Miscellaneous

Obama Administration Supports Investors’ Securities Fraud Lawsuits Against Merck

Published on: November 18, 2009 | by Shepherd Smith Edwards & Kantas, LLP

Taking the side of investors who are suing Merck for securities fraud, the Obama Administration filed an amicus brief last month arguing that the plaintiffs did not wait too long to file their complaints against the drug manufacturer. use. The painkiller drug was taken off the market in 2004. However, investors are accusing the company of misrepresenting how safe Vioxx was for use.

Investors are suing Merck for billions. They claim that they ended up paying inflated prices for Merck stock because the drug maker downplayed clinical trial test results that appeared to link Vioxx with a greater risk of heart attack. The investors filed one of several securities fraud lawsuits in 2003. At issue in the US Supreme Court case is whether investors should have realized sooner that fraud might have occurred.

Merck claims that investors should have filed their complaints earlier since by late 2001 there was already a lot of information out there alluding to possible misstatements by Merck about Vioxx. Merck has said it acted properly and in a timely manner when it did tell the scientific community and the US Food and Drug Administration about the Vioxx-related info.

The amicus brief, filed by U.S. Solicitor General Elena Kagan, is another indicator that the Obama administration may be more supportive than the Bush Administration of investor lawsuits. According to Shepherd Smith Edwards and Kantas Founder and Stockbroker Fraud Attorney William Shepherd, “It is an oddity to see our government take a legal position on behalf of investors! This may be the first time in a decade that I have seen an official legal position that is contrary to the vested position of Wall Street.”

Kagan says that the investment fraud lawsuits were filed in a timely manner because the plaintiffs did not know and could not have known about Merck’s alleged Securities Exchange Act Section 10(b) violations more than two year before they filed the complaints. She wants the Supreme Court to affirm the appeals court’s ruling that the shareholder complaint was timely. Per federal law, plaintiffs must file their securities fraud complaint within two years after finding out about the violation.

Related Web Resources:
Obama Sides With Investors in Merck Lawsuit, SmartMoney, October 26, 2009
U.S. Supreme Court to Hear Merck Appeal on Reinstated Investor Lawsuit, Insurance Journal, May 27, 2009
Merck & Co.
Continue Reading ›

US Supreme Court Won’t Hear InfoSpace Founder’s Appeal Requesting to Sue Attorneys and Stock Management Company for Allegedly Botching Insider Stock Trading Case

Published on: March 31, 2009 | by Shepherd Smith Edwards & Kantas, LLP

The US Supreme Court has decided not to listen to an appeal filed by InfoSpace founder Naveen Jain requesting that he be allowed to sue JP Morgan Securities and his former attorneys for allegedly mishandling an insider stock trading lawsuit.

What happened was that InfoSpace Inc. INSP shareholder Thomas Dreiling filed a derivative action against Naveen and his wife, InfoSpace cofounder Anuradha. Dreiling contended that they violated short-swing trading prescriptions that prevent corporate insiders from selling and buying or buying and selling company stock during a six-month period.

The federal court ruled in Dreiling’s favor and the Jains were ordered to pay $246.1 million in disgorgement. The lawsuit was eventually settled for $105 million.

The Jains, however, then sought to get the amount they were fined for participating in illegal short-swing transactions from their stock management company and their attorneys. He and his wife had accused the defendants for the language in his company’s initial public offering prospectus that contributed to such a healthy judgment against them. Their lawsuit alleged breach of fiduciary duty, negligence, malpractice, and equitable indemnity.

Since then, the lower courts, including the Washington Court of Appeals, have thrown out their lawsuit because federal law bars complaints that blame security companies for such trades. The appeals court, in affirming the initial dismissal, noted that an insider who violates Section 16B of the Securities Exchange Act cannot receive indemnification from others for any liability that results. While the state court acknowledged that the rule against indemnification might protect some securities professionals from the repercussions of their misconduct, Congress still wants corporate insiders to be held strictly liable for short-swing violations.

Related Web Resources:
Supreme Court turns down appeal from InfoSpace founder, Seattle Times/AP, March 9, 2009
InfoSpace

Supreme Court of the United States
Continue Reading ›

Outcome of SEC Actions Appear to Favor Larger Broker-Dealers than Smaller Ones, Says Harvard Law School Study

Published on: March 7, 2009 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission may be “too close” to larger investment firms that they give them preferential treatment in SEC Actions, says a Harvard Law School study. One “tentative” explanation cited by the study is that SEC officials look to the larger broker-dealers-especially those located in New York-for future employment opportunities. The study also noted that the SEC was more likely to order smaller broker-dealers (than larger firms) to court, rather than merely slapping the firm with an administrative proceedings.

The Harvard study took a look at patterns the SEC exhibited when it enforced actions against investment firms in 1998, 2005, 2006, and Jan – April in 2007. Findings included:

• When large investment firms and smaller firms faced the same SEC violations for similar levels of harm, there was a 75% smaller chance that a big broker-dealer would have to go to court than one of its smaller counterparts.
• There was a 44% chance that employees from large broker-dealers would have to go to court to fight an SEC action, compared to a 73% possibility for employees of smaller broker-dealers.
• When facing SEC administrative proceedings, bigger firms were less likely to be banned from the industry. 25% of small firms defendants in such actions received permanent industry bans, compared to just 5% of large firm defendants.
• There did not appear to be a justifiable reason for why there was a disparity between the outcomes of SEC actions involving larger broker-dealers and smaller ones.
• However, both large and small firms were slapped with equivalent fines.

The study did not look at SEC enforcement actions in 1999 and 1920 because of worries the findings might be affected by the burst of the “dot.com bubble,” as well as the outcomes of SEC actions from 2008 that may have been impacted by the financial crisis.

US Treasury Department Extends Money Market Fund Guarantee Program Through April 2009

Published on: December 10, 2008 | by Shepherd Smith Edwards & Kantas, LLP

The US Treasury Department has announced that it will keep guaranteeing money market funds until the end of April 2009. The Temporary Guarantee Program for Money Market Funds was created because of worries that the funds’ net asset values would fall under $1 (a value drop known as “breaking the buck”).

The money market fund program guarantees a $1 minimum share price and insures the holdings of any publicly offered eligible funds that pay to take part in this temporary plan. The program, which covers over $3 million in assets, covers the participating funds’ shareholders up to the amounts that they held when business closed on September 19, 2008.

Only mutual funds that are currently taking part in the plan and meet the extension requirements can continue to participate in the program. To avail of the extended coverage, funds must submit a payment based on their net asset value since September 19. The extension notice must be sent by December 5.

The Temporary Money Market Fund Guarantee Program offers four kinds of Guarantee Agreements:

• Guarantee Agreement • Guarantee Agreement (Single Fund)
• Guarantee Agreement (Stable Value)
• The Guarantee Agreement (Stable Value Single Fund)

It is important to investors hat the standard $1 net value asset for money market mutual funds remain. Worries that money market funds would “break the buck” increased global market turmoil and resulted in serious liquidity strains. These repercussions resulted in greater volatility in exchange markets and caused certain short term interest and funding rates to spike.
Continue Reading ›

Almost 7,000 Broker-Dealers from FSC Securities, AIG Financial Advisors, and Royal Alliance Associates Will Be Part of AIG Advisor Group Sale, Says Source

Published on: October 2, 2008 | by Shepherd Smith Edwards & Kantas, LLP

A source in investment banking who is choosing to remain anonymous says that the futures of nearly 7,000 financial advisors and registered representatives responsible for generating some $1.3 billion in fees and commissions in 2007 will be decided by American International Group Inc’s large scale asset sale. Details of the sale could be announced as early as Friday by new AIG head Edward Liddy.

Published reports also say that AIG New York is thinking of selling over 15 business lines to repay the federal government for an $85 billion emergency loan.
AIG Advisor Group is made up of FSC Securities Corp, AIG Financial Advisors Inc., and Royal Alliance Associates Inc.

The unnamed source is also predicting that Liddy will retain the services of a Wall Street company to conduct a quiet auction for the broker-dealers and that aggressive bids from different firms, including Raymond James and LPL Financial are likely. According to other sources and recruiters, the Financial Services Network of San Mateo, California, which is one of the largest advisor groups affiliated with FSC Securities, could end up with LPL or one of its subsidiaries.

In an interview with the Wall Street Journal last month, AIG Chairman and CEO Liddy said that he expects the company will emerge from its current financial turmoil. Liddy was appointed to his new post two days after the federal government’s loan, intended to keep AIG from bankruptcy.

Related Web Resources:

Another Bailout: Government Lends AIG $85 Billion, NPR.org, September 17, 2008
AIG Advisor Group
Continue Reading ›

FBI Investigates Former HFI Securities Inc. Vice President After Gold and Silver Coins Worth Millions of Dollars Found in His Basement

Published on: September 29, 2008 | by Shepherd Smith Edwards & Kantas, LLP

The FBI is currently investigating Don Weir, a broker and former vice president of investment firm St. Louis-based HFI Securities Inc. The federal probe comes after silver and gold coins worth millions of dollars were found in the basement of Weir’s former home.

The authorities confiscated the bouillon after Weir’s estranged wife contacted the president of HFI Securities and suggested that he visit the home. According to an attorney for HFI, the coins were being held for investors that worked with Weir. However, HFI’s attorney also says that the firm was not aware that Weir had purchased the coins and that he was stashing them in the Missouri basement.

So far, no criminal charges have been filed. Weir, who has been a brokerage firm representative for over 20 years, however, is now unemployed. He reportedly tried to commit suicide soon after the coins were discovered. In the meantime, HFI is trying to determine which of its customers may be the owners of the silver and gold coins.

If you are an investor that has lost money because of a broker’s misconduct, you should speak with a stockbroker fraud lawyer immediately. Continue Reading ›

Court Upholds that New Jersey Division of Investment Cannot Hire External Pension Fund Investment Managers

Published on: September 23, 2008 | by Shepherd Smith Edwards & Kantas, LLP

According to the New Jersey Superior Court, Appellate Division, the New Jersey Division of Investment went beyond its authority with its rules allowing the division director to hire external managers to oversee pension fund investments. The panel however, did uphold the rules allowing the division to invest in private equity funds, hedge funds, as well as other alternative investment vehicles.

In June 2005, the New Jersey Securities Investment Council adopted regulations allowing investments in hedge funds or an absolute return strategy, as well as private equity funds. Soon after, pension funds were committed to private equity partnerships Warburg Pincus IX LLC, Blackstone Capital Partners V L.P., Quadrangle Capital Partners II L.P., and Oak Hill Capital Partners II L.P.

In 2006, the SIC put into effect procedures to bring in external investment managers to supervise pension funds in publicly traded securities. In 2007, the SIC adopted rules allowing the Division of Investment and the director to hire the managers.

The New Jersey Education Association and the Communication Workers of America appealed the actions made by the SIC, the New Jersey Treasurer, and the Division of Investment to adopt and implement the rules. After looking at the statutes, the New Jersey Court found that while the Director has the authority to invest, he or she does not have the authority to give that power to another party. Therefore, not only were any regulations giving the director this authority invalid, but any agreements made by the external managers because of such regulations were also not valid.

The court noted that while the director had the authority to invest in private equity funds and alternative investment management strategies, the director was subject to specific limitations, per N.J.S.A. 52:18A-89c.

Related Web Resources:

Court: No outside hedge fund managers for N.J., Pensions and Investments, August 25, 2008
Court Says US Pension Funds Can Invest in Alternatives, Online Financial News, August 26, 2008
Division of Investment, State of New Jersey Department of the Treasury Continue Reading ›

State Regulators Investigate World Financial for Deceptive Sales Practices

Published on: June 10, 2008 | by Shepherd Smith Edwards & Kantas, LLP

Security regulators in Missouri, Utah, and a number of other US states are accusing World Financial Group of making variable annuities sales that are unsuitable and misrepresenting investment returns. A number of World Financial customers have filed private arbitration claims making similar allegations.

World Financial is owned by Dutch insurer Aegon NV. World Financial’s agents sell annuities, life insurance, and mutual funds. Unlike more traditional sales teams, however, agents make money based on a pyramid-like multilevel sales system. The agents receive most of their compensation from their recruitment of new agents rather than products sales, including a portion of the commissions that the new agents make.

In a 2006 investor presentation, Aegon USA CEO Patrick Baird called World Financial a “real recruiting machine.” The company reportedly has over 18,000 licensed insurance agents and brokers and, according to an Aegon executive in 2006, about 80,000 “producers,” which includes unlicensed and part-time members. Those who meet sales goals are awarded jewelry and trips to the top of the Transamerica Building in San Francisco that is owned by Aegon. Clients are sometimes invited to join the company’s sales force.

Former SEC Commissioner Nazareth Says The US Not Keeping Up with Evolving Investment Markets

Published on: June 6, 2008 | by Shepherd Smith Edwards & Kantas, LLP

Former Securities and Exchange Commissioner Annette Nazareth says that those in charge of overseeing the US financial markets are years behind when it comes to “rethinking regulation” and modernizing the structure required to keep up with the changing investment markets. Nazareth voiced her concerns to the US Chamber of Commerce during a forum about financial regulation last month and talked about how US regulation was lacking compared to other “respectable jurisdictions with robust economies that have rethought regulation.”

Recently, the US Treasury Department recommended the merging of the Securities and Exchange Commission and the Commodity Futures Trading Commission as part of a “blueprint” to restructure financial regulation. Nazareth did not directly endorse this recommendation, but she did talk about how a lot of existing regulation either leaves gaps or is redundant.

Nazareth also noted that while Sarbanes-Oxley imposed “burdensome” regulations, Congress has deregulated the futures markets. She said that there is a lot of business that exists on the cusps of securities and futures and that major issues that are key to the economy are not being systematically tackled.

AARP Financial Inc. Survey Says Investors Find Financial Lingo “Technical and Confusing”

Published on: April 28, 2008 | by Shepherd Smith Edwards & Kantas, LLP

An AARP Financial Inc. survey says that many U.S. investors make investment errors and miss out on opportunities to invest because they find financial jargon confusing, technical, and hard to understand. GfK Custom Research North America of New York interviewed 1,203 adults by phone for the survey.

Findings included:

*Over 52% of respondents said they made an investment mistake because they did not understand or were confused about the investment.