Securities Fraud

Professional Athletes, Celebrities Often Targeted for Securities Fraud

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

The Shepherd Smith Kantas & Edwards law firm has represented many athletes and other celebrities who lost millions because of improper handling of their investments. While overspending and poor investing are two common causes for these losses, the rich and famous also make easy targets for securities fraud, which is when our securities law firm steps in.

One reason for this is that many professional athletes and other people that have become famous are not prepared or well informed about how to manage their new wealth. This can make them easy prey for irresponsible or purposely negligent financial advisers.

“We listen to complaints daily about the mishandling of investors accounts,” said Shepherd Smith Edwards and Kantas founder and securities fraud lawyer William Shepherd. “Yet, it is surprising even to me that financial firms and advisors would engage in financial wrongdoing that harms high-profile investors. Many ‘financial sociopaths’ have zero thought about others and, apparently, little concern for their own negative notoriety.”

AIG Sued by Nuveen Funds For Securities Fraud

Published on: August 12, 2013 | by Shepherd Smith Edwards & Kantas, LLP

25 Nuveen Investments Inc. funds have filed a securities fraud lawsuit against American International Group (AIG) accusing the company of federal securities laws and Illinois securities law violations, common law fraud, and unjust enrichment in the months before the 2008 US financial crisis. They want unspecified monetary damages. Also named as defendants are ex-CEO Martin J. Sullivan, ex-CFO Steven Besinger, and Joseph Casano, who was in charge of the AIG Financial Product unit.

Among the funds suing AIG are the Nuveen Large Cap Value Fund, the Nuveen Equity Premium Opportunity Fund, and the Dow 30 Enhanced Premium. The funds purchased AIG securities at prices that were purportedly inflated and dropped when the truth was revealed.

The plaintiffs claim that they lost tens of billions of dollars in part because of materially misleading and false statements that AIG and others allegedly made. They contend that when the housing market started to fail, AIG told analysts that the risks it faced were “modest and remote” and that they didn’t see any potential financial losses tied to the swaps business.

Judge Approves Creditor Vote on Jefferson County, Alabama’s Bankruptcy Plan

Published on: August 9, 2013 | by Shepherd Smith Edwards & Kantas, LLP

A US judge has paved the path for the creditors of Jefferson County, Alabama to vote on a plan to conclude what is being called the second biggest municipal bankruptcy in US history. Now, the county’s creditors—they are owed $4.2 billion—have until October 7 to vote.

Most of them have already agreed to the negiotiated plan, which would deliver just $1.735 billion to warrant holders of the county’s sewer system that are owed $3.078 billion. A deal has also been reached over non-sewer debt.

It will be up to US Bankruptcy Judge Thomas Bennett to look into a timeline that would wrap up Jefferson County’s bankruptcy. He is the one who approved the vote on the plan. If creditors the plan, it will need to be confirmed during a hearing that would take place in November.

Spotlight on the SEC: Regulator Sues China Entities for Fraud and Votes to Turn Down Falcone-Related Securities Settlements

Published on: July 31, 2013 | by Shepherd Smith Edwards & Kantas, LLP

Two China Companies Slapped With SEC Securities Lawsuit For Allegedly Fraudulent Scams

In the U.S. District Court for the Southern District of New York, the Securities and Exchange Commission is suing consumer electronic company NIVS IntelliMedia Technology Group Inc., lighting company China Intelligent Lighting and Electronics Inc., and the Chinese companies’ CEOs Tianfu Li and Xuemei Li, who are siblings, for taking part in allegedly fraudulent scams to raise offering proceeds and then divert them. The regulator believes that they lied to auditors and made filings that were materially misleading to hide their purported misconduct.

In a release, the SEC says that NIV and CIL are US issuers that raised about $21.5 million and $7 million, respectively, in public registered offerings in American capital markets in 2010. The siblings then allegedly took most of the funds from the companies’ accounts and diverted the offering proceeds from what the offering documents said they would be used for. The Commission wants disgorgement and prejudgment interest, injunctive relief, civil penalties, and other relief that is deemed appropriate.

Thornes & Associates Inc. Investment Securities’ Head Gets Industry Bar for “Lending” $4.2M of His Clients’ Assets to Friends

Published on: July 27, 2013 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority says that Thornes & Associates Inc. Investment Securities President John Thomas Thornes lent $4.2 million in client assets to two friends. Following the resolution of the FINRA arbitration case, the California broker is barred from the securities industry and his broker-dealer has been suspended, as well was expelled as a member of the SRO.

The friends who received the “loans”-over 50 transactions-allegedly spent the assets on cars, vacation homes, and plane and jet rentals. Over $262,000 is said to have been turned into cashier’s checks and used at an Indian casino.

Per FINRA’s complaint, however, calling the transfer of money a “loan” was not an accurate characterization, and not only were they unsecured and undocumented transactions but also they were never paid back.

DOJ’s $5B Securities Lawsuit Against Standard & Poor’s Can Proceed, Says Judge

Published on: July 22, 2013 | by Shepherd Smith Edwards & Kantas, LLP

U.S. District Judge David O. Carter for the Central District of California has turned down Standard & Poor’s bid to have the Justice Department’s $5 billion securities lawsuit against it dismissed. This affirms Carter’s recent tentative ruling earlier on the matter.

S & P is the largest credit rating agency in the world. It is a McGraw Hill Financial Inc. unit.

According to the US government, the credit rater fraudulently misrepresented its ratings process as objective and independent when it was, in fact, stymied from issuing ratings because of its desire to please banks and other clients. Instead, between 2004 and 2007, S & P purportedly issued AAA ratings to certain poor quality mortgage packages, including residential mortgage-backed securities, collateralized debt obligations, and subprime mortgage-backed securities. Now, prosecutors want to recover the losses that credit unions and federally insured banks allegedly suffered because of these inaccurate ratings that it contends upped investor demand for the instruments until the prices soared and the market collapsed, contributing to the global economic meltdown that followed.

SEC Focuses More Attention On Accounting Fraud, Variable Annuities, & Market-Maker Risk

Published on: June 26, 2013 | by Shepherd Smith Edwards & Kantas, LLP

Securities and Exchange Commission Chairman Mary Jo White says that the agency will direct more resources toward going after financial fraud and accounting fraud. She was, however, clear to point out that this did not mean that a new accounting and financial fraud unit would be created, despite calls for one by some industry members. White spoke at the CFO Network 2013, where she also announced that the Commission was modifying its “neither admit, nor deny” settlement practice. This is an announcement that our stockbroker fraud law firm addresses in a different blog post.

The Commission is currently assessing its Enforcement Division’s specialized units, and this review is expected to result in certain size refinements and mandates, as well as the establishment of maybe one or more new units. Enforcement Division co-director George Canellos, however, said that the same reason why such a unit wasn’t set up three years ago when five specialized units (focusing on market abuse, asset management, the Foreign Corrupt Practices Act, public pensions, and municipal securities) were established still holds.

The SEC said then that nearly every regional office has attorneys and experienced accountants they believed are able to handle such cases. That said, the Commission will give over more resources to surveillance and become even more proactive about identifying where there are risks in accounting issues. This will include the Division of Economic and Risk Analysis’s development of an “Accounting Quality Model” that would let the SEC identify financial statement outliers. There also will be more partnering between the Enforcement Division’s Office of the Chief Accountant and the Division of Corporation Finance to come up with more accounting leads.

Cayman Islands LLC Must Replead CLO Securities Case Against Deutsche Bank

Published on: June 24, 2013 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. District Court for the Southern District of New York says that Arco Capital Corp. a Cayman Islands LLC, has 20 days to replead its $37M collateralized loan obligation against Deutsche Bank AG (DB) that accuses the latter of alleged misconduct related to a 2006 CLO. According to Judge Robert Sweet, even though Arco Capital did an adequate job of alleging a domestic transaction within the Supreme Court’s decision in Morrison v. National Australia Bank, its claims are time-barred, per the two-year post-discovery deadline and five-year statute of repose.

Deutsche Bank had offered investors the chance to obtain debt securities linked to portfolio of merging markets investments and derivative transactions it originated. CRAFT EM CLO, which is a Cayman Islands company created by the bank, effected the transaction and gained synthetic exposure via credit default transactions. For interest payment on the notes, investors consented to risk the principal due on them according to the reference portfolio. However, if a reference obligation, which had to satisfy certain eligibly requirements, defaulted in a way that the CDS agreements government, Deutsche Bank would receive payment that would directly lower the principal due on the notes when maturity was reached.

Arco maintains that the assets that experienced credit events did not meet the criteria. It noted that Deutsche Bank wasn’t supposed to use the transaction as a repository for lending assets that were distressed, toxic, or “poorly underwritten.”

Former Millennium Global Investments Portfolio Manager Accused of Fraud Involving Nigerian Sovereign Debt Markups

Published on: June 19, 2013 | by Shepherd Smith Edwards & Kantas, LLP

According to prosecutors, Michael Balboa, an ex-Millennium Global Investments Ltd. portfolio manager, took part in a 10-month financial scam that involved marking up the Nigerian sovereign debt in funds he oversaw.

The federal government contends that Balboa and three unnamed co-conspirators engaged in a scheme in which he provided bogus mark-to-market quotes to a valuation agent that then inflated the market prices at month-end for Nigerian warrants. As a result, one fund’s total valuation for the Nigerian warrants was able to go from over $12 million at the start of 2008 to over $84 million in August of that year. Balboa’s Millennium Global Emerging Credit Fund is now insolvent.

He allegedly overstated the value of the securities positions and illiquid securities in the funds, which caused him to earn performance and management fees that were not legitimate. Balboa also purportedly lied to investors repeatedly about how the funds were faring.

Dismissal of $44M International Boiler Room Scam Claims Raises Issue of SEC Extraterritorial Enforcement Authority

Published on: May 21, 2013 | by Shepherd Smith Edwards & Kantas, LLP

Pointing to the US Supreme Court’s ruling in Morrison v. National Australia Bank Ltd., the U.S. District Court for the Northern District of Illinois dismissed the SEC’s allegations that a group of entities and persons violated broker-dealer registration requirements in an alleged $44 million international boiler room scam. The broker fraud case is SEC v. Benger.

Claiming the transactions were extraterritorial and not within the scope of the regulator’s reach, defendants sought summary judgment even though a lot of the allegedly fraudulent activity is said to have happened in the US. The district court, however, found that investors became irrevocably bound in their countries upon submission of buying offers even though they turned those offers in to escrow agents in this country. Moreover, the issuer became irrevocably bound in Brazil when accepting the purchase offers, and when the sale went through the titled passed either there or the countries where investors got the stock certificates regardless that the agents that served as middlemen were located here.

In Morrison, the Supreme Court determined that the 1934 Securities Exchange Act’s key federal securities antifraud provision is only applicable to securities transactions that can either be found on U.S. exchanges or that took place domestically. Following that decision, and seeking to give back exterritorial reach to both Justice Department and the SEC, Congress issued the Dodd-Frank Wall Street Reform and Consumer Protection Act’s Section 929P, which gives federal courts jurisdiction over enforcement actions involving conduct that took place in the US that played a part in significantly furthering a violation/behavior taking place abroad that will have a likely effect domestically.