Securities Fraud

Securities Class Actions are No Longer the Fad as Investors Hire Their Own Attorney to Recover Far More!

Published on: January 23, 2010 | by Shepherd Smith Edwards & Kantas, LLP

According to Advisen Ltd, 910 securities lawsuits were filed in 2009 in the wake of the economic crisis-a 13% increase from the 804 complaints filed in 2008. 239 securities fraud class action lawsuits were filed in 2009-the same number filed in 2008. Advisen reported a 22% increase in the number of regulator-filed securities fraud complaints last year compared to the year before.

The author of Advisen’s report, John W. Molka III, says lawsuits over the Madoff ponzi scam and the credit crisis kept regulators and litigators busy during the first half of last year. Plaintiffs’ lawyers then had a backlog of other complaints to work on during the second half of the year.

Molka says that even though there wasn’t a change in the number of securities class action complaints filed, overall they made up a smaller percentage (about 25%) of the total number of lawsuits submitted. This decline in securities class action lawsuits has been going on since 2005, when they comprised about 50% of all securities complaints.

Advisen says that meantime, regulators continue to increase their enforcement efforts with lawsuits and actions. Securities actions filed in state courts and breach of fiduciary complaints are also growing in number.

To obtain the maximum recovery for your securities case, you should speak with a securities fraud law firm about your legal options. Our securities fraud lawyers represent clients with arbitration claims and securities lawsuits against negligent financial firms and other liable entities.

Related Web Resources:
Advisen, Ltd.

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Court Stops Results One Financial LLC Adviser’s Alleged Investment Fraud Scam

Published on: January 21, 2010 | by Shepherd Smith Edwards & Kantas, LLP

Per the Security and Exchange Commission’s request for emergency relief, the U.S. District Court for the Northern District of Illinois has halted an alleged investment fraud scam involving Results One Financial LLC adviser Steve W. Salutric. He is co-founder of the financial firm. Hon. William J. Hibbler ordered that all assets under Salutric’s control be frozen and he issued a temporary restraining order against him. Hibbler is also granting other emergency relief.

The SEC complaint accuses Salutric of making unauthorized withdrawals from clients’ accounts that were located in another financial institution that was the custodian of Results One Financial’s client assets, forging client signatures on withdrawal request forms, and submitting the signed forms to the account custodian.

The SEC is charging the investment advisor with misappropriating several million dollars of his clients’s finds. Beginning in 2007, Salutric allegedly misappropriated more than $2 million from at least 17 clients to support entities and businesses that are linked to him. Funds that were allegedly misdirected include $610,000 to a film distribution company, $259,000 to two restaurants, and $321,000 to the church where he is treasurer. The SEC is accusing Salutric of misappropriating over $400,000 from a 96-year-old nursing home resident who has dementia. He also allegedly made Ponzi-like payments to certain clients.

Courthouse News Service says that Salutric managed over $16 million through Results One. The SEC says that there may be more clients who were defrauded and additional funds may have been misappropriated.

The SEC is seeking penalties, disgorgement, and an injunction.

SEC Cannot Order Former Rauscher Pierce Broker to Compensate Investors for Losses, Says Court

Published on: January 19, 2010 | by Shepherd Smith Edwards & Kantas, LLP

According to the U.S. Court of Appeals for the District of Columbia Circuit, the Securities and Exchange Commission cannot order former Rauscher Pierce Refsnes Inc. broker Michael Siegel to uphold an award of restitution to investors who sustained financial losses as a result of his alleged broker misconduct. Siegel worked as a general securities representative for the financial firm from October 1997 to June 1999.

In 2002, NASD’s Department of Enforcement charged Siegel with “selling” away and making inappropriate recommendations to certain investors. Specifically, the investors that the alleged violations involved are Dorothy and Barry Landry and Linda and Huntington Downer, who invested in World Environmental Technologies Inc. The NASD has accused Siegel of recommending that they invest in World ET without reasonable cause for why doing so would be appropriate for them. To discipline him, NASD ordered Siegel to serve two six-month suspensions. They also fined him $30,000.

While the NASD disciplinary committee did not order restitution, an NASD appeals panel did. He was told to pay $100,000 to the Landers and $303,000 to the Downers. Siegel appealed but the SEC affirmed the appeals panel’s decision.

Dismissal of Lone Star’s $60 Mortgage-Backed Securities Texas Fraud Action Against Barclays is Affirmed by Federal Appeals Court

Published on: January 17, 2010 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. Court of Appeals for the Fifth Circuit has affirmed the dismissal of LSF5 Bond Holdings LLC and Lone Star Fund V (U.S.) L.P.’s $60 million securities fraud claims against Barclays Capital Inc. and Barclays Bank PLC. The court noted that Barclays never represented that the mortgage pass-through certificates purchased by the private equity firms did not have delinquent mortgages. Also, the court said that seeing as the language used in the parties’ agreement obligated Barclays to substitute or repurchase delinquent representation, Lone Star failed to allege misrepresentation.

In 2006, Barclays bought mortgage loans from then-subprime lender New Century Capital Corp. Barclays then pooled about 10,000 mortgage loans into the BR3 and BR2 Trusts. The trusts then gave out pass-through certificates or mortgage-backed securities. $60 million of the securities were bought by LSF5.

Although trust offerings supplements and prospectuses included representations and warranties that as of “transfer service dating” the mortgage pools did not have any 30-day delinquencies, Lone Star found that nearly 300 of the BR2 mortgages were at least 30 days delinquent beginning the date of purchase. 850 mortgages in the BR3 Trust were also over 30 days overdue.

Lone Star filed a Texas securities fraud lawsuit against Barclays claiming that the delinquent loans were misrepresentations on the investment bank’s part. Barclays sought to have the lawsuit dismissed, arguing that if there were delinquent loans then Barclays must either substitute or repurchase them.

The district court turned down Lone Star’s remand request and agreed with Barclay’s interpretation of the language in the agreement. The court dismissed the case. The appeals court upheld the dismissal.

Related Web Resources:
Lone Star Fund V (U.S), LP et al v. Barclays Bank PLC et al, Justia Federal District Court Filings and Dockets
Read the 5th Circuit Opinion (PDF)
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For Role in $2.4 Billion Refco Investor Fraud Scheme, Former Mayer Brown Partner Receives 7-Year Prison Sentence

Published on: January 15, 2010 | by Shepherd Smith Edwards & Kantas, LLP

Joseph P. Collins, a former Mayor Brown partner, has been sentenced to seven years in prison for his role in a $2.45 billion investment fraud scheme involving Refco Inc. He had hoped to obtain a more lenient sentence.

In July 2009, a jury found Collins guilty of wire fraud and securities fraud, as well as conspiracy to commit wire fraud, securities fraud, money laundering, bank fraud, and making false filings with the SEC. During his criminal trial, his defense attorneys argued that he did not know about the Refco fraud scam. However, while Southern Judge Patterson said that he believes Collins did not commit his crimes out of greed, Patterson noted what he called the firm partner’s “excessive loyalty” to his biggest client. According to Assistant U.S. Attorney Christopher J. Garcia, Collins brought in over $40 million to his law firm from his work with Refco.

Collins provided legal counsel and drafted documents that Refco principals used to conceal the company’s actual financial state while they made themselves wealthier. The government says that the documents were used to defraud Thomas H. Lee Partners, which owned a majority stake in Refco, and investors who purchased IPO shares in 2005.

Number of Ponzi Scam Collapses Increased Significantly Last Year

Published on: January 4, 2010 | by Shepherd Smith Edwards & Kantas, LLP

The number of Ponzi scams that fell apart increased by nearly four times in 2009, compared to the year, before resulting in over $16.5 billion in investor losses. This figure comes from the Associated Press, which analyzed Ponzi schemes in all US states.

Additional findings from the AP analysis:

• Over 150 Ponzi schemes fell in 2009 • 40 scams collapsed in 2008 • Allen Stanford’s $7 billion international Ponzi scam and Scott Rothstein’s $1.2 billion scheme were among the larger plots that fell apart last year
Bernard Madoff’s $65 billion Ponzi scam wasn’t calculated into last year’s figures because he was arrested at the end of 2008.

In addition to increased enforcement efforts, the economic collapse can be credited with the discovery of many schemes that may have otherwise gone undetected. The number of people willing to invest in new ventures went down in 2009 while current investors rushed to pull out their money. As Ponzi scammers rely on new investors to not only pay the old investors but also fund their expensive lifestyles, many schemes collapsed. The discovery of Madoff’s Ponzi scam has also made investors more wary and regulators more alert.

Another scam of note is Tom Petters’ $3.65 billion scheme. Petters used Petters Group Worldwide, LLC to run his Ponzi scam. He is in prison waiting to receive his sentence. He could be sentenced to a life prison term.

In 2009, the Federal Bureau of Investigation opened over 2,100 securities fraud probes. That’s 350 more investment fraud investigations than the number of investment probes that were opened in 2008. The FBI had 651 agents working on high-yield investment fraud investigations last year. Also in 2009, the US Securities and Exchange Commission issued 82% more restraining orders against securities fraud cases than they did in 2008. Ponzi scams now compromise 21% of the SEC’s enforcement workload-up from 9% in 2005.

The number of civil actions (31) that the Commodity Futures Trading Commission filed last year has more than doubled since 2008. Many securities fraud cases from last year have not yet gone to trial.

Related Web Resources:
AP: Ponzi collapses nearly quadrupled in ’09, Yahoo, December 28, 2009
2009: The Year of the Ponzi, ABC News
Charles Ponzi
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SEC Accuses Austin Advisor, Triton Financial, and Triton Insurance of Texas Securities Fraud Scam Involving Former NFL Football Players

Published on: December 28, 2009 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission has filed charges accusing Austin investment adviser Kurt B. Barton and his two firms, Triton Insurance and Triton Financial, of committing Texas securities fraud and raising over $8.4 million from about 90 investors. Former football stars were used as bait to target former NFL players as potential investment fraud victim.

The SEC claims the defendants used salespersons, stockbrokers, and former football players, including previous Heisman trophy winners and ex-NFL players, to sell Triton securities to potential clients. The agency says that the use of ex-football stars allowed Barton and Triton to appear legitimate and gain investors’ trust.

Potential investors were allegedly told that their money would be used to buy an insurance firm. The SEC claims such representation were bogus. Instead, the agency claims that investors’ funds were used to pay for daily expenses at the two companies.

Securities Fraud: Broker Sentenced for Selling High-Risk Short Term Funds to Four Pennsylvania School Districts

Published on: December 15, 2009 | by Shepherd Smith Edwards & Kantas, LLP

The broker who pleaded guilty to one count of securities fraud for selling risky securities to four school districts in Pennsylvania has been sentenced to one year and a day in federal prison. Robert Bradbury, 63, must also pay a $10,000 fine.

The Pennsylvania school districts that were the victims of Bradbury’s investment fraud scam are Red Lion, North Penn, Boyertown, and Perkiomen Valley. The securities fraud scheme cost taxpayers over $10 million.

From 1998 to 2004, Bradbury illegally sold bond-anticipated notes for the Whitetail golf project. According to Eastern District of Pennsylvania’s U.S. Attorney Pat Meehan, the broker, who had worked with the school districts for three decades, took advantage of their trust when he underwrote and sold them the notes but failed to fully disclose the nature of the investments and the risks involved. While the four school districts are only allowed to make investments that fall under certain conservative categories.

Texas Securities Commissioner Not Convinced SEC Has Reformed Itself Since Madoff Ponzi Scam

Published on: December 5, 2009 | by Shepherd Smith Edwards & Kantas, LLP

Denise Voigt Crawford, the Texas securities commissioner and current North American Securities Administrators Association president, says it isn’t evident that the US Securities and Exchange Commission has implemented key reforms to the issues that allowed the agency to fail to detect Bernard Madoff’s $50 billion ponzi scheme for almost 20 years. Speaking at the National Press Club on Friday, she accused the SEC of not doing enough to support legislation intended to increase investor protection.

Crawford claims staffers that work for the SEC hardly interact with investment fraud victims. Because many SEC employees would like to work on Wall Street, she contends that this makes it difficult for agency members to properly oversee a securities firm that could potentially become a future employer.

Seeking to make a number of changes to the financial-overhaul bill currently moving through Congress, NASAA wants states securities regulators to have jurisdiction over securities firms that manage up to $100 million in assets. It also wants broker/dealers, and not just investment advisers, to be subject to a fiduciary standard when giving investment advice. NASAA wants to terminate mandatory pre-dispute arbitration clauses that make investors to pursue their securities fraud claims in arbitration proceedings run by Financial Industry Regulatory Authority.

Responding to Crawford’s comments, SEC spokesperson John Nestor called her statements “uninformed” and cited the agency’s proposal of the Investor Protection Act, its hiring of senior management, reforms made to internal operations, new rulemaking that is focused on investors, and an increase in investigations and penalties as among the numerous “dramatic” changes that the SEC has implemented since Madoff’s massive ponzi scam was discovered.

Related Web Resources:
State regulator: Jury still out on SEC post-Madoff, AP/Yahoo! News, December 4, 2009
2nd UPDATE:Texas Securities Regulator:’Jury Is Still Out’ On SEC Reform, Wall Street Journal, December 4, 2009
Texas State Securities Board

North American Securities Administrators Association
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Number of Securities Lawsuits Increased During 3rd Quarter

Published on: November 20, 2009 | by Shepherd Smith Edwards & Kantas, LLP

According to commercial insurance consulting firm Advisen, 169 securities lawsuits were filed during 2009’s third quarter-an 11% increase from the 152 complaints that were filed during the previous quarter. 249 securities lawsuits were filed in the 1st quarter.

The most common kind of securities lawsuit filed this past quarter was securities fraud lawsuits that were brought by law enforcement agencies and regulators. 70 securities fraud complaints and 55 securities class actions were filed during 3Q. 50 securities fraud complaints and 38 cases were filed in the 2Q.

Advisen Executive Vice president Dave Bradford says the percentage of securities fraud lawsuits is expected to grow now that the Securities and Exchange Commission appears to be increasing its securities fraud enforcement initiatives under President Barack Obama. The SEC has been attempting to recoup from its failure to detect the $50 billion Ponzi scam that Bernard Madoff ran for years.