Articles Posted in Securities Fraud

Winell Associates Inc., Maxi Partners GP, and Howard Winell Settle CTFC Charges Accusing Them of Misappropriating Funds and Unauthorized Trading of Over $5.2M

Published on: May 27, 2011 | by Shepherd Smith Edwards & Kantas, LLP

Howard Winell, Winell Associates Inc., and Maxie Partners GP LLC have agreed to pay over $5.2 million to settle Commodity Futures Trading Commission charges accusing them of taking part in unauthorized trading and misappropriating funds related to a commodity futures and options pool. By settling, the respondents are not denying or admitting the allegations. They have, however, agreed to a permanent ban from both trading and registering with the CFTC.

The agency says that in 2005, Winell and the two firms solicited and pooled about $20 million from approximately 25 participants to trade commodity futures and options on commodity futures through Maxie Partners LP, which is a commodity pool. In May 2007, one of the largest participants in the pool asked to redeem about $7 million. The agency says that while the respondents segregated that amount to meet this request, before the redemption was issued the pool suffered substantial losses and had margin calls of about $4 million issued by futures commission merchants that held the pool’s trading accounts. The CFTC says that to keep on trading and meet the margin calls, Winell had to transfer those segregated funds back to the pool’s trading accounts. About $3.8 million of the participant’s money was lost.

It is wrong for brokers and financial advisers to misappropriate funds when doing their job. If you believe that you have suffered financial losses because of broker misconduct, do not hesitate to contact our stockbroker fraud lawyers immediately.

Related Web Resources:
Howard Winell and Winell Associates fined USD5.2m for fraud, HedgeWeek, May 3, 2011
CFTC Sanctions New York Resident Howard Winell and His Companies, Winell Associates, Inc., and Maxie Partners GP, LLC, More than $5.2 Million for Fraud, CFTC, May 2, 2011
Commodity Futures Trading Commission

More Blog Posts:
Commodity Options Fraud Charges by CFTC Prompts District Court to Freeze Assets and Records of 20/20 Trading Co. Inc. & 20/20 Precious Metals Inc., Stockbroker Fraud Blog, May 6, 2011
Commodities Industry Fears being held to Regulatory Standards of Securities Industry, Stockbroker Fraud Blog, February 4, 2011
CFTC Files Charges in Alleged California Ponzi Scam Involving the Fraudulent Solicitation of $14 million in Commodity Futures, Stockbroker Fraud Blog, January 18, 2011 Continue Reading ›

Five Ex-Brooke Executive Settle SEC Fraud Charges Accusing Them of Concealing Financial Firm’s Deteriorating Finances

Published on: May 19, 2011 | by Shepherd Smith Edwards & Kantas, LLP

Five of the six former Brooke executives accused of securities fraud have settled the charges filed by the US Securities and Exchange Commission. According to the SEC, the defendants misrepresented the deteriorating financial condition of Brooke, which eventually filed for bankruptcy. The agency says they employed “virtually any means necessary” to hide Brooke’s financial state, which included liquidity crises that occurred almost every week. The SEC also contends that Aleritas’s loan losses, which was in the hundreds of millions of dollars, caused a number of regional banks to fail.

Among those that settled are brother Robert and Leland Orr. Robert formerly served as Brooke Corp. chairman, while Leland was chief executive. The other three who settled were former Aleritas executives Michael S. Lowry and Michael S. Hess and former Brooke Capital and Brooke Corp. CFO Travis W. Vrbas. A sixth executive, former Brooke executive Kyle Garst, is contesting the securities fraud allegations.

By agreeing to settle the ex-Brooke executives are not admitting to or denying the allegations. The Orr brothers have consented to disgorge profit and pay fines, but the court has yet to determine the figures. Lowry has agreed to $214,500 in disgorgement, $24,004 in prejudgment interest, and a $175,000 penalty. Hess is to pay a $250,000 penalty. Vrbas has consented to a $130,000 penalty.

The SEC has also accused two Brooke affiliates, insurance agency franchisor Brooke Capital Corp. and lender Aleritas Capital Corp., of securities fraud. The fallout from the alleged fraud has had a “devastating” effect on the livelihood of “hundreds of insurance franchisees.”

Related Web Resources:
Five former Brooke execs settle SEC fraud charges, Reuters, May 4, 2011
Financial Firm Execs Misled Investors,  SEC Contends; Five of Six Settle Charges, BNA Securities Law Daily, May 5, 2011

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SEC ALJ Finds Several Brokers Liable for Unlawful Penny Stock Sales, Stockbroker Fraud Blog, May 9, 2011
Texas-Based AIG’s Largest Private Shareholder Says US Will Likely Sell Its Shares in the Insurer At Lower Price than Expected, Stockbroker Fraud Blog, May 13, 2011
Securities Practices of JPMorgan Chase & Goldman Sachs Under Investigation by Federal Investigators, Institutional Investor Securities Blog, May 19, 2011 Continue Reading ›

SEC ALJ Finds Several Brokers Liable for Unlawful Penny Stock Sales

Published on: May 9, 2011 | by Shepherd Smith Edwards & Kantas, LLP

A Securities and Exchange Commission administrative law judge has found several brokers liable for their alleged involvement in the unlawful sale of penny stocks to investors. In re Bloomfield, the SEC had filed securities charges against Robert Gorgia, Ronald S. Bloomfield, Victor Labi, John Earl Martin Sr. and Eugene Miller. Labi, Martin, and Bloomfield were Leeb Brokerage Services registered representatives, while Miller and Gorgia were president and chief compliance officer. Leeb is no longer in operation.

The SEC contends that the defendants let customers regularly deliver blocks of privately obtained penny stocks shares into their Leeb accounts. The clients would then sell the securities to the public through unregistered securities transactions.

While Martin, Labi, and Bloomfield allegedly did not conduct reasonable inquiry prior to allowing the public sale of the stock and violated securities law registration requirements, the other two men are accused of failing to reasonably supervise the registered representatives. The SEC claims that the men let the unlawful penny stock sales occur without doing enough to investigate whether they were “facilitating illegal underwriting.” As a result, the defendants allegedly caused Leeb’s failure to submit Suspicious Activity Reports that are mandated under the Bank Secrecy Act.

ALJ Brenda P. Murray noted that the securities fraud resulted in significant financial losses for the investing public. She ordered the three stockbrokers to pay $1.39M in disgorgement. The three brokers were also ordered to pay a $100,000 civil penalty and cease and desist from future misconduct. Miller, who settled the securities charges against him last year, has agreed to supervisory suspension, a cease and desist order, and a $50,000 penalty.

Related Web Resources:
SEC Litigation (PDF)

Brokers Found Liable on Charges They Aided Unlawful Penny Stock Sales, BNA – Securities Law Daily, Alacra Store, April 28, 2011

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FINRA Orders Charles Schwab to Pay $18M to Fair Fund for YieldPlus Investors, Stockbroker Fraud Blog, March 12, 2011
Texas Securities Fraud: SEC Halts Alleged Ponzi Scheme in the Dallas-Fort Worth Area, Texas Stockbroker Fraud Blog, March 2, 2011
SEC Securities Settlements Often Don’t Come with Admission, Institutional Investor Securities Blog, March 29, 2011 Continue Reading ›

Tribune Bondholders Can Sue Shareholders for Over $8.2B

Published on: April 30, 2011 | by Shepherd Smith Edwards & Kantas, LLP

A bankruptcy court judge has cleared the way for Tribune Co. (TRBCQ) bondholders to file securities complaints in state court against ex-shareholders who made money from the 2007 leveraged buyout that is thought to have caused the media giant’s demise. They contend that for real estate magnate Sam Zell to raise the money to pay off the shareholders and gain control of the Tribune, the company ended up taking on level of debt that it could not sustain and which resulted in bankruptcy in 2008.

The bondholders claim that the 2007 buyout was made at their expense and they want to get back the over $8.2 billion that was paid out to ex-shareholders. Unfortunately, seeing as there are billions of dollars in secured debt, it is not likely that bondholders will recover all of the over $2 billion in notes that the media giant issued before the buyout unless creditors prevail in their lawsuits against shareholders, Zell, lenders, and other parties.

The bondholders needed to get permission to file their lawsuits outside the bankruptcy court. Led by Aurelius Capital Management, they say the action was necessary because the statute of limitations for pursuing such claims under state laws in Illinois and Delaware ends in June, when it will have been four years since the buyout. The bondholders are worried that Tribune, which is based in Illinois, won’t get out of bankruptcy by then. Possible securities lawsuit targets are the Robert R. McCormick Foundation, which sold $1.5 billion in company stock for a $963 million profit for the buyout and Stark Investments, a hedge fund that invested in Tribune.

Related Web Resources:

Bondholders Can Sue Over Tribune, The Wall Street Journal, April 27, 2011

More Blog Posts:

SEC is Finalizing Its Whistleblower Rules, Says Chairman Schapiro, Stockbroker Fraud Blog, April 28, 2011

Securities Lawsuits Expected to Reach Record High in ’11, Says Advisen Ltd. Report

Published on: April 23, 2011 | by Shepherd Smith Edwards & Kantas, LLP

Per Advisen Ltd’s latest quarterly report on securities litigation, the number of securities lawsuit filings will likely set a new record high for yet another year in a row. Records were set in 2008, 2009, and 2010 following the credit crisis. Advisen’s quarterly report was sponsored by ACE.

John Molka III , the report’s author, says that even with the credit crisis has eased up, the submission of securities lawsuits has not. 1,293 securities lawsuits were filed in 2010. Now, Advisen is saying that based on the number of securities complaints filed during the first quarter of 2011, you can expect the number of lawsuits for this year to beat that number. Molka speculates that this “elevated level of filings” could be the “new normal.”

During Q1 2011, 362 securities lawsuits were filed—a 47% jump from the number of complaints that were submitted in Q1 2010. Compare this first quarter to last year’s last quarter when 342 securities complaints were filed. Also, with 1,448 new filings as this year’s first quarter annualized rate, that’s already12% more than last year’s total filings. The complaints include those for breach of fiduciary duty, shareholder derivative cases, securities fraud, and securities class actions.

Although securities fraud complaints comprised the greatest portion of filings for the first quarter, breach of fiduciary duties lawsuits, which include merger objection complaints, are the real cause of securities lawsuit growth. Meantime, 18% of new filings were securities class action complaints, which in the past made up over 1/3rd of securities lawsuits. Securities class action lawsuits, however, still make up for the majority of the largest settlements. During this first quarter, the average securities class action case settled for $54.6 million.

More Blog Posts:

Class Members of Charles Schwab Corporation Securities Litigation Can Still Opt Out to File Individual Securities Claim, Stockbroker Fraud Blog, December 6, 2010

Securities Fraud Lawsuit Against Calamos Investments Filed on Behalf of Calamos Convertible Opportunities and Income Fund Shareholders, Stockbroker Fraud Blog, September 17, 2010

SEC Charges Subprime Auto-Loan Provide Inofin Inc. with Securities Fraud

Published on: April 16, 2011 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. Securities and Exchange Commission has filed securities fraud charges against Inofin Inc. and three of its executives. The SEC contends that they diverted millions of investor funds’ for their personal use and misled investors. For example, the agency contends that Kevin Mann and Michael Cuomo used about third of the investors’ money to start several real-estate property developments and open four used car dealerships.

The agency claims that Mann, Cuomo, & Melissa George acted illegally when the raised $110 million from hundreds of investors in the District of Columbia and 25 states. They allegedly did this with unregistered notes that they told investors were going to be used only for funding subprime auto loans. Meantime, the subprime auto-loan provider’s clients were told that 9-15% returns could be expected because Inofin charged 20% interest rates on average to subprime borrowers.

Inofin is accused of misrepresenting its financial performance between 2006 and 2010, while its executives allegedly prepared and submitted false financial statements to the Massachusetts Division of Banks. SEC says that Inofin’s worsening financial state was caused by the company’s failure to disclose its business activities and because management decided to sell part of its auto loan portfolio at a considerable discount to deal with cash shortages. Meantime, Inofin and its key officers kept selling Inofit securities while allowing investors to keep believing that it was a profitable business and a solid investment.

The SEC has also charged two sales agents, Thomas K. (Kevin) Keough and David Affeldt, because they allegedly offered to sell company securities even though they were not SEC-registered broker-dealers. The agency says that between 2004 and 2009 the men were unjustly enriched by referral fees of over $500,000.

Related Web Resources:
SEC Charges Subprime Auto Loan Lender and Executives with Fraud, SEC, April 14, 2011
Mass. auto lender, executives charged with fraud, Businessweek/Bloomberg, April 14, 2011
Massachusetts Division of Banks

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FINRA Orders UBS Financial Services to Pay $8.25M for Misleading Investors About Security of Lehman Brothers Principal Protected Notes, Stockbroker Fraud Blog, April 15, 2011
Wells Fargo Settles SEC Securities Fraud Allegations Over Sale of Complex Mortgage-Backed Securities by Wachovia for $11.2M, Institutional Investor Securities Blog, April 7, 2011 Continue Reading ›

Goldman Sachs Group Made Money From Financial Crisis When it Bet Against the Subprime Mortgage Market, Says US Senate Panel

Published on: April 15, 2011 | by Shepherd Smith Edwards & Kantas, LLP

The Senate’s Permanent Subcommittee on Investigations says that because Goldman Sachs Group Inc. bet billions against the subprime mortgage market it profited from the financial crisis. The panel’s findings come following a two-year bipartisan probe and were released in a 639-page report on Wednesday.

The subcommittee released documents and emails that show executives and traders attempting to get rid of their subprime mortgage exposure, which was worth billions of dollars, and short the market for profit. Their actions ended up costing their clients that purchased the financial firm’s mortgage-related securities.

The panel says that Goldman allegedly deceived the investors when failing to tell them that the investment bank was simultaneously shorting or betting against the same investments. The subcommittee estimates that Goldman’s bets against the mortgage markets in 2007 did more than balance out the financial firm’s mortgage losses, causing it to garner a $1.2 billion profit that year in the mortgage department alone. Also, when Goldman executives, including Chief Executive Lloyd Blankfein appeared before the committee in 2010, the panel says that they allegedly misled panel members when they denied that the financial firm took an a position referred to as being “net short,” which involves heavily tilting one’s investments against the housing market.

It was just last year that the Securities and Exchange Commission ordered Goldman to pay $550 million to settle securities fraud charges over its actions related to the mortgage-securities market. The allegations in this report go beyond the claims covered by the SEC case. The report also names mortgage lender Washington Mutual, credit rating firms, the Office of Thrift Supervision, and a federal bank regulator as among those that contributed to the financial crisis.

Goldman is denying many of the subcommittee’s claims and says its executives did not mislead Congress.

Related Web Resources:
Goldman Sachs shares drop on Senate report, Reuters, April 14, 2011

Senate Panel: ‘Goldman Sachs Profited From Financial Crisis’, Los Angeles Times, April 14, 2011

Senate Permanent Subcommittee on Investigations

More Blog Posts:
Goldman Sachs Sued by ACA Financial Guaranty Over Failed Abacus Investment for $120M, Institutional Investor Securities Blog, January 10, 2011

Goldman Sachs Settles SEC Subprime Mortgage-CDO Related Charges for $550 Million, Stockbroker Fraud Blog, July 30, 2010

Goldman Sachs COO Says Investment Firm Shorted 1% of CDOs Mortgage Bonds But Didn’t Bet Against Clients, Stockbroker Fraud Blog, July 14, 2010

UBS Financial Services Fined $2.5M and Ordered to Pay $8.25M Over Lehman Brothers-Issued 100% Principal-Protection Notes

Published on: April 12, 2011 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority is fining UBS Financial Services, Inc. $2.5 million and ordering it to pay $8.25 million in restitution for allegedly misleading investors about the “principal protection” feature of 100% Principal-Protection Notes. Lehman Brothers Holdings Inc. issued the PPNs Holdings Inc. before it filed for bankruptcy in 2008.

FINRA contends that even as the credit crisis was getting worse, between March and June 2008 UBS advertised and described the notes as investments that were principal-protected while failing to make sure clients knew that they PPNs were unsecured obligations of Lehman and that the principal protection feature was subject to issuer credit risk. UBS also allegedly failed to:

• Properly notify its financial advisers of the impact the widening of credit default swaps was having on Lehman’s financial strength
• Sufficiently analyze how appropriate the Lehman-issued PPNs were for certain clients
• Set up a proper supervisory system for the sale of the Lehman-issued PPNs
• Provide proper training or appropriate written supervisory procedures and policies
• Provide adequate suitability procedures for determining who should invest

FINRA also says that UBS developed and used advertising collateral about the PPNs that misled certain clients, such as the suggestion that a return of principal was certain as long as clients held the product until it matured. FINRA claims that the reason that some UBS financial advisers gave incorrect information to customers was because they themselves didn’t fully understand the product.

FINRA says that because UBS’s suitability procedures were inadequate and certain PPN’s lacked risk profile requirements, the product was sold to investors who were not willing or shouldn’t have been allowed to take on the risks involved. More often than not it was these investors who were likely to depend on the Lehman PPNs’ “100% principal protection” feature that were “risk averse.”

By agreeing to settle, UBS is not denying or admitting to the charges.

UBS to shell out $10.75M to settle Lehman-related row, Investment News, April 11, 2011

More Blog Posts:
UBS to Pay $2.2M to CNA Financial Head for Lehman Brothers Structured Product Losses, Stockbroker Fraud Blog, January 4, 2011

UBS Must Pay Couple $530,000 for Lehman Brothers-Backed Structured Notes, Institutional Investors Securities Blog, November 5, 2010

Lehman Brothers’ “Structured Products” Investigated by Stockbroker Fraud Law Firm Shepherd Smith Edwards & Kantas LTD LLP, Stockbroker Fraud Blog, September 30, 2008

Wells Fargo Settles SEC Securities Fraud Allegations Over Sale of Complex Mortgage-Backed Securities by Wachovia for $11.2M

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

For a payment of $11.2 million, Wells Fargo & Co. will settle US Securities and Exchange Commission allegations that Wachovia Capital Markets LLC misled investors and improperly sold two collateralized debt obligations in 2007 and 2006. Wachovia was bought by Wells Fargo in 2008.

Wells Fargo Securities now manages Wachovia. By agreeing to settle, the investment bank is not admitting to or denying the findings.

According to the SEC, Wachovia Capital Markets LLC, now called Wells Fargo Securities, violated securities law anti-fraud provisions when it sold the complex mortgage-backed securities to investors despite the red flags indicating that there was trouble brewing with the US housing market.

The SEC says that Wachovia charged excessive markups in the sale of part of a $1.5 billion CDO called Grand Avenue II. Unable to sell the CDOs $5.5 million equity portion in October 2006, it kept the shares on the trading desk while dropping their value to 52.7 cents on the dollar. Wachovia later sold the shares for 90 and 95 cents on the dollar to an individual investor and the Zuni Indian tribe. Both did not know that they had purchased the shares at a price that was 70% above their accounting value. The transaction went into default in 2008.

The SEC claims that in 2007, Wachovia Capital Markets misrepresented to investors in Longshore 3, a $1.3 billion CDO, that assets had been acquired from Wachovia affiliates on an “arms’-length basis” when actually, 40 residential mortgage-backed securities were transferred at $4.6 million over market prices. The SEC contends that Wachovia was trying to avoid sustaining losses by transferring the assets at “stale” prices.

Related Web Resources:

Wells Fargo-Wachovia settles CDO claim with SEC for $11 million, Housing Wire, April 5, 2011

CDO News, New York Times

Mortgage-Backed Securities, SEC.gov

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Houston Man Indicted in Alleged $17M Texas Securities Fraud, Stockbroker Fraud Blog, December 23, 2010

Goldman Sachs COO Says Investment Firm Shorted 1% of CDOs Mortgage Bonds But Didn’t Bet Against Clients, Stockbroker Fraud Blog, July 14, 2010

SEC Securities Settlements Often Don’t Come with Admission of Wrongdoing

Published on: March 29, 2011 | by Shepherd Smith Edwards & Kantas, LLP

As Bloomberg News columnist Ann Woolner points out, in most US Securities and Exchange Commission where a settlement is reached, the defendant usually ends up not having to admit to doing anything wrong. Instead, the securities fraud agreement is accompanied by the boilerplate caveat that says that by settling, the plaintiff is doing so without “without admitting or denying” wrongdoing.

Granted, there are certain cases where a conviction or guilty plea in a related criminal case makes it clear that a wrongful action did take place. One might also say that by agreeing to settle and pay a huge financial sum, the plaintiff is admitting to the wrongdoing without actually admitting to doing anything wrong. However, as Woolner points, not all defendants of US Securities and Exchange Commission cases are also charged in criminal court over the alleged securities fraud. Even when a settlement is reached, without an admission, the exact nature of the fraud is often left unclear.

SEC spokesperson John Nestor says that of the over 600 securities lawsuits filed every year, only about 20 of them ever go to trial. Nestor notes that the SEC’s primary objective in any civil case is to secure the proper sanctions against wrongdoers and not making them admit wrongdoing is a way to get this done. Many violators will give up a great deal to avoid being held liable in civil court. They also have little incentive to confess because this could help the securities fraud lawsuits of plaintiffs.

U.S. District Judge Jed Rakoff says that letting securities defendants get away with not admitting what they have done is a “disservice to the public.” Meantime, SEC commissioner also says that he wants defendants to “take accountability” and “issue mea culpas.” He also wants companies to stop putting out press releases suggesting that the SEC overreacted.

Related Web Resources:
Uncle Sam Wants Your Cash, Not Confession: Ann Woolner, Bloomberg, March 24, 2011

US Securities and Exchange Commission

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Bank of America to Pay $137M Over Alleged Investment Scam To Pay Municipalities Low Interest Rates on Investments and $9M Over Alleged Bid-Rigging Scheme to Nonprofits, Institutional Investors Securities Blog, December 16, 2010

NJ Settles Municipal Bond Offering Fraud Charges with SEC, Institutional Investors Securities Blog, September 30, 2010

Federal Judge to Approve Citigroup’s $75M Securities Settlement with SEC Over Bank’s Subprime Mortgage Debt Reporting to Investors, Institutional Investors Securities Blog, September 29, 2010