Financial Firms

Resource Horizons Group’s Future Hangs in Balance Following $4M FINRA Arbitration Award

Published on: September 25, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Resource Horizons Group, a regional brokerage firm and investment adviser, may no longer be able to stay in business after a $4 million Financial Industry Regulatory Authority arbitration award was issued against it. The self-regulatory organization blames the firm for almost $3.5 million in investor losses after Robert Gist, one of the firm’s brokers, allegedly took the money. Part of the award is $1 million in punitive damages.

Last year, Gist consented to pay $5.4 million to settle SEC charges claiming that he converted about that much from at least 32 customers for his own use over a ten-year period. He went through Gist, Kennedy & Associates, Inc., which was an unregistered entity with no connection to Resource Horizons, in that financial scam.

Resource Horizons hired Gist in 2001. Even before that there already were a number of customers disputes and other disclosures on his record. Both the SEC and FINRA have now barred Gist from the securities industry.

SEC Investigates Pimco Exchange-Traded Fund for Artificial Inflation

Published on: September 25, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission is looking at whether Pacific Investment Management Co, artificially upped the returns of a fund that targeted smaller investors. At issue is the way the $3.6B Pimco Total Return ETF (BOND) purchased investments at a discount but depended on higher valuations for the investments when the fund worked out its holdings’ value soon after. This type of move could make it appear as if the fund made rapid gains when it was actually just availing of the variations in how certain investments are valued.

According to The Wall Street Journal, sources familiar with the probe say that SEC investigators have already interviewed firm owner Bill Gross. The regulator could be looking at whether investors ended up with inaccurate data about the performance of the fund. If so, this could be a breach of securities law, even if the wrongdoing wasn’t intentional.

While the probe has been going on for at least a year, it seems to have recently escalated. Other Pimco executives have also been interviewed.

Barclays to Pay $15M SEC Settlement Over Compliance Failures Following Lehman Brothers Acquisition, Pays $61.7M Fine to U.K.’s FCA Over Client Asset Issues

Published on: September 24, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Barclays Capital Inc. (BARC) has consented to pay $15 million to the U.S. Securities and Exchange Commission to resolve civil charges claiming that it did not make sure the financial institution was in proper compliance with securities laws and its own rules after acquiring Lehman Brothers’ advisory division. According to the regulator, the firm did not adopt and execute written procedures and policies or keep up the needed records and books to stop certain violations.

For example, says the SEC, Barclays executed over 1,500 principal transactions with advisory client accounts but did not seek the necessary written disclosures and get the requisite customer consent. It also made money and charged fees and commissions that were not consistent with disclosures for 2,785 advisory client accounts, underreported assets under management by $754 million when amending its Form ADV a few years ago, and violated the Advisers Act’s custody provisions.

The violations caused clients to lose about $472,000 and pay more than they should have, while Barclays made additional revenue that was greater than $3.1 million. Barclays has since paid back or credited $3.8 million plus interest to customers who were affected. It also consented to remedial action and will retain a compliance consultant to perform an internal review.

FINRA Bars Ex-Wells Fargo Broker From Industry For Allegedly Bilking Customers, Expels HFP Capital Markets LLC for Securities Fraud

Published on: September 19, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority has barred a former Wells Fargo (WFC) registered representative from the brokerage industry. According to the self-regulatory organization, Ane S. Plate, who previously worked with Wells Fargo Advisors Financial Network in Florida, allegedly made fifteen unauthorized trades in a joint brokerage account of two customers between October 2013 and April 2014. The transactions resulted in $176,080 of cash proceeds, of which Plate is accused of pocketing $132,358.

The former Wells Fargo broker is also accused of setting up bi-weekly transfers from the brokerage account to a bank account that was in the name of one of her relatives. She then allegedly moved $7,700 to that account between December 2013 and May 2014.

Plate, who was working with Wachovia Securities when Wells Fargo acquired that firm, has since been fired after the latter discovered the purported theft. FINRA’s BrokerCheck reports that the customers that were harmed were fully reimbursed for the amount taken from them.

Morgan Stanley to Pay a $280,000 Fine to CFTC for Records and Supervision Failures Involving SureInvestment and $35M Ponzi Scam

Published on: September 16, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Morgan Stanley Smith Barney, LLC (MS) has settled civil charges by the U.S. Commodity Futures Trading Commission (CFTC) accusing the firm of records violations and inadequate supervision involving its know-your-customer procedures. Aside from a $280,000 fine, the broker-dealer will have to disgorge commissions from the subject accounts involved.

According to the regulator, Morgan Stanley did not diligently oversee its employees, officers, and agents when they opened firm accounts for a family of companies known as SureInvestment, which purportedly ran a hedge fund that was partially based in the British Virgin Islands-considered to be a risky jurisdiction. Because of this geographic circumstance, when the accounts were opened the firm should have subjected them to special observation pursuant to its procedures, including watching out for red flags indicating suspect activities.

The CFTC’s order, however, notes that even though there were a number of red flags in the account opening documents for SureInvestments, Morgan Stanley failed to identify them. Later, it was discovered that SureInvestment doesn’t even exist and that its owner, Benjamin Wilson, was conducting a $35 million Ponzi scam based in the U.K. (Wilson, who has pleaded to criminal charges brought by the Financial Conduct Authority, has been sentenced to time behind bars.)

Fidelity Investments Settles Class Action Lawsuits Over 401(K) Plan for $12 million

Published on: September 5, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Fidelity Investments has consented to pay $12 million to settle two class action employee lawsuits. The plaintiffs contend that the retirement plan provider was self-dealing in the FMR LLC Profit Sharing Plan and making money at their expense by offering employees high-cost fund options and making them pay excessive fees.

Over 50,000 ex- and present employees are eligible to receive from the settlement. Fidelity is accused of providing just its own funds in the retirement plan for its workers, with certain investment options having little (if any) track record, while failing to use an impartial process when choosing the investment options.

As part of the agreement, Fidelity Investments will now give employees a choice of non-Fidelity and Fidelity mutual funds, increase auto-enrollment to 7%, and allow participants of non-Fidelity mutual funds to benefit from revenue sharing, just like the participants of Fidelity mutual funds and collective trusts. The company also will keep offering a default investment alternative, the Fidelity Freedom Funds-Class. The Portfolio Advisory Services at Work program will be provided for free.

Securities Lawsuit Accuses Deutsche Bank, JPMorgan Chase, Credit Suisse, and Other Banks of Manipulating ISDAfix

Published on: September 4, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The Alaska Electrical Pension Fund is suing several banks for allegedly conspiring to manipulate ISDAfix, which is the benchmark for establishing the rates for interest rate derivatives and other financial instruments in the $710 trillion derivatives market. The pension fund contends that the banks worked together to set the benchmark at artificial levels so that they could manipulate investor payments in the derivative. The Alaska fund says that this impacted financial instruments valued at trillions of dollars.

The defendants are:

• Bank of America Corp. (BAC)

Former LPL Financial Broker Must Pay Almost $2 Million For Bilking Clients, Including Elderly Investors

Published on: August 29, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Blake B. Richards, an ex-LPL Financial (LPLA) broker, must pay close to $2 million in penalties and disgorgement over allegations that he defrauded clients of close to $1.7 million. According to the case, submitted in the U.S. District Court of the Northern District of Georgia, Richards told at least seven clients to write checks to entities under his control. The clients thought that the money would be invested in variable annuities, fixed-income investments, or equities. Instead, contends the U.S. Securities and Exchange Commission, the funds were used to pay for his personal spending.

According to the SEC, most of the investors’ money came from life insurance proceeds or retirement savings. Two of the investors involved were widowed and at least two others were elderly customers.

Per the regulator’s complaint, Richards won one investor’s trust by delivering pain meds to her husband during a snowstorm. The spouse was suffering from terminal pancreatic cancer at the time.

J.P. Morgan Targeted in Possible Cyber Attack

Published on: August 29, 2014 | by Shepherd Smith Edwards & Kantas, LLP

J.P. Morgan Chase & Co. (JPM) and up to four other banks were the victims of a possible cyber attack. According to the media, the financial institution is working with law enforcement authorities to figure out what happened.

Reuters reports that sources say the firm began its own probe after malicious software was found in its network, which indicates there had likely been a cyber attack. The Federal Bureau of Investigation is looking to see whether Russian hackers may have been involved. A possible motive for them could be retaliation for sanctions against Russia because of its role in the Ukraine military conflict. It is not unusual for Russian organized crime to target big financial institutions. Also looking into the matter is the U.S. Secret Service.

According to the Wall Street Journal, the hackers appear to have gotten in through the personal computer of employee and penetrated the bank’s inner systems. Gigabytes of customer and employee data may have been targeted. Authorities are trying to determine whether any data that might have been stolen has been used to move funds.

MF Global Wants to Pay $925M to Creditors

Published on: August 28, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Now that it has repaid the majority of its customers, MF Global Inc. wants the U.S. Bankruptcy Court in Manhattan to let it pay $295 million to its creditors. Most of the funds would go toward unsecured creditors, who would get a first distribution of approximately 20%. Holders of priority claims, as well as administrative and secured claims that were resolved, would get all of the money owed to them.

Giddens is also seeking to set up a reserve fund of over $400 for unresolved claims while placing a cap on how much each claim would get. MF Global has paid back the majority of its customers. Most of them got everything owed to them.

The brokerage firm and parent company MF Global Holdings Ltd. went into crisis when investors left after finding out that Jon S. Corzine, the CEO at the time and formerly a Goldman Sachs (GS) chairman and ex-governor of New Jersey, made big bets on European sovereign debt. Their departure created an approximately $1.6 billion shortfall in the accounts of customers that should have been kept separate from the firm’s money pool. The shortfall has since been recovered.