Articles Posted in Texas Securities Fraud

Texas Securities Fraud: Three FINRA Cases Against Securities America Over Sale of Private Placements Halted

Published on: February 22, 2011 | by Shepherd Smith Edwards & Kantas, LLP

In what Investment News is describing as a legal victory for Securities America, a federal judge in Dallas has placed a restraining order on three upcoming FINRA arbitration claims against the broker-dealer and its brokers. The cases will be combined with two class action. This will likely limit Securities America’s liability. Ameriprise Financial Inc. owns this brokerage firm.

In the U.S. District Court for the Northern District of Texas, Judge W. Royal Furgeson, Jr. ordered the broker-dealer to set up a $21 million settlement fund for investors. The Texas securities fraud claims involve the allegedly bogus sale of private placement notes from Provident Royalties LLC and Medical Capital Holdings Inc.

A number of plaintiff’s attorneys have expressed dismay at Furgeson’s decision because they are worried that their clients won’t get as much from a class action case. Furgeson, however, says that combining the cases protects the financial recovery for all investors and not just those with FINRA arbitration claims.

Per court documents, Securities America sold approximately $18 million of Provident shares and $700 million of Medical Capital notes. Some 20,000 investors purchased the Medical Capital notes from independent broker-dealers and approximately $2.2 billion was raised from the private placements. Unfortunately, many of the medical receivables believed to be underlying the notes never existed.

Dozens of claimants, including the securities divisions of Massachusetts and Montana, have filed securities claims against Securities America. The financial firm, however, maintains that it did not engage in any wrongdoing when it sold the MediCap notes.

Related Web Resources:

Securities America scores huge victory in Reg D case, Investment News, February 18, 2011

More Stockbroker Fraud Blog Posts:

Securities America Inc. to Pay $1.2M in Compensatory and Punitive Damages Over Allegedly Fraudulent Medical Capital Notes, January 6, 2011

FINRA Fines H & R Block Financial Advisors (Now Ameriprise Advisor Services) over Sales of Reverse Convertible Notes (RCN), February 17, 2010

Securities America & Ameriprise Financial Inc. Sued For Selling Allegedly Faulty Private Settlements, November 10, 2009 Continue Reading ›

Ex-Triton Financial CEO Accused of Using NFL Contacts to Commit $50M Texas Securities Fraud

Published on: February 17, 2011 | by Shepherd Smith Edwards & Kantas, LLP

Kurt Branham Barton, the former CEO of Triton Financial, a financial firm based in Austin, Texas, has been indicted on 33 counts, including Texas securities fraud, money laundering, and wire fraud. Barton allegedly used ex-NFL stars and church contacts in a $50 million Ponzi scam.

The American-Statesman reports that beginning in 2002, Barton accumulated a number of partnerships and companies based around Triton Financial. He even hired ex-NFL stars Chris Weinke and Ty Detmer to persuade clients to invest. Many investors belonged to the Church of Jesus Christ of Latter-day Saints (Barton is also a member).

Court documents contend that Barton got investors to give him over $50 million and that he used the funds to live a lavish lifestyle that included expensive vehicles, flying in private planes, and a luxury box for watching University of Texas football games. He also made money in political campaign contributions.

By 2009, however, several securities fraud complaints had been filed. Investors accused Barton of misleading them about where their money would go. The Securities and Exchange Commission would go on to file a securities fraud lawsuit against Triton Financial and Barton, and the Texas State Securities Board has stripped him of his investment adviser license.

The indictment accuses Barton of lying about his investments to investors regulators and of creating “false, fictitious, and fraudulent limited partnerships. He also allegedly used an E-Trade statement that showed his holdings had a balance of over $3 million even though the actual balance was $3,161.17. Barton is accused of giving regulators “altered and fabricated documents” about his business dealings.

A judge has placed Triton Financial in receivership. Per the receiver’ statement on January 31, 2011, over 600 investors have made $63.3 million in securities fraud claims against the financial firm and its ex-CEO.

Related Web Resources:
Former Triton chief indicted on charges of money laundering and fraud, Statesman, February 15, 2011
Broker indicted in fraud with NFL stars, KXAN, February 16, 2011
Read the Indictment (PDF)

More Stockbroker Fraud Blog Posts:
Texas Securities Act Control Person Claims against Merrill Lynch Pierce Fenner & Smith Inc. is Revived by Appeals Court, Stockbroker Fraud Blog Posts, January 20, 2011
R. Allen Stanford’s Criminal Trial Over $7 Billion Ponzi Scam Delayed So He Can Detoxify from Medication Addiction, Stockbroker Fraud Blog Posts, January 11, 2011
ALJ to Determine Whether to Revoke Registration of STS-Advisors Ltd. and Investment Adviser Representative Richard Lewis Bruce Over Alleged Texas Securities Fraud, Stockbroker Fraud Blog Posts, January 7, 2011 Continue Reading ›

SEC to Examine Muni Bond Market Issues During Hearings in Texas and Other States

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

The Securities and Exchange Commission is expecting to accelerate its regulatory and enforcement activity over the $2.8 trillion municipal bond market. The SEC will be holding hearings in a number of US states, including Texas, to go over Muni bond market issues.

Among the issues likely to receive attention from the SEC:
• “Conduit” financing, which involves bonds sold by municipal entities for third parties, including private companies and colleges.
• The need for practical, applicable guidance for state and local officials that is more specific than the prohibitions provided under Section 17(a) of the 1933 Securities Act and Section 10(b) of the 1934 Securities Exchange Act.

Although municipal securities issuers are exempt from SEC registration, reporting, and disclosure requirements-per the 1934 Act’s Tower Amendment-they still have to abide by the commission’s antifraud provisions. The SEC has also sent compliance messages to issuers, improved disclosures, and discouraged bid-rigging, pay-to-play and other bad conduct.

Among its recent enforcement efforts, the SEC is investigating bond issuances in Rhode Island. It is also is looking into disclosures over Illinois’ funding of pension plans.

SEC Commissioner Elisse Walter will lead the hearings in Texas, Florida, Illinois, and Alabama this year. Staff will then put together a report that will include recommendations for legislative and regulatory changes and “best practices.”

Related Web Resources:
Second SEC Municipal Market Hearing Continues to Raise Disclosure, Tower Amendment Issues, NCSHA, December 15, 2010
SEC Sets Field Hearings on State of Municipal Securities Markets, SEC, September 7, 2010

Yet Another Securities Case Against a Financial Firm Alleged to Have Aided Enron in its Scams is Dismissed Without Liability in Texas!

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

Many financial firms settled claims filed by those defrauded in the Enron debacle. Meanwhile, many more Enron securities fraud cases have been dismissed by a court system riddled with special interest influence. No financial firm has been held liable and certain individuals at those firms were held liable only to have their convictions reversed. Thus, perhaps the largest, most notorious and most brazen fraud ever perpetuated by a publicly traded firm against its own shareholders will end not with a bang, but with a whimper.

Earlier this month, securities charges against Deutsche Bank Securities Inc. were dropped in the U.S. District Court for the Southern District of Texas. The financial firm was accused of fraudulently getting two entities to buy beneficial ownership interests in Osprey Trust. The special purpose entity was allegedly secured using worthless investments bought from Enron. The plaintiffs contend that the assets were “dumped” into Osprey as part of a bigger scheme to defraud investors and manipulate Enron’s financial statements.

The court said that because the plaintiffs did not specify any affirmative misrepresentation made by a Deutsche Bank official, they did not and “cannot plead with particularity either scienter on the part of a Deutsche Bank speaker or writer or reasonable reliance … on a claimed misrepresentation.” The court also said that the financial firm’s stated motive for alleged defraud, which allegedly was for tax benefits and high fees, is a common incentive among financial firms and their officers and therefore is not enough for stating “a claim for fraud” under the laws of Texas and New York.

Related Web Resources:
Newby, et al v. Enron Corporation, et al., U.S. District Court for the Southern District of Texas
The Fall of Enron, Chron.com Continue Reading ›

Texas Securities Act Control Person Claims against Merrill Lynch Pierce Fenner & Smith Inc. is Revived by Appeals Court

Published on: January 20, 2011 | by Shepherd Smith Edwards & Kantas, LLP

The Texas Court of Appeals has reinstated the Texas Securities Act control person claims against Merrill Lynch Pierce Fenner & Smith Inc. related to its former broker Terry Christopher Bounds’s allegedly fraudulent outside sales transactions.
According to the appeals court, Bounds, who owned two “outside” direct-marketing corporations, solicited David Fernea, who is now the appellant of this Texas securities case, to buy shares in both businesses. The latter purchased 50% interest in each company.

Fernea claims that after he bought into the companies, Bounds refused to uphold his part of the agreement and concealed his actions with the delivery of a fake stock certificate. He also contends that the ex-Merrill Lynch broker had made misrepresentations and omissions to persuade him to buy the stock. Among the alleged omissions was failing to disclose that Bounds’s companies were involved in a consumer protection dispute with the Texas Attorney General and that the stocks that Fernea had purchased were not registered with the Texas State Securities Board. The appellant also claims that Bounds tried to secretly resell the corporations he had already bought from him to other parties.

Fernea is suing Merrill Lynch for Texas securities fraud because he says that that Bounds’s working relationship with the investment bank had played an important part in his decision to buy into the broker’s companies. He is accusing the broker-dealer of violations of its own internal polices regarding its employees’ outside transactions, violating the Texas Securities Act’s Section 33, negligent supervision of Bounds related to his outside transactions, “control person” liability under the Texas Securities Act, and violation of several NASD and NYSE internal rules.

While the appeals court initially remanded the control person claim to a lower court, it has now reinstated the claim. The court says that it is up to the plaintiff to bear the initial burden of proving control, including that the alleged control person actually had influence or power of the controlled person and that this power to influence or control the specific activity or transaction led to the violation in question. The court has found that there is evidence that Merrill Lynch’s policies gave it control or issue over the “transaction at issue.”

Related Web Resources:
Texas Securities Act

BNA Securities Daily Law

Fernea v. Merrill Lynch Pierce Fenner & Smith Inc.
Continue Reading ›

R. Allen Stanford’s Criminal Trial Over $7 Billion Ponzi Scam Delayed So He Can Detoxify from Medication Addiction

Published on: January 11, 2011 | by Shepherd Smith Edwards & Kantas, LLP

U.S. District Judge David Hittner has postponed the criminal trial of Texas financier R. Allen Stanford so that he can undergo detoxification from his medication addiction. Three psychiatrists had testified that he is incompetent to stand trial after getting hooked on anti-depressant and anti-anxiety medications.

Stanford, the ex-head of Stanford Financial Group, is accused of running a $7 billion Ponzi scam. He, his companies, and other ex-executives, allegedly bilked investors through Stanford International Bank Ltd’s sale of certificate deposits. Stanford has been indicted on 21 criminal counts of wrongdoing. The US Securities and Exchange Commission also has a Texas securities fraud case against Stanford. Others who were named defendants in that case: Stanford International Bank (SIB), which is located in Antigua, Stanford Group Company (SGC), an investment adviser and broker-dealer located in Houston, Stanford Capital Management, an investment adviser, Stanford Financial Group chief investment officer, Laura Pendergest-Holt, and SIB chief financial officer James Davis.

Stanford has been in federal custody without bail because he is considered a flight risk. According to Stanford’s criminal defense team, prison doctors gave him the meds.

Psychiatrist Victor Scarano, who was retained by Stanford’s team, was among those who testified. He said that for a year Stanford has been taking 3 milligrams of clonazepam daily and that this has caused the 60-year-old to feel drowsy and suffer from lack of energy. He has also had a difficult time concentrating on his tasks. Usually, the normal dosage for this anti-anxiety drug is 1 milligrams a day and for no more than two weeks. Stanford is also taking the anti-depressant mirtazapine.

Scarano contends that Stanford sustained a traumatic brain injury when a prisoner assaulted him in September 2009. The psychiatrist believes that Stanford will need anymore from three to six months to kick his anti-anxiety drug addiction. Meantime, federal prosecutor Andrew A. Warren has suggested that Stanford faked his symptoms.

Prosecutors believe that Stanford can receive the treatment he needs while in federal prison, but Stanford’s criminal defense team wants him hospitalized at a private facility in the Houston area. His lawyers want his criminal trial delayed for two years so that they have enough time to prepare his defense.

Related Web Resources:
Read the SEC’s complaint (PDF)

Judge orders Stanford get drug treatment, Houston Chronicle, January 11, 2011
Financier Is Described as Addicted to Medicine, NY Times, January 7, 2011
Stanford Group. Co., Stockbroker Fraud Blog, February 22, 2009
Texas Securities Fraud, Stockbroker Fraud Blog Continue Reading ›

ALJ to Determine Whether to Revoke Registration of STS-Advisors Ltd. and Investment Adviser Representative Richard Lewis Bruce Over Alleged Texas Securities Fraud

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

A hearing will be held next month to determine whether the investment adviser registrations of STS-Advisors Ltd. and Richard Lewis Bruce with the Securities Commissioner of Texas should be revoked and a cease and desist order issued over allegations of securities fraud. STS and Bruce reportedly gave investment advice to STS-STATS, L.P., and from April 2003 through December 2005 24 investors put more than $2,130,000 into STS Fund. Unfortunately, many of the investors their entire investments.

Last September, an inspection of STS-Advisors revealed that the respondents had taken out money from the STS Fund beyond the fees and expenses that were allowed. These unauthorized withdrawals allegedly took place between at least June 2007 through September 2010 and even as the STS Fund lost value. The alleged withdrawals may have contributed to the fund’s losses.

For example, even though the STS Fund’s monthly ending balance never went above $721,000 between June 2007 and September 2010, the respondents allegedly took out nearly $400,000 during this time. Also, during the quarter that ended last September, the STS Fund’s value was just over $10,000 but respondents allegedly withdrew $9,000.

Related Web Resources:

Texas State Securities Board

Read the Docket (PDF)
Continue Reading ›

Claims over failed tax-avoidance scheme brought under Texas Securities and Federal Racketeering Laws Against Prominent Law Firm is Dismissed by Fifth Circuit

Published on: December 31, 2010 | by Shepherd Smith Edwards & Kantas, LLP

According to the U.S. Court of Appeals for the Fifth Circuit, the entities and individuals that took part in a disallowed tax avoidance scheme did not prove the reliance necessary under securities laws to hold Proskauer Rose LLP liable as a secondary actor. In Affco Investments 2001 LLC v. Proskauer Rose L.L.P, Affco LLC, Affco Investments 2001 LLC, Lewis W. Powers, Kenneth Keeling, John H. Powers, Lewis W. Powers, Shannon Ellis, Albert Gunther III, Heidi Gunther, Gretchen Linquest, and Eric Linquest claimed that they decided to take part in a tax avoidance scam solicited them by accounting firm KPMG LLP under the alleged guise that national law firms had approved the strategy.

Soon after, the IRS began giving out notices of transactions that it considered prohibited. The plaintiffs then looked to Proskauer Rose for legal advice. The law firm allegedly told them that they did not have to disclose that they were taking part in the scheme, which involved the sale and purchase of options that were roughly identical, and that the transactions were not substantially too much like the ones that were prohibited.

In 2001, the plaintiffs reported their losses from the scam on their 2001 returns without disclosing that they were taking part in the scheme. After an IRS probe, however, they ended up paying millions in back taxes, penalties, and interests. They also did not get the amnesty that was awarded to those who revealed that they had taken part in the scam.

The plaintiffs filed a securities lawsuit that made claims under Texas law, the 1934 Securities Exchange Act, and the Racketeer Influenced and Corrupt Organizations Act against the 17 entities (including Proskauer) purportedly involved in the schemes. While the other defendants have settled, Proskauer filed a motion to dismiss.

The district court dismissed the case against Proskauer and said that the Private Securities Litigation Reform Act of 1995 does not allow “civil RICO actions based on predicate acts of securities fraud.” Now the appeals court has determined that the district court acted correctly when it dismissed the securities case. The court noted that “[w]ithout direct attribution to Proskauer of its role in the tax scheme, reliance on Proskauer’s participation in the scheme is too indirect for liability.”

Related Web Resources:
Read the 5th Circuit’s Opinion (PDF)

Racketeer Influenced and Corrupt Organizations Act

1934 Securities Exchange Act (PDF)
Continue Reading ›

Houston Man Indicted in Alleged $17M Texas Securities Fraud

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

A federal grand jury has indicted Adley Husni Abdulwahab on one count of conspiracy and five counts of Texas securities fraud in connection with an alleged $17 million investment scheme involving the sale of investments issued by W Financial Group. The Houston resident, who is also facing federal charges over an alleged $100 million life insurance scheme, is in custody in Virginia.

Abdulwahab is accused of conspiring with two other men, Michael Wallens, Sr., and Michael Wallens, Jr., to defraud investors in connection with the sales of Collateral Secured Debt Obligations (CSDOs). The three men reportedly received over $17 million from the sales of the promissory notes to over 180 investors.

The three men are accused of issuing a number of misstatements to investors, such as claiming that Republic Group and Lloyd’s of London had “reinsured” the CSDOs, which were not in fact insured. Offering materials made it appear as if the investors’ money were held in insured notes, cash, automotive receivables, or corporate or government AAA bonds, when the three men were actually spending the money. For example, investor money was used to buy Wallens Sr.’s used car dealership for over $300,000, invest in a power company and building company, buy residential lots, and compensate the three men. Wallens, Sr. And Wallens, Jr. have each pleaded guilty to one count of securities fraud.

Related Web Resources:
Houston-area man indicted in W. Financial Group securities fraud matter, Justice.gov, December 15, 2010
Texan indicted in alleged $17M securities fraud, Chron/AP, December 15, 2010
The Texas Securities Act

Securities Fraud Attorneys

Institutional Investors Securities Blogs
Continue Reading ›

A Texan is Among Those Arrested in Insider Trading Crackdown Involving Apple Inc., Dell, and Advanced Micro Devices’ Confidential Data

Published on: December 16, 2010 | by Shepherd Smith Edwards & Kantas, LLP

Federal prosecutors have arrested four people on insider trading charges related to the alleged revealing of secrets about Apple Inc.’s iPhone and other technology products to hedge funds looking for a trading advantage. Those arrested included Primary Global Research executive James Fleishman and “expert consultants” Mark Anthony Longoria from Texas, Walter Shimoon from California, and Manosha Karunatilaka of Massachusetts. All of the defendants are charged with wire fraud. The three “expert consultants” are also charged with conspiracy to commit securities fraud and wire fraud.

According to prosecutors, Fleishman arranged it so that Primary Global Research clients, such as hedge funds, could talk to the consultants, who gave them highly confidential information about Apple sales forecasts, new iPhone product features, and a secret project that was to become the iPod. Primary Gold Research allegedly paid consultants over $400,000 to engage in these phone conversations.

The case is an offshoot of an investigation into Galleon Funds founder Raj Rajaratnam and more than 20 others. Rajaratnam has pleaded not guilty to securities fraud. He claims that he only traded information to which the public also had access. Wiretaps were used to build the Galleon Funds case and this insider trading case.

According to the complaint, Flextronics International Limited business development senior director Shimoon illegally gave out insider information about the iPhone that had been given to Flextronics employees. The company and Apple had worked together on charger and camera components for both the iPod and iPhone. Shimoin was also caught on wiretaps saying he would obtain secrets about sales involving Research In Motion Ltd., which is the company that manufacturers Blackberries.

Texan Longoria is accused of giving out confidential information about Advanced Micro Devices, where he used to work as a supply chain manager. Another Primary Global Research consultant, ex- Dell global supply manager Daniel Devore, has pleaded guilty to conspiracy and wire fraud charges. Devore has said that Primary Gold Research paid him approximately $145,000 to provide insider information to company employees and clients about Dell.

Related Web Resources:
Insider trading case focuses on Apple’s secrets, Victoria Advocate/AP, December 16, 2010
Four more arrests in insider trading case involving Primary Global Research, SFGate, December 16, 2010
Texas Securities Fraud, Stockbroker Fraud Blog
Insider Trading, Stockbroker Fraud Blog Continue Reading ›