Investor Lawyers Blog

New York Attorney General Files Securities Fraud Lawsuit Against UBS

Published on: July 24, 2008 | by Shepherd Smith Edwards & Kantas, LLP

New York State Attorney General Andrew Cuomo filed a securities fraud lawsuit today against UBS AG related to what he is alleging was the firm’s fraudulent promotion of auction-rate securities as safe investments. He is reportedly seeking to make UBS offer to purchase back at face value approximately $25 billion in ARS instruments held by UBS clients in New York and across the United States.

Sources report that UBS is not the only entity that Cuomo may file charges against in the wake of his office’s investigation of auction-rate securities debacle. Thousands of investors have complained that they were told that the securities were like cash and would yield a little higher than a money market account.

Cuomo’s probe has focused on whether UBS and other investment firms notified investors of the risks involved with investing in auction-rate securities. He began his investigation in April when he subpoenaed 18 institutions. Since then, Cuomo has sent subpoenas to 100 individuals and 30 entities, including JP Morgan Chase & Co, Citigroup Inc., Goldman Sachs Group, Inc., and Merrill Lynch and Co.

SEC Subpoenas Over 50 Hedge Fund Advisors in Probe of Whether Stock Price Manipulation Affected Bear Stearns and Lehman Brothers Shares

Published on: July 21, 2008 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission has subpoenaed over 50 hedge fund advisors, including SAC Capital Advisors, Goldman Sachs Group Inc., and Citadel Investment Group, as part of its probe into whether rumors affected the shares of Bear Stearns and Lehman Brothers.

The SEC is looking for information related to options trading and short-selling involving the two investment firms. The subpoenas are part of a wider investigation about trades in bank securities and the communications between the hedge funds and others. The SEC has reassured the parties being subpoenaed that they are not necessarily direct targets of the probe.

Last week, regulators announced that they are investigating whether certain managers had spread rumors to cause share prices to drop. Investigators are also trying to figure out whether correct policies and training procedures had been put in place to detect market manipulation.

Securities Regulators Arrive At Wachovia Securities Headquarters to Conduct Auction-Rate Securities Investigation

Published on: July 17, 2008 | by Shepherd Smith Edwards & Kantas, LLP

In St. Louis, Missouri, 10 securities regulators probing the auction-rate securities crisis arrived at Wachovia Securities today. The firm has reportedly failed to fully comply with requests related to the investigation, which is what prompted the onsite visit.

The investigators, from Missouri, Massachusetts, New Jersey, Illinois, Pennsylvania, and other US states, arrived to conduct interviews and demand documents regarding Wachovia’s marketing and sales practices.

The Missouri Securities Division investigation into Wachovia Securities began last April, and the office of Missouri Secretary of State Robert Carnahan has subpoenaed over a dozen Wachovia Securities executives and agents in search of more information related to the company’s auction-rate securities business. Carnahan says that hundreds of Missouri investors have contacted her office frustrated that they cannot access their money.

Scottrade Agrees to $950,000 Civil Penalty To Resolve SEC Charges of Fraudulent Misrepresentation Regarding Nasdaq Pre-Open Order Executions

Published on: July 16, 2008 | by Shepherd Smith Edwards & Kantas, LLP

Scottrade Inc. agreed to pay a $950,000 civil penalty to settle Securities and Exchange Commission charges that it made fraudulent misrepresentations to clients related to the execution of Nasdaq pre-open orders. The brokerage firm is not admitting to or denying wrongdoing by settling the charges. Scottrade is, however, agreeing to cease and desist from committing future violations.

Pre-open orders are normally placed after the market closes for execution when the market opens next. The SEC alleges that Scottrade made fraudulent misrepresentations when Scottrade told customers it would direct their orders based on a number of factors, including liquidity at market opening.

The SEC says that when a broker-dealer accepts customer orders, the firm is impliedly representing that it will make sure to review the quality of execution on orders. SEC Enforcement Director Linda Thomsen says that Scottrade not only failed to regularly and properly review the execution process but it neglected to consider the way technological advances were impacting the orders.

Senators’ Bill Calls for Added $50,000 Fine For Defrauding Elderly Investors

Published on: July 15, 2008 | by Shepherd Smith Edwards & Kantas, LLP

US Senators Herbert Kohl (Wisc) and Robert Casey (Pa) have introduced the Senior Investor Protections Enhancement Act, a bill that would add a $50,000 fine to any penalties that came with defrauding investors over 62 years of age. The legislation defines a senior as anyone 62 years of age or older. This is the age group that the majority of retirement savings can now be accessed for investments.

The two men emphasized that while seniors over 65 control about $15 trillion, over 50% of complaints made to state securities regulators come from this age group.

The bill proposes the additional penalty for every securities law violation that directly targets or is committed against a senior investor. However, it won’t intervene with situations involving legitimate investment advisors that make appropriate investment recommendations to their elderly clients.

Deutsche Bank Securities Unit Must Defend Itself Against Xethanol Corp. Lawsuit Related to Auction-Rate Securities Losses

Published on: July 9, 2008 | by Shepherd Smith Edwards & Kantas, LLP

This week, U.S. District Judge Alvin K. Hellerstein announced that the securities arm of Deutsche Bank AG will have to defend itself against a lawsuit alleging that it lost almost $1.6 million in auction-rate securities.

Xethanol Corp., which filed the securities lawsuit, alleges that Deutsche Bank Securities let the alternative-energy company buy the securities even though it didn’t fulfill the requirements for the transaction to take place as a private investment. Xethanol says it ended up selling its positions in two auction-rate securities at a $1.59 million loss last September. The company claims it acquired the positions for $13.3 million last June.

However, Deutsche Bank Securities says it never interacted directly with Xethanol. A third-party broker bought the securities from Deutsche Bank before selling them to Xethanol. The broker is not named as a defendant in the case.

Ex-Broker Files Whistle-Blower Complaint Against UBS Financial Services

Published on: July 7, 2008 | by Shepherd Smith Edwards & Kantas, LLP

Timothy P. Flynn, an ex-UBS broker, has filed a whistle-blower complaint. Flynn alleges that UBS Financial Services forced him to resign as part of the firm’s retaliation because he cooperated with regulators. Flynn, who sold $30 million in auction-rate securities to the Massachusetts municipalities, testified earlier this year at the request of Massachusetts Attorney General Martha Coakley. who was investigating the sale of auction-rate securities to Massachusetts municipalities.

Flynn told investigators that UBS had told its brokers that the auction-rate securities were safe alternatives to cash. Flynn claims that UBS shut him out of his office and work e-mail files soon after he gave testimony and he was told to resign or face termination.

In his lawsuit, Flynn alleges that UBS knew the market could be on the brink of collapse but kept telling brokers to inform customers that the securities were safe investments. He filed his whistle-blower complaint with the Occupational Safety and Health Administration in New York. The former broker’s lawyer says his client filed the complaint to preserve his reputation and enforce his rights.

Citigroup’s Smith Barney Draws Ire of Investors and Its Own Brokers Over ASTA/MAT and Falcon Funds

Published on: July 2, 2008 | by Shepherd Smith Edwards & Kantas, LLP

Citigroup is offering to cover some of the losses of investors involved with certain hedge funds sold by the firm’s Smith Barney brokerage unit. Citigroup and Smith Barney brokers allegedly recommended the funds, ASTA/MAT and Falcon, to investors looking for conservative investments.

Citigroup marketed the hedge funds as being ideal for retirees and other investors seeking safe investments, and Smith Barney raised hundreds of millions of dollars for the funds. The funds were reportedly marketed to investors as low-risk and accompanied by only a minimal probability of loss when, in fact, they came with high levels of risk-information that was kept from investors.

Last year, Citigroup told Smith Barney and Citigroup bankers to market the funds to their best clients. These clients were not informed that the new pitch initiative was an effort to inject new funds into Falcon, which had dropped by over 10%. The fund would be worth 25% of its original value by the end of March 2008.

Investors Seek Arbitration Resolutions Against Charles Schwab for Alleged Securities Violations

Published on: July 1, 2008 | by Shepherd Smith Edwards & Kantas, LLP

Charles Schwab & Co. has recently been barraged with FINRA arbitration claims filed by investors alleging that the firm violated industry regulations and state securities laws. In their complaints, investors are accusing Charles Schwab of misleading them about the risks associated with certain mutual funds, including the degree to which the funds were exposed to the hazards of the sub-prime mortgage market. They say that rather than diversify the investments, the brokerage firm over-concentrated them in securities tied to the mortgage industry.

The claims cite numerous omissions and misrepresentations in mutual funds that the brokerage firm had underwritten, including those involving Schwab YieldPlus Funds Investor Shares (SWYPX) and the Schwab YieldPlus Fund Select Shares (SWYSX). The funds have undergone major losses recently, and investors claim these losses were not brought about by market events, but, rather, due to mismanagement by Schwab fund managers, including its failure to disclose key information to investors.

Investors say that in addition to Schwab’s alleged failure to diversify its fund assets, the brokerage firm also failed to reveal that Schwab’s leading broker-dealers issued most of the bonds that the funds held, there was no primary market for the majority of the bonds, and the firm’s credit and market analyst did not have the experience to evaluate the value and risk of mortgage backed securities.

Massachusetts Commonwealth Secretary William Galvin Sues UBS for Fraud

Published on: June 30, 2008 | by Shepherd Smith Edwards & Kantas, LLP

Commonwealth of Massachusetts Secretary William Galvin is suing UBS because it says the investment firm pushed auction-rate securities onto investors in an effort to minimize its own losses. In his complaint, the state’s head securities regulator cited fraud as grounds for the lawsuit.

Galvin cites several e-mails that indicate that UBS told its sales team to aggressively sell the notes to as many investors as possible after the firm realized that the $300 billion auction-rate securities market was in trouble and there were beginning to be more people selling than buying.

One e-mail, dated December 15, indicates that UBS’s wealth management unit held $33 billion of the auction-rate securities and that the firm had underwritten $43 billion of the market’s securities. Galvin says UBS engaged in a “comprehensive and deliberate” strategy to minimize their inventory.