Investor Lawyers Blog

$150 Million Settlement in Merrill Lynch Securities Fraud Lawsuit is Granted Preliminary Approval by District Court Judge

Published on: September 8, 2009 | by Shepherd Smith Edwards & Kantas, LLP

A district court judge issued his preliminary approval of a proposed $150 million settlement in the securities class action lawsuit against Merrill Lynch. The securities fraud lawsuit was filed for purchasers of specific Merrill Lynch preferred securities and bonds.

The plaintiffs of the Bond Action had invested in over $24 billion in preferred debt and securities that the broker-dealer had made available to the public between October 2006 and May 2008. The lead plaintiffs in the securities class action lawsuit were the Louisiana Municipal Police Employees’ Retirement System and the Louisiana Sheriffs’ Pension and Relief Fund. They pursued their claims under the Securities Acts’ Sections 11, 2, and 15.

In addition to Merrill Lynch, a number of the company’s officers and directors, as well as the offering underwriters, are named as defendants in the complaint.

The lawsuit claims that offering documents for certain securities offerings did not accurately reveal the “existence and the value of tens of billions of dollars of complex derivative securities linked to subprime mortgages” that were contained in Merrill’s balance sheet. Such exposures allegedly almost “wiped out” the broker-dealer by September 2008 and nearly caused Bank of America, Merrill’s acquirer, to “topple.” A federal bailout helped rescue the merger.

The parties had previous agreed to a $475 million settlement, in addition to a $75 million settlement for a related class action per ERISA.

The defendants went into the settlement even though the motions to dismiss the amended complaint were pending. A November 23 hearing for granting final approval is now scheduled.

Related Web Resources:
BofA to settle Merrill lawsuit for $150 million, Reuters, August 24, 2009

Louisiana Municipal Police Employees’ Retirement System

Louisiana Sheriffs’ Pension and Relief Fund
Continue Reading ›

Citigroup Global Markets Sales Assistant Accused of Stealing from Clients is Banned by FINRA from the Securities Industry

Published on: September 4, 2009 | by Shepherd Smith Edwards & Kantas, LLP

Citigroup Inc. sales assistant Tamara Lanz Moon has been barred from the securities industry by the Financial Industry Regulatory Authority. Moon is accused of stealing over $850,000 from at least 22 clients who were either sick, elderly, or unable to closely monitor their accounts for some other reason. Her father is reportedly one of her securities fraud victims.

Moon allegedly misappropriated $30,000 from him. She also is accused of taking tens of thousands of dollars from an 83-year-old widow and $55,000 from a US diplomat who works abroad. She allegedly transferred assets from one widow’s Citigroup account to her own account, as well as to accounts belonging to other clients to replace money she stole from those victims.

Moon is also accused of recordkeeping violations, falsifying account records, forging signatures on letters asking for unauthorized address changes, and taking part in unauthorized trades while employed with Citigroup Global Markets. She is accused of using the funds to pay for personal expenditures, such as the remodeling of her residence. She also allegedly used some of the stolen money to invest in real estate.

Citigroup has compensated the victims for their financial losses. Moon’s alleged misconduct reportedly took place over an 8-year period that concluded in March 2008 when she was let go from her job.

FINRA enforcement chief Susan L. Merrill has reiterated that broker-dealers and banks are responsible for supervising not just their brokers but also their sales assistants, who are able to access confidential client information.

Shepherd Smith Edwards & Kantas LTD LLP represents clients who have suffered financial losses because a member of the securities industry misappropriated funds, stole their money, engaged in some other form of securities fraud, or was negligent in other ways while mishandling the victims’ savings or investments. Unfortunately, the sick and elderly tend to be easy targets of securities fraud and financial theft.

Related Web Resources:
Finra Bars Citigroup Sales Assistant, The Wall Street Journal, August 25, 2009
FINRA Bars Citigroup Sales Assistant for Taking More Than $850,000 From Customers, Falsifying Records, Making Unauthorized Trades, FINRA, August 25, 2009 Continue Reading ›

SEC, NASD, FINRA & SIPC: New SEC Report Card on Madoff Catastrophy Further Reveals How Investor Protection Is Severely Flawed!

Published on: September 3, 2009 | by Shepherd Smith Edwards & Kantas, LLP

A new report by the Inspector General at the Securities Exchange Commission recounts 16-years of failures at the SEC which led to the financial crime of the century perpetrated by Bernard Madoff and his firm. The report states that the agency “never properly examined or investigated Madoff’s trading and never took the necessary, but basic, steps to determine if Madoff was operating a Ponzi scheme.”

The IG confirms that the SEC failed to heed direct warnings and warning signs as early as 1992 which “could have uncovered the Ponzi scheme well before Madoff confessed” to the $50 billion fraud, leading to his 150 year prison sentence.

Critics of cecurities regulators and the securities regulatory system have for years complained that the system is not only inept but perhaps corrupt. Accusations have included that regulators overlook wrongdoing by Wall Street insiders while “rounding up the usual suspects” to appear as if they are doing their jobs. Madoff may be the poster child for this theory.

Disgruntled Investors Continue to File Securities Fraud Litigation Against Merrill Lynch Even Eight Months After Its Acquisition by Bank of America Corp.

Published on: September 2, 2009 | by Shepherd Smith Edwards & Kantas, LLP

The plaintiffs of some 166 of the 221 cases filed against Merrill Lynch & Co. since January 1, 2009 are alleging securities fraud-related violations. This means that Bank of America Corp, which acquired the broker-dealer at the beginning of the year, has assumed responsibility for the outcome of these civil cases. Some of these investor fraud claims were filed as late as last month.

Some cases discuss Merrill’s involvement in the marketing, underwriting, and selling of securitizations, or asset-backed securities. Other cases delve into Merrill’s dealings in the auction-rate securities market. A number of the securities fraud cases against Merrill are class action lawsuits. Merrill Lynch is the lead defendant in many of the cases and one of several financial firms named in the other complaints.

Some of the Securities Fraud Cases Against Merrill Lynch:

In Investment fraud Lawsuit Against Lehman Brothers, Goldman Sachs and Morgan Stanley, Court Grants Class Certification

Published on: August 31, 2009 | by Shepherd Smith Edwards & Kantas, LLP

A District Court judge has granted class certification in the securities fraud lawsuit against Lehman Brothers, Morgan Stanley, and Goldman Sachs. The plaintiffs are accusing the broker-dealers of putting forth misleading analysts reports about RSL Communications Inc. for the purposes of maintaining or obtaining profitable financial and advisory work from RSL. Per Judge Shira Sheindlin, the class is to be made up of all parties that bought RSL Common stock between April 30, 1999 and December 29, 2000.

RSL investors, who are the plaintiffs, contend that the defendants artificially inflated the market price of RSL common stock, which injured them and other class members.

In July 2005, the court had certified a class that included anyone who had bought or acquired RSL equity shares between the dates noted above after determining that the plaintiffs had made “some showing” that Rule 23 requirements had been satisfied. The broker-dealer defendants appealed.

The US Court of Appeals for the Second Circuit vacated the class certification order and remanded the action for reconsideration. It’s decision in e Initial Public Offering Securities Litigation, 471 F.3d 24 had clarified class certification standards.

Two years later, pending the outcome In re Salomon Analyst Metromedia Litigation, the court issued a stay. Following its opinion, which held that market presumption includes securities fraud allegations against research analysts, the Court lifted the stay, allowing the plaintiffs to renew their motion for class certification. The court granted the motion and noted that the defendants have been unable to “rebut the fraud on the market presumption by the preponderance of the evidence on the basis that the analyst reports” are missing certain key pieces of information. Per their securities fraud claim, plaintiffs can therefore avail of the “fraud on the market presumption to establish transaction causation.”

The court said that the plaintiffs have succeeded in proving that loss causation can be proven on a “class-wide basis.”

Related Web Resources:
Court OKs Class Cert. In Fraud Suit Against Lehman, Law360, August 5, 2009
U.S. District Court for the Southern District of New York (PDF)
Continue Reading ›

Monex Deposit Company Cannot Compel Investors to Resolve Consumer Investment Dispute in Arbitration, Says Appeals Court

Published on: August 27, 2009 | by Shepherd Smith Edwards & Kantas, LLP

Yesterday, the California Court of Appeals reversed a trial court’s ruling that the plaintiffs who had filed an investment fraud lawsuit against Monex Deposit Company had to go through arbitration instead because of the mandatory arbitration provisions that were included in the investors’ contracts. Per Monex’s arbitration provisions, three arbitrators from JAMS were to participate in the proceedings. Also, the provisions prohibit the joinder or consolidation of claims.

While the trial court sided with Monex’s motion to compel arbitration, the appeals court said that the provisions were unconscionable and therefore could not be enforced. It found that the court-not the arbitrator-should decide whether arbitration provisions are enforceable. The court said that Monex’s arbitration provisions failed to “clearly and unmistakably” reserve to the arbitration panel the matter of whether the provisions are enforceable. It also noted that because arbitrators charge healthy fees for their services, there exists a conflict of interest whenever they are asked to make a decision about arbitrability.

The California appeals court called Monex’s arbitration provisions substantively and procedurally unconscionable-especially considering that calling for a panel of three JAM arbitrators would cost $9,600/day, with each party sharing in the cost.

Brokerage Firm Amerivet Securities Inc. Sues FINRA for Alleged Misconduct

Published on: August 26, 2009 | by Shepherd Smith Edwards & Kantas, LLP

Amerivet Securities Inc. has filed a complaint suing the Financial Industry Regulatory Authority. The brokerage firm wants to figure out whether the self-regulatory organization’s failed to regulate large financial institutions and took part in “reckless” investment strategies. In the District of Columbia superior court, Amerivet Securities argued that it needed access to the SRO’s records and books to determine whether misconduct did occur, resulting in investment losses last year and certain executive compensation practices within FINRA. In a letter dated July 31, FINRA refused to turn over the documents.

Amerivet says that between 2005 and 2008 FINRA failed to supervise and regulate Lehman Bros. Inc., Bear Stearns & Co., Bernard L. Madoff Investment Securities Inc., Merrill Lynch & Co., Stanford Financial Group, Sky Capital Holdings LLC., and its other larger member firms. The brokerage firm is also accusing FINRA of recklessly pursuing investment strategies that were extremely risky and not appropriate for the “preservation of capital.” The SRO’s purchase of $862 million in auction-rate securities was one risky venture that the plaintiff cited as an example. In 2008, FINRA reported losses the equivalent of 26.5% of its investment portfolio-that’s $568 million.

Amerivet says it believes that FINRA invested with Bernard Madoff and either suffered losses or may have “clawback” claims related to their investments with him. The plaintiff says that if FINRA had been doing its job properly, the SRO would have exposed and stopped Madoff’s ponzi scam rather than becoming one of its victims.

Amerivet says that FINRA, like NASD, overpays its senior executives. For example, after NASD and NYSE Regulation Inc. merged to become FINRA in 2007, NASD chairperson Mary Schapiro’s income allegedly increased by 57%.

Amerivet made its claim per Section 220 of the Delaware General Corporation Law.

Amerivet Complaint Against FINRA Alleges Madoff Investment, NoQuarterUSA.net, August 25, 2009
Read the Complaint (PDF)
Continue Reading ›

Will Two Former Credit Suisse Group AG Brokers Convicted of Securities Fraud Get More Lenient Sentences Because of Industry’s “Culture of Corruption?”

Published on: August 21, 2009 | by Shepherd Smith Edwards & Kantas, LLP

A federal judge says that when sentencing former Credit Suisse Group AG brokers Eric Butler and Julian Tzolov, he will consider the fact that they committed their securities fraud crimes while working in the securities industry’s “culture of corruption.” He also asked defense and government attorneys to touch upon this issue when they submit their sentencing recommendations.

Earlier this week, a jury found Butler found guilty of conspiracy and securities fraud for his involvement in an alleged scheme to mislead investors about auction-rate securities so that higher commissions could be generated. Butler faces a maximum 45 years in prison.
.
According to the government, Butler and Tzolov changed securities’ names on communications with investors so that clients wouldn’t find out that federally guaranteed student loans were not backing their investments. Instead, they put the funds in riskier products that were connected to ARS. Investors lost close to $1 billion when the ARS market collapsed.

Butler’s attorney, however, says the failed market, not his client, is at fault for the investors’ losses. Butler plans to appeal the verdict.

Tzolov was arrested last month in Spain. He was under house arrest in New York City in May but fled the country. Tzolov pleaded guilty to securities fraud, conspiracy, visa fraud, wire fraud, and bail-jumping charges. Tzolov then testified for prosecutors in the criminal case against Butler.

While commenting on these recent developments, Ann Woolner, on Bloomberg.com, noted that just because federal regulators weren’t paying attention to misconduct on Wall Street doesn’t make it okay for brokers to lie to their clients-it just makes it easier for them to not get caught. She also commented that while people don’t die from white collar crimes, securities fraud can cause a great deal of suffering for investors who were robbed.

While the two former Credit Suisse brokers shouldn’t be punished because of the shortcomings within the securities industry, the “culture of corruption” argument shouldn’t be the reason to shorten their prison sentences. Just because everyone’s doing it doesn’t make it okay.

Related Web Resources:
Wall Street ‘Corruption’ Might Buy Crook a Break: Ann Woolner, Bloomberg.com, August 21, 2009
Broker Convicted in Auction-Rate Case, Wall Street Journal, August 19, 2009
Former Wall Street broker pleads guilty to fraud, MSNBC, July 22, 2009 Continue Reading ›

Wachovia Securities Ordered by Pennsylvania Securities Commission to Repurchase $325 Million in Auction-Rate Securities

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

Wachovia Securities, LLC and related entities will offer to refund $324.6 million in auction-rate securities from Pennsylvania investors. The Pennsylvania Securities Commission announced the ARS repurchasing agreement on August 11. Wachovia must also pay the commonwealth a $2.52 million assessment for the part the broker-dealer played in the ARS market.

According to Robert Lam, the commission chairperson, Wachovia failed to properly supervise its agents that dealing with investors over the sale of auction-rate securities, as well as engaged in business practices that were “unethical or dishonest.” Commissioner Steven Irwin said Wachovia sold and marketed ARS as liquid investments even though they were long-term investments that were involved in a complicated auction process. The auction-rate securities market failed in 2008.

Right before the ARS market went downhill, over 1,300 Pennsylvania retail investors held ARS that they had purchased from Wachovia. Now, the broker-dealer will repurchase the ARS.

The Pennsylvania commission is investigating other firms over any alleged misconduct committed that caused investors to get stuck with frozen ARS that they had been told were liquid, similar to cash. The commission has made it clear that they will not allow members of the securities industry to take part in dishonest or unethical business practices.

Wachovia sold more than $12.8 billion in ARS to investors throughout the US. Securities regulators in different states have pushed for Wachovia and other brokerage firms, such as Wells Fargo, Citigroup , Bank of America, and UBS to buyback the frozen auction-rate securities that investors were left with after the market dropped. Broker-dealers are accused of misrepresenting ARS to clients and that despite knowing that the market was about to collapse continuing to sell ARS to investors.

Related Web Resources:
Pennsylvania Securities Commission Orders Wachovia to Refund Over $300 Million to More Than 1,300 for Auction Rate Securities, Earth Times, August 11, 2009
Wachovia to Buy Back $325 Million in ARS, Wall Street Journal, August 11, 2009 Continue Reading ›

FINRA Bars Ohio Broker Accused of Stealing $90,000 Inheritance from Two Sisters from the Securities Industry

Published on: August 19, 2009 | by Shepherd Smith Edwards & Kantas, LLP

Richard Wood, an Ohio broker, has agreed to be barred from the securities industry for allegedly committing broker misconduct. According to the Financial Industry Regulatory Authority, the broker, working for American General Securities Inc., allegedly stole the $90,000 that a client had left to two of her nieces.

FINRA says that Wood helped liquidate the estate in 2006. He then suggested that the nieces, who are sisters, open a brokerage account and invest in bonds. He was to oversee their investments. Instead, he allegedly misappropriated the money and told the sisters to issue their checks to STL Financial, Inc., an entity that he alone controlled rather than an actual brokerage firm.

The self-regulatory organization claims that Wood gave each of the sisters a bogus account number to a brokerage account that didn’t exist. He also allegedly put together more than one false customer account statement when one of the sisters became suspicious.