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SEC Charges NY-Based Brokers with Fraud, Excessive Trading

Published on: January 9, 2017 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission is charging two brokers with securities fraud. The regulator claims that Donald J. Fowler and Gregory T. Dean fraudulently employed an in-and-out trading strategy that was not suitable for customers so that they could make more in commissions. Because of their actions, 27 customers alleged lost substantial amounts of money. Fowler and Dean are accused of violating the Securities Act of 1933 and the Securities Exchange Act of 1934, and Rule 10-B5.The Commission said that they examine trading patterns involving over two dozen of the brokers’ customer accounts.

The SEC contends that the two men did not engage in any due diligence to figure out whether their investment strategy could help customers obtain even the smallest profit. With their strategy, they engaged in the frequent purchase and sale of securities, which would both take place within a two-week or shorter timeframe. They charged customers a commission for every transaction. Meantime, Fowler and Dean were the only ones who had a chance of making a profit.

SEC Warns Investors to Look Out for Excessive Trading, Churning

Along with its announcement of this securities case, the SEC put out an Investor Alert cautioning the public about churning and excessive trading. In its alert, the regulator warned about red flags that may be signs of these types of fraud, including trading that a customer did not authorize, which is known as unauthorized trading, trading that happens more often than seems reasonable for a customer’s investment objectives and/or the level of risk that the portfolio can handle, and suspicious and/or unusually high fees.

SEC Cases: IT Specialist Settles Insider Trading Charges For Over $375K, San Francisco Firm Pays $80K for Unregistered Swaps Sales Involving Pre-IPO Companies, and EB-5 Fraud Cases Lead to Settlement for Florida Businessman and Civil Charges For California Lawyer

Published on: December 31, 2016 | by Shepherd Smith Edwards & Kantas, LLP

IT Specialist Accused of Hacking Expedia Executives and Insider Trading

The U.S. Securities and Exchange Commission has filed civil insider trading charges against Jonathan Ly, who worked as a technology specialist for online travel company Expedia. According to the regulator, Ly hacked senior company executives and traded on company secrets ahead of nine announcements between 2013 and 2016.

As a result of his alleged insider trading, Lyn made almost $350K in profits. To settle the SEC case against him, Ly will pay over $348K of disgorgement and more than $27K in interest. This is a deal that still has to be subject to court approval.

Meantime, the U.S. Attorney’s Office for the Western District of Washington has filed parallel criminal charges against Ly.

SEC Charges Onix Capital and Its Owner With $5.7M Promissory Note Fraud

Published on: November 30, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. Securities and Exchange Commission has filed promissory note fraud charges against Onix Capital and it owner Albert Chang-Rajii. The Miami-based asset management company and Chang are accused of bilking investors who put their money into promissory notes and start-ups, as well as of falsely portraying the Chilean national as an award-winning multi-millionaire “angel” investor who had graduated from Stanford University’a business school.

According to the regulator’s complaint, Chang and Onix Capital sold over $5.7M in promissory notes that they falsely claimed he had guaranteed and told investors that the notes themselves “guaranteed” yearly returns of 12-19%. They also raised over $1.7M that Chang was supposed to invest in companies like Square, Snapchat and Uber.

The SEC said that, in truth, Onix Capital’s investment revenue was “non-existent” and Chang did not have the professional or educational background that he touted. The Commission alleges that rather than use the funds as promised, the money went to Chang and to pay other investors.

CFTC Cases: IB Capital Fx Ordered to Pay Over $35M in Restitution For Soliciting Investors While Improperly Registered, $21.8M Default Judgment Obtained in Commodity Pool Fraud, and Spoofing Case Leads to Over $38M in Monetary Sanctions

Published on: October 31, 2016 | by Shepherd Smith Edwards & Kantas, LLP

IB Capital FX, Two Dutch Citizens to Pay Over $35M to Customers
IB Capital FX, LLC, Emad Echadi, and Michel Geurkink must pay, severally and jointly, a $420K civil penalty and $35M in restitution for soliciting at least $50M from 1,850 customers internationally and in the US even though they lacked the required registration for trading that involved off-exchange margined retail foreign (forex) currency. Also, the firm should have been registered with the US Commodity Futures Trading Commission.

It was the CFTC that obtained the consent order, which permanently prevents the defendants from violating CFTC Regulations and the Commodity Exchange Act further. They also are now subject to permanent registration and trading bans.

$21.8M Default Judgment Issued is in Ponzi Scam
In a default judgment, Puerto Rico resident Alvin Guy Wilkinson and his Wilkinson Financial Opportunity Fund, LP and Chicago Index Partners, LP—both are Connecticut-based financial firms—will jointly and severally pay $21.8M for misappropriating commodity pool funds in a purported Ponzi scam. According to the CFTC’s order, the defendants committed fraud, did not register with the SEC, engaged in misappropriation, and made misrepresentations to the National Futures Association.

US Appeals Court Revives JPMorgan Whistleblower’s Lawsuit

Published on: September 22, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The 2nd U.S. Circuit Court of Appeals has revived the lawsuit brought by a whistleblower who accused JPMorgan Chase & Co. (JPM) of firing her for cautioning that a client might be engaging in money laundering and fraud. Jennifer Sharkey was a private wealth manager and vice president at the firm when she was let go in August 2009.

Sharkey claims that she was terminated a week after telling JPMorgan that they needed to pay attention to “red flags” and let go of the client who was responsible for about $600K of yearly billings. She sued her former employer after she was fired.

Last year, U.S. District Judge Robert Sweet in Manhattan threw out the case. Sweet said that the firm may have let Sharkey go for other reasons, including allegations that she lied about communications with another client or her performance was poor. Sharkey has countered that she did not lie.

UBS Ordered To Pay Three Investors $750K in Puerto Rico Bond Fraud Case

Published on: September 13, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority announced that UBS Financial Services and its Puerto Rico subsidiary (UBS) must collectively pay three investors $750,000 in damages for losses they sustained from investing in UBS’s proprietary Puerto Rico closed-end bond funds and Puerto Rico bonds. The claimants are Jenny Robles Adorno, Desarrollos Jarra SE, and Jose A. Rivera.

The investors accused UBS of recklessness, fraud, and negligence. They sought compensatory damages, punitive damages, and reimbursement of commissions that they said were unlawful. In San Juan, the FINRA arbitration panel awarded Rivera $562,500, Robles $30,000 and Jarra $157,500. UBS said it was “disappointed” with the panel’s decision to award any damages to the claimants.

This is not the first Puerto Rico bond fraud arbitration case in which UBS has been ordered to pay investors. Just this March, the firm had to pay over $470,000 to three investors who said their accounts were over-concentrated in the same Puerto Rico focused investments. The claimants in that particular case alleged negligent supervision and fraud. Similarly, UBS was ordered to pay a former television executive over $1,400,000 in the fall of 2015 for over-concentrating the former customer in UBS’s proprietary funds and misrepresenting the risks of those investments.

SEC Bans Andrew Caspersen After $38M Financial Fraud

Published on: September 7, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Andrew Caspersen is now permanently barred from the investment industry. The Securities and Exchange Commission announced the ban.

Caspersen, who used to be the managing principal at Park Hill Group and is the son of financier and philanthropist Finn M. W. Caspersen, had pleaded guilty to criminal charges of securities fraud and wires fraud. He admitted to bilking investors of over $38M and misappropriating over $8M. Park Hill fired him earlier this year.

The ex-Wall Street executive admitted to having a “gambling addiction” and his involvement in a scam to raise $95M. His fraud victims included family and friends. According to his attorney, Caspersen lost $123M by speculating on put options in the S & P index. His sentencing hearing is in November.

President Obama Appoints Federal Control Board Members to Deal With Puerto Rico’s Debt Crisis

Published on: September 6, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The White House has appointed seven people to the Fiscal Control Board tasked with helping Puerto Rico deal with its $70B of debt. The appointees, named by President Obama, include: Jose Ramon Gonzalez (Federal Home Loan Bank of NY CEO/President), Arthur Gonzalez (Ex-bankruptcy Judge), Ana Matosantos (Ex-California Dept. of Finance Director), Carlos Garcia (Ex-Puerto Rico Government Development Bank president and CEO/Founder of BayBoston Managers LLC), Jose Carrion III (Puerto Rico insurance executive), Andrew Biggs (Scholar) and David Skeel (University of Pennsylvania Law Professor). Three of these board member are Democrats, four are Republicans. The eighth member of the board is Puerto Rico’s governor Alejandro Garcia Padilla. He is an automatic member because of his position but does not have a vote.

The creation of the federal control board was part of the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA). The legislation was passed by the U.S. Congress to help the U.S. territory with its financial woes. Puerto Rico has been defaulting on its debt payments that have been due. Just last week, the Government Development Bank of Puerto did not pay almost $10 million of interest that was due on it outstanding bonds. According to a recent report by the ReFund America Project, which has been investigating the U.S. territory’s debt, approximately $1.6 billion of the island’s debt are the fees earned by Wall Street firms, such as Citigroup (C), UBS (UBS), Barclays Capital (BARC), and Goldman Sachs (GS). Even worse, the ReFund America Project said that about $323 million of the money paid to Wall Street firms was for “scoop and toss” deals involving UBS as the main underwriter.

The report also stated that close to half of the $134 million in debt Puerto Rico and its public corporations have issued over the last 16 years is refunding debt. Puerto Rico’s financials purportedly show that the territory had been putting out new refunding bonds to pay back bonds that had been issued earlier. The use of refunding bonds to delay current debt payments for later is what is involved in “scoop and toss” financing.

Beware of UBS Puerto Rico Sending Out Settlement Offers

Published on: August 27, 2015 | by Shepherd Smith Edwards & Kantas, LLP

UBS Puerto Rico clients have reported over the last few days the receipt of unsolicited settlement offers from UBS Puerto Rico for losses in customer accounts. The letters, which appear to be dated August 20, 2015 and are from Roberto Fortuno, Managing Director of the UBS San Juan Complex, offer small amounts for losses. The letters appear to be a part of last year’s UBS settlement with the Puerto Rico Office of the Commissioner of Financial Institutions, whereby UBS Puerto Rico was ordered to pay some customers for losses in UBS’s proprietary closed-end bond funds. As a part of that settlement, UBS Puerto Rico was ordered to identify similar customers and also offer to pay them as well.

While an unsolicited offer from UBS may seem like good news, we at Shepherd, Smith, Edwards & Kantas caution any customers who receive such a letter to consult an attorney before signing anything. The letters indicate that an agreement to take the money will require customers to come to UBS’s offices in San Juan or Ponce and sign a release. Such releases are typically very broad and may result in customers losing rights that have nothing to do with the losses in the closed-end funds. Moreover, our experience with UBS in these cases is that UBS’s opinion of losses is very different than most clients. As a result, anyone who receives such a letter should contact counsel to make sure they have representation. According to the letters our firm has reviewed, the offers are only open for 30 days, so time is of the essence.

The attorneys at Shepherd, Smith, Edwards & Kantas have over 100 years of combined experience in securities law and the securities business. We represent clients all over the globe in investment losses. In particular, our Puerto Rico team has been working with dozens of clients for almost two years in these cases. If you receive a letter from UBS or have lost money in Puerto Rico investments with UBS, Banco Popular, Santander or any other firm on the island, please call us for a no cost, no obligation consultation about your rights.

Ohio Stockbroker Jerry Cicolani Finally Barred From Financial Industry

Published on: May 28, 2015 | by Shepherd Smith Edwards & Kantas, LLP

After pleading guilty to two criminal counts of selling unregistered securities, The Financial Industry Regulatory Authority (“FINRA”), the agency primarily charged with regulating the nation’s stockbrokers, finally barred former stockbroker, Jerry A. Cicolani, Jr. (“Cicolani”) from the securities industry. According to FINRA’s website, “FINRA has permanently barred [Cicolani] from acting as a broker or otherwise associating with firms that sell securities to the public.”

Sadly, the bar came much too late for many of Cicolani’s former clients. For years, FINRA, had largely overlooked numerous customer complaints and other accusations of bad conduct in Cicolani’s formal record. By the time he was barred, Cicolani had amassed nearly 70 complaints over a 13 year period. The final straw seemed to be the suit brought by the U.S. Securities & Exchange Commission (the “SEC”) in May 2014 for Cicolani’s alleged role in a Ponzi scheme that defrauded dozens of investors out of roughly $7 million. Four months after the suit was filed, FINRA finally took action and barred Cicolani.

For the affected customers, FINRA did not take action fast enough, especially given the warning signs. A FINRA spokesperson, Michelle Ong, seemingly recognized this sentiment when noting, “[W]e regret that we did not bring a formal action against Mr. Cicolani earlier.” Many of Cicolani’s complaints originated from his time working for Merrill Lynch. From 1991 to his resignation from Merrill Lynch in 2010, Cicolani was named in over 60 customer complaints during that time period. Yet, time and time again, these complaints were largely overlooked by both his employer and regulators. In 2004, Cicolani was subject to an SEC inquiry based on his handling of customer accounts, yet Merrill Lynch did not terminate his employment because the SEC never sanctioned Cicolani for his conduct. Instead, Cicolani resigned years later after another investigation, this time initiated by Merrill Lynch.