Life Settlements

HSBC Settles Libor Rigging Lawsuit for $100M

Published on: March 31, 2018 | by Shepherd Smith Edwards & Kantas, LLP

To settle a private securities lawsuit in the US alleging Libor manipulation, HSBC Holdings Plc. (HSBC) has agreed to pay $100M. The bank is accused of conspiring to rig the London interbank offered rated (Libor) benchmark. The plaintiffs in the lawsuit are a number “over-the-counter” investors, including Yale University and the Maryland city of Baltimore, that dealt directly with banks belonging to the panel tasked with determining the key benchmark interest rate. Now, a court will have to approve the preliminary settlement.

The plaintiffs sued 16 banks for alleged Libor rigging in 2011. According to their case, HSBC and other banks conspired together to submit artificially low borrowing costs so that they could appear more financially robust and increase earnings. These lower borrowing costs led to a lower Libor, which had an adverse effect on institutions and persons that invested in pension funds, money market funds, mutual funds, the bond market, a number of derivative products, and bank loan funds.

Libor is the benchmark used to establish rates on hundreds of trillions of dollars of transactions, including those involving credit cards, student loans, and mortgages. It also allows the banks to figure out what it would cost them to borrow from one another.

Securities Cases: Verto Capital Settles Life Settlement Charges, Couple File Broker Fraud Claim Against NY Life Securities, JCPenny to Settle Texas Class Action Lawsuit for $97.M, & Cetera Admits to Charging Investors More For Mutual Funds

Published on: May 8, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Financial Firm and Its CEO Settle Life Settlement Fraud Charges
The US Securities and Exchange Commission announced that Verto Capital Management and its CEO William Schantz III have settled civil charges accusing them of running a Ponzi-like scam involving life settlements. As part of the settlement, Verto Capital and Schantz will pay over $4M.

According to the regulator’s complaint, the two of them raised about $12.5M through promissory note sales that were supposed to pay for the firm’s purchase and sale of life settlements. The notes were sold mostly through insurance brokers in Texas.

Investors who were religious were the main target of the alleged fraud.They were allegedly told that that the securities were short-term investments that were at low risk of defaulting.

Texas Adviser Barred by State Over Fraudulent Life Settlement Sales

Published on: March 22, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Fort Worth-based investment adviser James Poe has been barred by the Texas State Securities Board from serving as a financial representative or broker in the state. According to the Board, Poe engaged in fraudulent sales practices involving life settlements.This is Texas securities fraud.

The Texas adviser, who is the president of Jim Poe & Associates, Inc., was the recipient of undisclosed payments through International Alternatives PR, which he also owns. The state says that firm consulted on life insurance policy selections and represented activity that was fraudulent.

Poe is also accused of getting paid 10% commission for product sales from ’11 to ’15 even though he was an unregistered agent at the firm. Such payments would be a violation of Texas law. During that period he purportedly recommended investments to certain individuals, who were promised a 75% return. What these investors didn’t know is that in addition to paying for the policy and its premiums, the “associated costs” they agreed to take on included the 10% commission to Poe and undisclosed payments (20% of what they invested) to International Alternatives PR, which consulted and identified which policies to choose.

The Texas State Securities Board’s order said that failure to disclose that 20% of what investors paid went to the firm, which Poe owned, was a failure by the firm to disclose material facts and that this type of activity was fraudulent. The state said that seeing as 30% of investor money went to Poe and his company, this posed a material risk to what an investor could potentially make.
Continue Reading ›

Citigroup to Pay $23M to Resolve Yen Libor and Euroyen Tibor Rigging Claims

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

Citigroup (C) Inc. has agreed to pay $23M in an institutional investor fraud lawsuit accusing the bank of conspiring to manipulated the Euroyen Tibor and yen Libor benchmark interest rates and Euroyen Tibor futures contracts. Plaintiff investors included hedge fund Hayman Capital Management LP and the California State Teachers’ Retirement System. They contend that Citigroup and other banks benefited their trading positions from ‘06 through at least ’10 when they conspired to manipulate rates. As part of the settlement Citigroup said it would cooperate with the plaintiffs, whose lawsuits are still pending against other banks.

Also settling but without having to anything is broker-dealer RP Martin. Defendants that have yet to settle include Barclays Plc (BARC), JPMorgan Chase & Co. (JPM), Deutsche Bank AG (DB), UBS AG (UBS), HSBCA Holdings Plc (HSBC), Sumitomo Mitsui Trust Holdings Inc., and Mitsubishi UFJ Financial Group Inc.

Texas-Based Retirement Planning Firm Accused of Making False Claims to Investors About Life Settlements

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

The Securities and Exchange Commission is charging Novus Financial and principals Brady J. Speers and Christopher A. Novinger with making false claims about life settlements. The regulator filed its claim in the U.S. District Court for the Northern District of Texas.

According to the SEC’s complaint, from ’12 – ’14, the retirement planning firm and its principals sold about $4.3 million in life settlement interests to 26 investors. Speers and Novinger are accused of describing the investments as secure and safe. Both were purportedly willing to manipulate the financial data of investors to make the sale happen.

The Commission also claims that the firm, Novinger, and Speers used a net worth calculator that was bogus. This allowed a number of prospective investors to improperly qualify to buy the interests. In one instance, the non-homestead assets of one couple were falsely inflated to $1.5 million from $263K because of the calculator.

Pacific West Faces SEC Fraud Charges Over Life Settlements

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

The Securities and Exchange Commission is charging Pacific West Capital Group Inc. with securities fraud and other violations. The regulator contends that the investment firm and its owner, Andrew B. Calhoun IV, misled clients about life settlements.

According to the SEC, Calhoun and Pacific West raised close to $100 million over the last decade from more than 3,200 investors that bought life settlements in 125 life insurance polices. For more than two years, the two of them allegedly used proceeds from the sales to pay the premiums on life settlements that had been previously sold, while concealing that the life insurance policyholders were living beyond their projected life expectancy. Calhoun and his company are accused of make their life settlements seem more successful than they actually were even as they spent the primary reserves to pay policy premiums.

With life settlements, an investor purchases a life insurance policy share with the understanding that he/she will get part of the death benefit later. The investor is the one responsible for the premium payments and keeps the policy until the insured’s passing. Upon the insured’s death the investor is entitled to the policy’s death benefit.

NASAA Wants Life Partners Held Accountable for Texas Securities Act Violations

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

The North American Securities Administrators Association wants the Texas Supreme Court to rule that Life Partners Holdings Inc. has to face a class action securities lawsuit for selling unregistered securities. The state’s high court is set to determine whether to reverse a lower appeal court’s ruling to reinstate a case that accuses the company of selling the securities.

According to the group of securities regulators, violations of the Texas Securities Act were committed when Life Partners sold fractional interests in life insurance polices to investors and that this grounds for a case. The company wants the previous ruling, which found that life settlement contracts are not insurance contracts but are, in fact, investment contracts that are regulated under securities laws, overturned. Life Partners maintains that state securities law does not govern its product.

The putative class action securities case contends that three years ago, Life Partners was involved in a scam that involved offering and selling securities that were unregistered. A trial judge rejected the plaintiffs’ claims, accusing them of submitting a frivolous pleading.

Two Men Sentenced in Texas Securities Case Involving $30 Million Promissory Note Fraud that Bilked Investors Via Ponzi Scam

Published on: May 14, 2013 | by Shepherd Smith Edwards & Kantas, LLP

In Harris County state District Court, two men have received prison terms of a decade each for running a Texas Ponzi scam that involved life insurance policy death benefits. Gregory F. Jablonski and Howard Glen Judah are accused of orchestrating a nearly $30M scam involving their National Life Settlements LLC, which sold securities that weren’t registered and which they falsely claimed were benefits-backed. Both of them pleaded guilty to selling an unregistered security and securities fraud.

Investors with National Life Settlements were paid using the money of new investors. The company made false promises, causing customers that they would get an 8-10% yearly return through the promissory notes. Active and retired state employees were among those targeted, and millions of dollars were taken from retirement plans and invested through the firm.

The National Life Settlements used insurance agents, many of whom did not have securities dealer licenses, as it sellers. The agents would go on to make $4M commissions.

Texas Securities Fraud: SEC Charges Life Partners Holdings Inc. in Life Settlement Scam

Published on: January 4, 2012 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission has filed Texas securities fraud charges against Life Partners Holdings Inc. and three of the company’s senior executives over their alleged involvement in a life settlement scam. Life Partners, which is a Nasdaq-traded company, makes nearly all of its revenue from the life settlements it brokers.

According to the SEC, CEO and Chairman Brian Pardo, CFO David Martin, and general counsel and president Scott Peden misled shareholders when they failed to reveal a significant risk, which was that Life Partners was materially underestimating the estimates for life expectancy that it was using to determine how to price transactions. The estimates have a critical effect on company profit margins, revenues, and shareholder profits.

The Commission contends that Life Partners, Pardo, Peden, and Martin took part in improper accounting and disclosure violations, which allowed the company’s books to become overvalued while making it appear as if there was a steady stream of earnings coming from the life settlement transactions that were being brokered.

Peden and Pardo are also charged with insider trading. The SEC claims that the two men sold about $300,000 and $11.5M, respectively, of Life Partners stock at prices that were inflated even though they had material, non-public information disclosing that the company had relied on short life expectancy estimates to make revenue.

In a statement issue by the SEC’s Division of Enforcement Director Robert Khuzami, the agency is claiming that Life Partners also deceived shareholders by retaining a medical doctor to designate baseless life expectancy estimates to underlying insurance policies. Dr. Donald T. Cassidy, who lacks actuarial training and had no previous experience in assigning life expectancy estimates, began working with Life Partners in 1999. (The Commission claims that Pardo and Peden neglected to perform substantial due diligence on the doctor’s qualifications to do this job. They also are accused of telling him to use a methodology created by a former underwriter, who is one of the company’s owners.)

Beginning fiscal year 2007 through fiscal year 2011’s third quarter, Life Partners allegedly understated impairment costs related to life settlement investments and prematurely recognized revenue. The company is also accused of improperly accelerating revenue recognition starting from the closing date until when it got a non-binding agreement with the policy owner to sell the life settlement. Because Life Partners used these Dr. Cassidy’s life expectancy estimates in its impairment calculations, millions of dollars in impairment costs were understated.

The SEC wants the repayment of bonuses and profits from stock sales.

Life Settlements
These usually involve the selling and buying of fractional interests of life insurance policies in the secondary market. For a lump sum amount, life insurance policy owners sell investors their policies. The amount that is offered is supposed to factor in the life expectancy of the insured and the policy’s terms and conditions. The longer the insured is expected to life, the more the investor has to pay in premiums. Policies owned by persons expected to not life as long cost more.

SEC fraud case could give new life to life settlements controversy, Bloomberg/Investment News, January 4, 2012
SEC Charges Life Settlements Firm and Three Executives with Disclosure and Accounting Fraud, SEC, January 3, 2012
SEC Complaint

Texas Securities Fraud: Unregistered Adviser Confesses to Selling Almost $400K in Promissory Notes and Investments Despite Cease and Desist Order, Stockbroker Fraud Blog, December 5, 2011
Texas Securities Fraud: Raymond James Financial Services Pays Elderly Senior Investor About $1.8M Following Loss of Appeal, Stockbroker Fraud Blog, December 2, 2011
Former Texan and First Capital Savings and Loan To Pay $4.5M for Alleged Foreign Currency Ponzi Scheme, Stockbroker Fraud Blog, November 11, 2011 Continue Reading ›

Don’t Create Uniform Fiduciary Standard for Broker-Dealers and Investment Advisers, Say Some Republicans to the SEC

Published on: October 7, 2011 | by Shepherd Smith Edwards & Kantas, LLP

House Financial Services subcommittee Chairman Scott Garrett (R-N.J.) is encouraging the Securities and Exchange Commission to refrain from rulemaking for establishing a uniform fiduciary standard that would apply to both broker-dealers and investment advisers unless the federal agency can come up with adequate evidence to support this action. Garrett made his views known at a Subcommittee on Capital Markets and Government Sponsored Enterprises oversight hearing. Committee Chairman Spencer Bachus (R-Ala.) and Rep. Ed Royce (R-Calif.) also echoed these same sentiments.

Says Shepherd Smith Edwards & Kantas LTD LLP Founder and Securities Fraud Attorney William Shepherd, “Washington is again bowing to Wall Street pressure to exempt them from liability for their wrongful acts. It is incredible that, considering the unmitigated investment fraud perpetrated on the American public in the last decade, Congress would even consider thwarting the very investors who elected them from receiving the justice they deserve!”

Under the Dodd-Frank Wall Street Reform and Consumer Protection Act’s Section 913, the SEC has the authority to start up the rulemaking for this uniform fiduciary standard but is under no obligation. Earlier this year, the SEC put out a report recommending that it take up this rulemaking.

While Garrett questioned whether “hard factual data” existed demonstrating that a suitability standard is not enough to protect investors, others noted that it is a fiduciary standard and not a suitability standard that addresses cost, which impacts investors’ long-term performance. The majority of those that testified at the hearing also supported a uniform fiduciary standard that would apply to both investment advisers and broker-dealers. Consumer Federation of America director of investor protection Barbara Roper said that investors lose money when the person giving them investment advice must only meet a suitability standard and not a fiduciary one.

Meantime, while financial industry representatives have expressed support for a uniform fiduciary standard for investment advisers and broker-dealers, they don’t believe that it could be properly executed under the 1940 Investment Advisers Act.

Securities Industry and Financial Markets Association senior managing director and general counsel Ira Hammerman has said that the Act is unable to work with the business models for broker-dealer, while Financial Services Institute government affairs director and general counselor David Bellaire said that imposing a 1940 Act fiduciary duty on broker-dealers would decrease investor choice and decrease services, which would all significantly affect the market.

Currently, broker-dealers have to abide by a suitability standard, which is more lenient than the fiduciary duty standard for investment advisers. SEC Chairman Mary Schapiro has told staff that they need to recommend a proposal before the year is over.

Also up for discussion was the draft that Senator Bachus released last month mandating that there be at least one self-regulatory organization tasked with overseeing investment advisers. The Financial Industry Regulatory Authority is a top candidate for the role and has expressed interest in taking on this new responsibility. However, not everyone is a supporter of FINRA becoming SRO.

More Blog Posts:
Most Investors Want Fiduciary Standard for Investment Advisers and Broker-Dealers, Say Trade Groups to SEC, Stockbroker Fraud Blog, October 12, 2010

Fiduciary Standard in Securities Industry Doesn’t Need New Definition, Stockbroker Fraud Blog, November 26, 2010

FINRA Will Customize Oversight to Investment Adviser Industry if Chosen as Its SRO, Stockbroker Fraud Blog, April 8, 2011