Texas Securities Fraud

Morgan Stanley to Compensate A Number of Texas Homeowners for Alleged Misconduct by Saxon Mortgage Services

Published on: April 12, 2012 | by Shepherd Smith Edwards & Kantas, LLP

The Federal Reserve Board has ordered Morgan Stanley (MS) to retain an independent consultant to evaluate foreclosures initiated by former subsidiary Saxon Mortgage Services in 2009 and 2010. Saxon, which intends to shut down its processing center in Forth Worth, is accused of engaging in a “pattern of misconduct and negligence” related to residential mortgage servicing and foreclosure processing. The order mandates that Morgan Stanley compensate homeowners who were hurt financially because of certain deficiencies, including wrongful foreclosures.

Per the Fed, Saxon initiated at least 6,313 foreclosures against homeowners during the years cited above. Regarding certain actions, Saxon is accused of failing to confirm ownership and other information, not properly notarizing signatures, failing to implement proper controls and oversight, and neglecting to adequately staff and fund its operations to handle the increase in foreclosures.

Morgan Stanley had bought Saxon for $706 million during the housing bubble. Earlier this month, the financial firm completed its sale of the mortgage lender to Ocwen Financial of Florida. In the wake of the sale, Morgan Stanley is no longer involved in mortgage servicing. However, should the financial firm reenter this market while the Consent Order is still in effect, it will have to execute better risk-management, corporate governance, compliance, servicing, borrower communication, and foreclosure practices similar in quality to what mortgage servicers who had to abide by enforcement actions in 2011 had to implement.

Texas Securities Fraud: State Law Class Action in R. Allen Stanford’s Ponzi Scam Not Barred by SLUSA

Published on: March 28, 2012 | by Shepherd Smith Edwards & Kantas, LLP

In a reversal of a district court’s decision, the U.S. Court of Appeals for the Fifth Circuit ruled that the Securities Litigation Uniform Standards Act does not bar the investor state law class action lawsuit that was filed by victims of R. Allen Stanford’s Ponzi scheme. The case is Roland v. Green.

The appeals court said that the state court securities lawsuits, which are claiming common law and statutory violations, could go forward because the alleged fraud is only tangentially related to the buying and selling of covered securities under SLUSA. Four complaints are on appeal. In each case, investors submitted state court actions that charged a number of defendants with misleading them into using their individual retirement accounts to invest in Stanford International Bank-issued certificate of deposits that have since proved worthless. Investors have lost $7 billion in Stanford’s Ponzi scam.

The defendants had the lawsuits moved to the U.S. District Court for the Northern District of Texas, which found that SLUSA precluded the claims because of their connection to a covered security. Under SLUSA, state class actions claiming fraud related to the sale or purchase of a covered security are barred. The district court judge in Dallas had dismissed the cases because Stanford marketed the CDs as regulated and securities-backed and because certain investors had sold securities to finance their purchase of the CDs, this, placed the CD-related suits under SLUSA.

Three Oil Service Executives Face SEC Charges in Texas Court For Allegedly Bribing Nigerian Customs Officials

Published on: March 22, 2012 | by Shepherd Smith Edwards & Kantas, LLP

In the U.S. District Court for the Southern District of Texas, the SEC has charged three oil services executives that were allegedly involved in a scam to bribe Nigerian customs officials with Foreign Corrupt Practices Act violations. The men are accused of using these payments to seek illicit permits for oil rigs.

The three men charged are former Noble Corp. controller Thomas F. O’Rourke, ex-CEO Mark Jackson, and former Noble Nigerian subsidiary manager James Ruehlen. Jackson and Ruehlen allegedly are the ones that bribed the officials to get them to process the bogus paperwork that was supposed to demonstrate re-import and export of the oil rigs even though the rigs were “never moved.”

According to the SEC, the purpose of the scam was to prevent Noble from losing business and suffering substantial costs for exporting rigs from Nigeria and requiring new permits to re-import them. O’Rourke, who was also in charge of Noble’s internal audit, is accused of playing a hand in approving the bribes and letting them fall under the area of legitimate operating expenses.

Texas Securities Fraud: District Court Holds Ex-Dell Administrative Assistant and Her Stockbroker Spouse Liable for Insider Trading

Published on: March 13, 2012 | by Shepherd Smith Edwards & Kantas, LLP

In the U.S. District Court for the Western District of Texas, Judge James R. Nowlin entered summary judgment against Marleen and John Jantzen. In SEC v. Jansen, the Securities and Exchange Commission had charged the couple with Texas securities fraud for using insider information about Dell Inc. to buy Perot Systems Corp. securities. Marleen is a former Dell administrative assistant. John is a registered stockbroker.

The SEC submitted the allegations against couple in October 2010 and contended that Marleen gave material, nonpublic information about Dell’s upcoming tender offer for Perot shares to her husband. The Commission claimed that on September 18, 2009, which was the final day of trading prior to the announcement of the Perot acquisition, Marleen, who was given “explicit orders” by her employer “not to trade, ” made a cash transfer to the Jantzens’ brokerage account. Within minutes of the money being moved over, John bought 24 Perot call options contracts and 500 shares of Perot common stock. He cashed in on September 21, 2009, which is the same day that Perot Systems and Dell announced the tender offer. (The stock price had immediately gone from $17.91 to $29.56, allowing the couple to make $26,920.50 in trading profits in a single day.)

According to the Court, the Jantzens violated sections 14(e) and 10(b) of the Exchange Act and Rules 14e-3(a) and 10b-5 thereunder, and Marleen also violated Rule 14e-3(d). The couple is enjoined from future violations of these provisions. They must also pay $26,920.50 in ill-gotten gains, as well as prejudgment interest. The Court also found that per evidence, there was a “high degree of scienter” especially involving John, who, as a licensed securities broker, was most certainly cognizant of his actions and their meaning. The district court, however, has deferred a final ruling on the SEC’s request for monetary penalties pending further briefing by both sides.

The Jantzens are not the only ones to settle with the SEC over insider trading related to the Dell-Perot Systems deal. In 2010, Texas resident Reza Saleh agreed to give back over $8.6M in illicit profits he made after he made illegal trades in Perot Systems call options before the merger was made public.

Saleh, who used to work for companies owned by the Perot family, settled the Texas securities claim without deny or admitting to the allegations. He also consented to an SEC administrative order that says he cannot associate with any investment advisers ever again. He also agreed to a permanent enjoinment that would prevent him from violating the Securities Exchange Act of 1934’s anti-fraud provisions in the future.

COURT ENTERS SUMMARY JUDGMENT AGAINST INSIDER TRADING DEFENDANTS JOHN JANTZEN AND WIFE, MARLEEN JANTZEN, SEC, March 1, 2012

SEC settles insider trading case involving Perot acquaintance Reza Saleh, Dallas News, January 6, 2010

More Blog Posts:
Texan R. Allen Stanford Convicted on 13 Criminal Counts Over $7.2B Ponzi Fraud, Stockbroker Fraud Blog, March 7, 2012

NFA Enforcement Action Filed Naming Texas Financial Firm J Hansen Investments, Stockbroker Fraud Blog, February 26, 2012

US Sentencing Commission is Open to Public Comment on Proposed Amendments that Could Impact Insider Trading Convictions, Institutional Investor Securities Blog, February 29, 2012 Continue Reading ›

Texan R. Allen Stanford Convicted on 13 Criminal Counts Over $7.2B Ponzi Fraud

Published on: March 7, 2012 | by Shepherd Smith Edwards & Kantas, LLP

Nearly three years after he was indicted for defrauding investors in a $7.2 billion Ponzi scam involving certificates of deposit that are now worthless, a Houston jury has convicted R. Allen Stanford of 13 of 14 criminal counts, including fraud, conspiracy to commit money laundering, conspiracy to commit wire or mail fraud, wire fraud (from April 24, 2006, December 24, 2008, January 5, 2009, and February 12, 2009), mail fraud, and obstructing investigators. The only count jury members found him not guilty of was wire fraud (from February 2, 2006). Collectively, the Texas financier’s convictions carry prison sentences totaling up to 230 years.

Prosecutors depicted Stanford, 61, as a con man that used investors’ money to get very rich and pay for his businesses. (At one point, his net worth was over $2 billion.) They also say he bribed regulators so he could get away with his scam.

During his criminal trial, financial statements e-mails that were presented as evidence and ex-employees who testified helped paint a picture of the Texan as someone who spent 20 years defrauding investors by selling CDs through his bank in Antigua. James M. Davis, who served as former CFO for Stanford’s different companies, also was a witness for the prosecution. He stated that he and Stanford together falsified annual reports, bank records, and other documents to hide the fraud. Prosecutors contended that Stanford lied to depositors from over 100 nations by claiming that their cash was being invested in bonds, stocks, and other securities.

Texas Financier Allen Stanford’s Ponzi Scam: SIPC Asks District Court to Toss Out SEC Lawsuit Seeking to Reimburse Fraud Victims

Published on: March 5, 2012 | by Shepherd Smith Edwards & Kantas, LLP

The Securities Investor Protection Corp. is asking the U.S. District Court for the District of Columbia to reject the SEC’s request for an order that would make it pay back the victim of Texas financier R. Allen Stanford’s $7 Billion Ponzi scam. The brokerage industry-funded nonprofit claims that the Commission has not demonstrated that these investors are eligible to receive this type of coverage from SIPC.

Standing by SIPC is the National Association of Independent Broker/Dealers. The group wrote a letter to SEC Chairman Mary Schapiro contending that forcing the nonprofit to pay back Stanford’s victims is not only a “misfit solution,” but also, it will establish an “unsustainable precedent.”

The SEC’s securities lawsuit against SIPC is an attempt to force a brokerage’s liquidation, which is the first step that SIPC must take under the Securities Investor Protection Act to pay back the clients of its member firms. SIPC, however, has refused to do so on the grounds that Stanford International Bank, which is based in Antigua, is not one if its member firms. Stanford International Bank is the financial firm that issued the more than $7.2 billion CDs that were sold to investors. (It is Stanford Group Co. that belongs to SIPC.) The CDs now have no value.

NFA Enforcement Action Filed Naming Texas Financial Firm J Hansen Investments

Published on: February 26, 2012 | by Shepherd Smith Edwards & Kantas, LLP

The National Futures Association has put out an emergency enforcement action against J Hansen Investments LLC and Jonathan Hansen, who is the financial firm’s principal. The Houston, Texas financial firm is a commodity pool operator and an NFA member.

NFA actions taken against JHI and Hansen are the Associate Responsibility Action and the Member Responsibility Action. The Houston financial firm and its principal are accused of failing to cooperating with NFA during a firm examination.

NFA began an unannounced exam of JHI following the latter’s submission of its yearly questionnaire. On it, the financial firm noted that it was running as a commodity pool despite the fact that it had no commodity pools listed with the NFA, never turned in a disclosure document with the association, and lacks CFTC exemptions.

Texas Man Sued by CFTC Over Alleged Foreign Currency Fraud

Published on: February 23, 2012 | by Shepherd Smith Edwards & Kantas, LLP

The Commodity Futures Trading Commission is suing Texas resident Christopher Cornett for alleged solicitation fraud, issuing false account statements, misappropriation of participants’ funds, and not registering in connection with an off-exchange foreign currency fraud. The CFTC filed its complaint on February 2 in the U.S. District Court for the Western District of Texas.

The CFTC contends that between June 2008 through October 2011, the Texas resident approached prospective clients to try to get them to put money in a pooled investment in forex. He played the role of operator and manager of the pool that was referred to with different names, including ICM, ITLDU, IFM, LLC, and International Forex Management, LLC. Cornett is accused of falsely soliciting these prospective participants and making false claims to them that he never had a losing month or year while engaging in forex trading.

Cornett was allegedly able to solicit about $7.07 million between June 2008 and September 2010. Pool participants were able to redeem about $1.64 million. Meantime, he lost about $4.17 million of the funds’ money. During this period of over two years, Cornett allegedly had only one month that was profitable while engaged in forex trading with the pool funds. He is also accused of misappropriating about $1.26 million and falsely reporting the pool’s profits, account balances, and losses to participants.

Texas Securities Fraud: SEC May Pursue Disgorgement Claim from Charles Wyle’s Estate Now that He is Deceased

Published on: February 9, 2012 | by Shepherd Smith Edwards & Kantas, LLP

Now that Texas insider trading defendant Charles Wyly has passed away, the Securities and Exchange Commission may decide to pursue disgorgement from his estate. In the U.S. District Court for the Southern District of New York last month, Judge Shira Scheindlin said that the SEC’s bid for disgorgement survives Wyly’s death because this type of claim is remedial (preventing the alleged wrongdoer from financially benefiting from the alleged violations) and not punitive.

The SEC sued Charles and his brother Samuel Wyly in 2010, charging the Dallas siblings with insider trading and violating federal securities laws. The two men were accused of making over $550 million while making trades with the stocks of public companies that they served on as board members. They allegedly used hidden entities abroad to hide their trading and ownership of the securities.

The Commission accused the brothers of setting up subsidiary companies and trusts in the Cayman Islands and the Isle of Man to sell over $750M in stock in a number of companies that were public. Companies that they involved in their Texas securities scam included Sterling Software Inc., Scottish Annuity & Life Holdings Ltd., Michaels Stores Inc., and Sterling Commerce Inc. They allegedly made an unlawful gain of over $31.7 million after committing an insider trading violation related to one of the companies.

Also facing civil charges over the SEC’s Texas securities fraud case were broker Louis J. Schaufele III and the brothers’ lawyer, Michael C. French, who also belonged on the boards of three of the companies mentioned above. According to the Commission, the Wylys and their lawyer knew, or should have known, what their legal duties were as public company directors and over 5% beneficial owners. Per the law, these persons have to report trading and holdings in their companies’ securities to the SEC. The three of them also should have known that these disclosures are key for investors when they are deciding whether to invest.

The SEC accused the brothers and French of making it appear as if all of the Wylys’ trading and holdings only involved what they traded and held in the US. By not letting potential investors and shareholders know about this material information, the Wylys sold over 14 million issuer securities shares over 13 years for gains totaling over $550 million that were undisclosed.

Charles Wyly died in August 2011 at the age of 77. According to police, he died when an SUV struck his Porsche in Colorado where he has a home.

SEC Disgorgement Claim Survives Death of Insider Defendant, Bloomberg/BNA, January 31, 2012
SEC SUES SAMUEL E. WYLY AND CHARLES J. WYLY FOR FRAUD, Bloomberg, July 29, 2010

More Blog Posts:
AmeriFirst Funding Corp. Owner Convicted of Texas Securities Fraud, Stockbroker Fraud Blog Post, February 3, 2012
Texas Securities Fraud: BNY Mellon Capital Markets LLC Settles Allegations of Rigged Bond Bidding for $1.3M, Stockbroker Fraud Blog, January 24, 2012
TD Bank Ordered to Pay Texas-Based Coquina Investments $67M Over $1.2 Billion Ponzi Scheme, Stockbroker Fraud Blog, January 19, 2012 Continue Reading ›

AmeriFirst Funding Corp. Owner Convicted of Texas Securities Fraud

Published on: February 3, 2012 | by Shepherd Smith Edwards & Kantas, LLP

The former COO of AmeriFirst Acceptance Corp. and AmeriFirst Funding Corp. was recently convicted of multiple counts of Texas securities fraud and mail fraud for his involvement in bilking over 500 investors of over $50 million. A lot of the victims of Dennis Woods Bowden were retirees.

Per evidence that was given at trial, the 58-year-old executive and Jeffrey Charles Bruteyn, who was AmeriFirst’s managing director, made available Secured Debt Obligations (SDOs) as promissory note offerings to raise millions of dollars from investors in Florida and Texas. A lot of these clients, who were no longer employed, had hoped to place their money in investments that were safe.

While Bruteyn, who was convicted of nine counts of Texas securities fraud, directed brokers to sell the securities, it was Bowden who deceived and misled and defrauded them by signing the documents that were given to investors and misrepresenting/not disclosing material facts about the securities and the risks involved. For example, he falsely represented to investors that: