Settlement Gets IRS Approval

Published on: October 23, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Deutsche Bank Reaches Swaps Violation Settlement with CFTC
The Commodity Futures Trading Commission and Deutsche Bank AG (DB) have reached a settlement over the regulator’s order accusing the firm of not properly reporting its swaps transactions from 1/13 through 7/15. The regulator also said there were supervisory failures and that the bank failed to modify the reporting errors at issue until after it found out that the CFTC was conducting a probe.

According to the regulator, Deutche Bank did not properly report swap transaction cancellations in all asset classes, resulting in somewhere between tens of thousands and hundreds of thousands of reporting errors, violations, and oppositions in its reporting of swaps. CFTC believes that the bank knew about the problem but did not notify its Swap Data Repository in a timely manner, nor did it properly probe, deal with, and modify the information deficiencies until last year when it became aware of the investigation. As a result of the reporting failures, the wrong information was put out to the public.

The CFTC believes that the bank’s reporting failures were partly because of deficiencies in its swaps supervisory system. A more adequate system could have better supervised Deutsche Bank’s activities involving compliance with reporting requirements.

Because the bank is a provisionally registered Swap Dealer, it has to abide by certain recordkeeping, disclosure, and reporting duties related to swap transactions. These requirements are supposed to improve transparency, encourage standardization, and lower systemic risk in swaps trading.

Investors File Class Action Securities Case Against Fifth Street Finance
An investor has filed a class action securities fraud case against Fifth Street Finance Corp. on behalf of shareholders. According to the plaintiff, and for those who bought Fifth Street Finance common shares between 7/7/14 and 2/6/15, the company, Fifth Street Asset Management, Inc., and specific directors and officers violated federal securities laws by allegedly taking part in a fraudulent scam to artificially inflate Fifth Street Finance assets and investment income to raise revenue of Fifth Street Management.

Morgan Stanley, JPMorgan, Barclays and Other Banks To Pay $1.86B to Settle Credit Default Swaps Price Fixing Claims

Published on: October 20, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Details of the settlement involving a dozen big banks accused of conspiring to rig prices and restrict competition in the credit default swaps market have been released. According to papers filed in federal court in Manhattan last week, the following firms will collectively pay nearly $1.9 billion:

· JPMorgan Chase & Co. (JPM): $595M

· Morgan Stanley (MS): $230M

· Barclays Plc (BARC): $178M

· Goldman Sachs (GS): $164M

· Credit Suisse (CS): $159M

· Bank of America Corp. (BAC): $90M

· Deutsche Bank (DB): $120M

· BNP Paribas (BNP): $89M

· Citigroup (C): $60M

· Royal Bank of Scotland (RBS): $33M

· HSBC Holdings Plc (HSBC): $25M

UBS Advisory Firms To Pay Investors $13M For Failure to Disclose Closed-End Fund Strategy Modification

Published on: October 19, 2015 | by Shepherd Smith Edwards & Kantas, LLP

UBS Fund Advisor LLC and UBS Willow Management LLC will pay $17.5M, including $13 million to investors that were hurt to resolve Securities and Exchange Commission charges accusing them of failing to disclose that there was a change in an investment strategy involving closed-end fund UBS Willow Fund LLC. The two UBS (UBS) advisory firms have advised the fund.

The SEC contends that from 2000 through 2008, UBS Willow Management – which was a joint venture between an outside portfolio manager and UBS Fund Advisor – invested the assets of the Willow Fund in line with the strategy discussed in marketing collateral and offering documents. However, according to the regulator’s order that instituted a settled administrative proceeding, in 2008, the fund advisor changed tactics and went from focusing on investments in debt put out by beleaguered companies to buying big amounts of credit default swaps.

The Willow fund started to sustain huge losses because of the credit default swaps, which went from 2.6% of the fund’s market value in ’08 to over 25% by March ’09. The fund was eventually liquidated three years later.

The SEC says that UBS Willow Management failed to notify its board of directors or the fund’s investors that the investment strategy had changed. For a time, a marketing brochure given to prospective investors misstated the strategy of the fund, and letters to investors included misleading or false information about credit default swap exposure.
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Barclays Resolves RMBS Lawsuits for $325M

Published on: October 19, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Barclays (BARC) will pay $325M to resolve two civil cases related to residential mortgage-backed securities sales that took place during the housing boom. The plaintiff of both securities lawsuits is the National Credit Union Administration, which regulates federal credit unions.

A number of credit unions under NCUA’s purview failed after they invested in mortgage-backed securities. The union believes that the banks that underwrote the securities misled buyers.

RMBS are investments that pool the returns and risks of personal mortgages. The quality of these securities came into question several years ago when homeowners began to default on the mortgages backing them. NCUA believes that it is its statutory duty to obtain recoveries for credit unions while making sure that customers are protected.

By settling, Barclays is not admitting fault. According to The New York Times, the bank sponsored and underwrote approximately $35M in mortgage securitizations in the US and sold $19.4B in loans that were originated and sold to third parties by affiliates of an entity that it had acquired. Upon completion of this settlement, NCUA will dismiss pending litigation against Barclays in district court in Kansas and New York.

Ex-Edward Jones Advisor Gets Five Years Behind Bars for Bilking 56-Year-Old Disabled Woman

Published on: October 15, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Jason Wade Cox, a former advisor for Edward Jones, was sentenced to five years in prison after pleading guilty to charges of mail fraud, wire fraud, and money laundering involving the account of a 56-year-old disabled woman. Cox had been managing the account of Jodene Beaver ever since the death of her father three years ago.

Beaver, who has mental and physical impairments, was left a trust by her father, who chose Cox as her financial adviser. Unfortunately, rather than helping Beaver, Cox stole thousands of dollars, taking money from the original account, moving the funds into her checking account, and then spending a lot of the cash on gambling. Not only did Cox spend all of Beaver’s money, but also he recommended that she sell her condominium and transfer to an apartment that had bed bugs.

According to the Internal Revenue Service, Cox got around federal banking rules by taking out from Beaver’s account just under the amount that would have required him to file currency transaction reports. When bank officials asked Beaver about the money she was withdrawing for the financial adviser, she replied that they were business partners but wasn’t sure what kind of business they were involved in. Her bank closed her accounts and notified the police.

In addition to the prison sentence, Cox must serve three years supervised release and pay over $412,000 in restitution.
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