Financial Firms

OppenheimerFunds Says Puerto Rico Can Repay Its $72B Debt

Published on: July 16, 2015 | by Shepherd Smith Edwards & Kantas, LLP

OppenheimerFunds Inc. (OPY) is disputing Puerto Rico Governor Alejandro García Padilla’s contention that the island cannot pay back its $72 billion debt. The New York-based mutual fund company said that based on data about income growth, sales-tax collection, and unemployment, the U.S. territory’s economy can withstand repaying creditors.

According to Bloomberg data, as of July 9, OppenheimerFunds, which is the largest holder of Puerto Rico municipal bonds, had about $4.4 billion of uninsured obligations from the island. Aside from insured debt, re-refunded securities, and tobacco bonds, these obligations make up 13.8% of Oppenheimer’s municipal fund holdings.

As Puerto Rico bonds continue to lose value-data shows that this year alone Puerto Rico bonds suffered a 9.5% loss-OppenheimerFunds’ municipal funds also have suffered. Bloomberg reports that for 2015,the company’s state funds in Arizona, Virginia, Maryland, New Jersey, and North Carolina, which all hold Puerto Rico securities, sustained the largest losses among single-state, open-end muni funds.

When García Padilla asked for wide-ranging restructuring of the territory’s debt last month, OppenheimerFunds said it would defend the terms of the bonds it holds. The firm does not believe the territory’s fiscal health will get better even if some of Puerto Rico’s agencies file for bankruptcy protection.
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LPL Financial Fined $250K by Massachusetts Over Misrepresentations Made to Senior Investors

Published on: July 14, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Massachusetts Secretary of the Commonwealth William Galvin has fined LPL Financial (LPLA) $250K to resolve charges that its representatives misrepresented their qualifications when working with older investors. The state’s regulator claims that the brokerage firm approved having brokers use senior-specific titles on their business cards. The titles were not in compliance with the state’s regulations regarding senior designations.

After Galvin’s office discovered one such incident, LPL conducted an internal probe and discovered that at least 10 brokers may have been using titles that were not in compliance with the state’s Senior Designations Regulations. The regulator said that the firm had even approved the title on one broker’s business card more than once.

Galvin contends that since June 2007, LPL failed to establish or enforce a procedure allowing it to look at senior-specific titles to make sure they complied. He noted the importance of not using titles that imply one has an expertise in advising senior investors when there is none. The Senior Designations Regulations prohibit the use of titles that imply a training or certification that the titleholder doesn’t actually possess.
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Massachusetts Regulator Charges Securities America Over Bait and Switch Ads By Broker Accused of Targeting Senior Investors

Published on: July 11, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Massachusetts Secretary of the Commonwealth William Galvin is charging Securities America with inadequate supervision of a broker who is accused of using a “grossly deceptive” radio ad campaign to target older investors. The state regulator said that the financial firm shouldn’t have approved the spots that Barry Armstrong ran on his AM radio show. His show, which airs on WRKO-AM, is syndicated on different stations.

The broker purportedly ran ads asking listeners to call for information related to Alzheimer’s Disease when what Armstrong really was doing was collecting their contact information so he could offer to sell them financial advice. Galvin’s office said that the broker engaged in ‘bait and switch’ by falsely advertising one service when he was really selling another type of service.

The regulator contends that Securities America failed to identify or prevent Armstrong’s unethical conduct by neglecting to ask even one question about the content of the ads or attendant mailing materials. Now, the state wants a censure, a cease-and-desist order, and a fine imposed against the firm.
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Ex-Deutsche Bank Employees May Face Libor Rigging Charges

Published on: July 11, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Bloomberg reports that according to sources, the U.S. Department of Justice is getting ready to file securities charges against former employees of Deutsche Bank AG (DB) for manipulating the London interbank offered rate. The government is looking at five ex-traders who may have rigged the U.S. dollar equivalent of the interest-rate benchmark. If the criminal charges do go through these would be the first ones against the German bank’s traders over Libor.

Earlier this year, Deutsche Bank agreed to pay $2.5B to regulators for rigging Libor and other benchmarks: $600M to the New York Department of Financial Services, $775M to the DOJ, $800M to the Commodities Futures Trading Commission, and $340M to the U.K’s Financial Conduct Authority. The latter had doubled its fine because of what it considered the bank’s “slow” and “ineffective response to questions and purportedly “false, inaccurate, or misleading” statement that it made.

The global settlement included a ban against Deutsche Bank’s traders who had engaged in interest rate rigging. The bank’s DB Group Services in the U.K. also pleaded guilty to one count of wire fraud for its involvement in the scam to defraud counterparties to interest rate swaps by manipulating U.S. Dollar LIBOR contributions.

Wells Fargo, LPL Financial, and Raymond James to Pay Investors of Retirement Accounts and Charities Over $30M for Mutual Fund Overcharges

Published on: July 6, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority said that LPL Financial, LLC (LPLA), Raymond James & Associates (RJF), Raymond James Financial Services, Wells Fargo Advisors, LLC (WFC), and Wells Fargo Advisors Financial Network, LLC must pay over $30M in restitution plus interest to customers who were impacted when the firms did not waive mutual fund sales charges for certain retirement and charitable accounts. According to the self-regulatory organization, between July 2009 and the end of 2014 the financial firms either improperly overcharged certain investors who had purchased Class A mutual fund shares or sold them Class B or C shares instead. The latter two come with ongoing, high back-end fees.

Mutual funds typically offer different share classes for sale. Each class has its own sales fees and charges. Although Class A shares come with an initial sales charge, they usually have lower annual fees than Class B and C shares. However, mutual funds will usually waive Class A sales charges when selling them to charities and some retirement accounts.

The broker-dealers offered these waivers for the retirement and charitable plan accounts under limited conditions. The waivers also were disclosed in prospectuses. Yet, according to FINRA, at various times since at least July 2009, the firms did not actually waive the sales charges for these customers when they were offered the Class A shares.

Because of this, contends the agency, over 50,000 eligible retirement accounts and charitable organizations either paid sales charges for the Class A shares or bought other share classes that required them to pay higher ongoing fees and other expenses. FINRA said that the firms did not properly supervise the sale of these mutual funds and depended on its brokers to offer the waiver discounts even though they weren’t properly trained.

Goldman Sachs to Pay $7M Over Market Access Rule Violation Allegations

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

Goldman Sachs (GS) has agreed to pay a $7 million penalty to settle SEC charges accusing the firm of violating the market access rule on August 20, 2013. According to the SEC, on that day, in under an hour, the firm mistakenly executed thousands of options contracts executions resulting in incorrect orders.

The regulator said that Goldman did not have the adequate safeguards in place that could have prevent it from accidentally sending about 16,000 options orders that were wrongly priced to different options exchanges. According to the SEC, the mistaken transactions occurred after Goldman put into place new electronic trading functionality that was supposed to match client orders with internal options orders.

Because of a configuration error in the software, contingent orders were turned into live orders. All of the orders were given a $1 price.

The orders were sent to options exchanges during pre-market trading. Minutes after regular market trading opened, about 1.5 million options contracts were executed. Because of the rules regarding erroneous options trades, many of the executed trades received price adjustments or were cancelled. The losses might have otherwise cost the firm $500 million.

Federal Judge in Texas Says Law Firms Must Face Lawsuit Seeking Creditor Payments in Stanford Ponzi Fraud

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

Four years after Allen Stanford’s $7 billion Ponzi scam was uncovered in 2009, investors who lost money in the scheme are still trying to recover their funds. The 65-year-old Stanford is serving 110-years behind bars for selling investors bogus high-yield CD’s through his Stanford International Bank based in Antigua. Prosecutors said he used customers’ money to fund his expensive lifestyle.

This week, U.S. District Judge David Godbey in Dallas said that law firms Proskauer Rose and Chadborne & Parke will have to contend with claims brought by a committee of these investors and Ralph S. Janvey, the court-appointed receiver for Allen Stanford’s companies.

Chadborne and Prosakuer had sought to have this lawsuit, which seeks to hold the two law firms liable for legal malpractice, dismissed. The plaintiffs contend that Thomas Sjoblom, who worked at the two firms, allegedly obstructed regulator probes into the Ponzi Scam and helped Stanford conceal the SEC’s investigation from auditors.

Now, the Texas-based judge has decided that Janvey and the investor committee can pursue claims of negligent supervision, professional negligence, civil conspiracy, and aiding and abetting fraud against the two firms. Judge Godbey stated that the allegations suggest that Sjobolm knew that Stanford was potentially running a Ponzi scam, and this awareness was imputed to both firms. Godbey said that the plaintiffs have alleged that the defendants knew that Stanford was engaged in sufficient wrongdoing.
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BaFin Report Accuses Deutsche Bank Executives of Negligence in Libor Rigging

Published on: June 26, 2015 | by Shepherd Smith Edwards & Kantas, LLP

According to a report by German financial regulator BaFin, senior management at Deutsche Bank (DB) allegedly behaved “negligently” related to the rigging of Libor rates. The European regulator has been investigating the bank over its possible involvement in the manipulation of the inter-bank rate setting process.

The BaFin report contends that Deutsche Bank’s outgoing joint leader Anshu Jain may have lied to the European nation’s central bank, the Bundesbank, by purposely making inaccurate statements” about rate rigging during a 2012 interview. The regulator wants Deutsche Bank to be subject to special supervisory measures.

The Financial Times reports that, Jain, who resigned from his position and will officially step down at the end of the month, is accused of telling Bundesbank that he did not know about the rumors about possible rigging even though e-mails about a meeting on this matter were forwarded to him in 2008. Deutsche Bank, however, maintains that Jain did not lie or mislead the German central bank during the interview. The bank said that the BaFin report confirms its own findings that no current or ex-members of its Management Board or Group Executive Committee directed firm employees to rig intra-bank offered rate submissions or knew of any attempted manipulations before June 2011.

Deutsche Bank has paid over $9 billion in fines to resolve claims of Libor rigging. In April, the bank was fined $2.5 billion for manipulating interest-rate benchmarks.

Morgan Stanley and Scottrade to Pay FINRA $950K FINRA for Inadequate Supervision of Third Party, Customer Account Transfers

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

The Financial Industry Regulatory Authority said that Morgan Stanley Smith Barney, LLC (MS) and Scottrade, Inc. will pay fines of $650K and $300K, respectively. The firms are settling claims accusing them of not putting into place supervisory systems that could reasonably monitor customer funds transmitted to third-party accounts. The self-regulatory organization cited both financial firms for having weak supervisory systems a few years back, but they purportedly did not take the necessary steps to remedy the deficiencies.

The SRO contends that from 10/08 to 6/13, three Morgan Stanley-registered representatives in two of the firm’s branch offices converted $494,000 from thirteen customers by setting up fraudulent wire transfer orders and branch checks from the clients’ accounts to third-party accounts. One example of such an instance involves representatives transferring funds from several customer accounts into their own bank accounts.

FINRA said that Morgan Stanley should have put into place systems and procedures that would have allowed it to review and monitor such transmissions. The regulator said that instead, the supervisory failures let the conversions occur without detection.

Investor Want Wells Fargo Advisers to Pay $100K in Damages Over F-Squared Investment Losses

Published on: June 22, 2015 | by Shepherd Smith Edwards & Kantas, LLP

A client of Wells Fargo Advisors (WFC) is looking to recover at least $100,000 in damages for losses he sustained from investing with F-Squared Investments Inc. The arbitration case comes six months after F-Squared consented to pay $35 million to resolve Securities and Exchange Commission charges accusing the asset manager of making false claims about its flagship investment product’s performance. The 68-year-old widower’s claim will test whether investors can pursue broker-dealers for selling F-Squared products.

The claimant, a moderately conservative investor who was looking for moderately conservative growth for his retirement account assets, began working with a Wells Fargo financial adviser in 2011. The brokerage firm made F-Squared managed-accounts available to advisors in 2013.

According to InvestmentNews, The investor’s advisor put about $900K of the client’s money-most of his savings, says his attorney-in products managed by two ETF strategists. Over 50% of the money went into F-Squared’s AlphaSector Allocator Select. Meantime, the investor said it paid Wells Fargo about $19,000 in fees for recommending the products. He believes that the firm had a conflict when it recommended investments because they came with such high commissions. Also, the fees erased potential capital gains for the claimant.
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