Investor Lawyers Blog

Goldman Sachs Affiliate Agrees To Pay $2 Million in Fines and Penalties Over Short-Sale Scheme Charges by NYSER and the SEC

Published on: March 27, 2007 | by Shepherd Smith Edwards & Kantas, LLP

NYSE Regulation Inc. and the Securities and Exchange Commission say that a clearing affiliate and prime broker of Goldman Sachs Group will pay $2 million in fines and penalties over its alleged role in an illegal short-sale trading scheme that was executed by Goldman Sachs customers through their accounts with the brokerage. Goldman Sachs Execution and Clearing, LP has not admitted to or denied any wrongdoing by agreeing to the censure. They are, however, agreeing to cease and desist from future violations.

The SEC charges that firm customers unlawfully sold securities short right before public offerings of the companies’ securities. It is accusing Goldman of violating the rules that mandate that brokers must mark sales short or long, while restricting stock loans on long sales. Both NYSER and SEC say that if Goldman had proper procedures in place, it would have discovered via its own records this illegal activity by its customers. Two Goldman customers have already settled SEC charges connected to their alleged participation in these activities.

SEC Chairman Christopher Cox told the U.S. Chamber of Commerce on the day of this announcement that the commission and its senior staff members are very concerned about abusive naked short-selling. He admitted that Regulation SHO had not properly addressed these issues and that the commission will now eliminate the regulation’s grandfather provision. Cox said that naked short-selling was connected to settlement and clearance systems and that the SEC would use technology to further deal with this issue. He said the action against Goldman was important.

New Regulations, Filed By The Massachusetts Securities Division, Define Credentials Standards For Advisors To Senior Investors

Published on: March 22, 2007 | by Shepherd Smith Edwards & Kantas, LLP

William Francis Galvin, the Massachusetts Secretary of the Commonwealth, says that his office has set up new standards for advisers using credentials implying that they are experts when it comes to senior investors.

According to Galvin, the state of Massachusetts is charging two Massachusetts annuity salesmen with using unethical and dishonest practices when marketing annuities to seniors: Michael Mark Delmonico and John Christopher Huck.

Delmonico is accused of presenting himself as an unbiased and objective financial advisor to seniors, but allegedly was actually trying to sell high-commission annuities that were often not suitable for senior investors. He has denied the charges. Also charged in the complaint was Workman Securities Corp. and company officials Robert Vollbrecht and Paul Maxa for failing to properly supervise Delmonico.

More Good News for Morgan Stanley! Record Earnings, a Jury Verdict Overturned and a Slap on the Wrist by Regulators.

Published on: March 21, 2007 | by Shepherd Smith Edwards & Kantas, LLP

Morgan Stanley shared in the earnings boom for Wall Street Firms as it reported earnings for its latest quarter of $2.56 Billion, a 29% increase over a year ago.

The investment giant is also celebrating a victory in the Florida courts, having convinced an appeals court to throw out an $1.58 Billion jury award against it for its mis-handling of a 1998 merger between Coleman Company with Sunbeam Corporation.

Morgan Stanley had faced an uphill fight in that case because it failed to honor a court order to produce e-mails sought by lawyers for the plaintiffs. Frustrated by the delays, Palm Beach County trial judge Elizabeth Maass issued a ruling that the Morgan Stanley and Sunbeam conspired to defraud the plaintiff and presented the case to the jury to establish the damages. Morgan Stanley had in 2005 set aside $360 million of reserves for the case expecting the jury verdict to be reduced. That will presumably will then be added to the firm’s current earnings.

Appeals Court Shoots Down Enron Stock Victims, But Leaves Door Open to Law Suits and Arbitration Claims.

Published on: March 20, 2007 | by Shepherd Smith Edwards & Kantas, LLP

A Houston Federal Court was set to begin tiral on class actions filed on behalf of investors against several fiancial firms that allegedly assisted Enron to defraud shareholders. However, a Federal Court of Appeals, with most of its judges selected by the Bush-Cheney administration, stepped in to overturn the class action status of these Enron shareholders.

Several cases had been filed for Enron shareholders against Merrill Lynch, Credit Suisse, Royal Bank of Canada, Toronto-Dominion Bank, Barclays and the Royal Bank based upon the involovement of those fiancial institutions in actions by Enron management which misled investors about the finances at Enron and ultimately led to that firm’s demise.

Attorneys for the Enron victims say they will request the U. S. Supreme Court reverse this decision, but observers point out that the balance of power in the High Court has also been altered by Bush-Cheney appointees. Observers also remind the public that, prior to Enron’s demise, officials of that firm were involved in establishing energy policy for the Bush-Cheney administration. Notes of such discussions have never been produced to Congress.

Banc of America Securities LLC to Settle SEC Charges By Paying $26 Million In Penalties and Disgorgement

Published on: March 20, 2007 | by Shepherd Smith Edwards & Kantas, LLP

To settle administrative charges made by the Securities and Exchange Commission, Banc of America Securities LLC has agreed to paying $26 million in penalties and disgorgement. The SEC says that BAS did not safeguard upcoming research reports and submitted ones that were fraudulent to companies. Without denying or admitting the charges, BAS has agreed to a cease-and-desist order against future violations and to being censured, as well as other remedial measures. It will also work with an independent consultant to assess its internal controls and prevent nonpublic information about forthcoming researched from being misused again.

The SEC says that there was a “breakdown” in internal controls that had been put in place at BAS to stop the firm and its employees from misusing research reports that were forthcoming between January 1999 and December 2001. Because of this breakdown, traders and salespersons at BAS allegedly found out about research changes that were forthcoming, such as downgrades and upgrades.

The SEC claims that BAS had no effective or clear procedures and policies that could allow it to control or manage this kind of information. Because of this, BAS allegedly traded prior to the research reports being issued. The firm is also accused of not taking care of specific conflicts of interest, which compromised the integrity and independence of its analysts. These conflict allegedly led to misleading research reports being published and given to TelCom Semiconductor Inc., Intel Corp, and E-Stamp Corp.

In Hi-Tech Market Manipulation Case By Unknown Traders, Securities and Exchange Commission Freezes $3 Million To Protect Brokerage Firms

Published on: March 15, 2007 | by Shepherd Smith Edwards & Kantas, LLP

On March 6, 2007, The U.S. District Court for the District of Columbia froze $3 million in an account under the name of a Latvian bank. The SEC said unknown traders used the money last year for a “hi-tech market manipulation scheme”. According to the Commission, the action is the largest freeze secured for an intrusion-related market manipulation scheme.

The SEC says that the assets had been placed in an omnibus brokerage account at Pinnacle Capital Markets LLC. The unidentified account owners are based in Russia, the British Virgin Islands, Latvia, and Lithuania-but the account was under the name of JSC Parex Bank, a Latvian bank that the SEC has named as a relief defendant in the SEC action.

The Commission says that unknown traders hacked into investor accounts at online brokerages, sold off clients’ existing positions, and used the money they made to bid up the market for specific stocks that they wanted to manipulate. These traders made at least $732,000 with their alleged pump-and-dump scheme, costing brokerage firms about $2 million.

NYSE Regulation Fines Swiss American Securities Inc. and UBS Securities, LLC For Violations

Published on: March 14, 2007 | by Shepherd Smith Edwards & Kantas, LLP

NYSE Regulation says it has ordered Swiss American Securities Inc. (a unit of Credit Suisse Group) and UBS Securities LLC to pay fines for a number of securities violations.

The regulatory arm of the New York Stock Exchange says UBS Securities is being fined $95,000 for canceling or entering limit-on-close and market-on-close orders in a number of securities after relevant cut-off times. These violations happened between June 2005 and February 2006. Other violations were also cited as reasons for the fine.

Swiss American Securities was fined $100,000 because it failed to maintain control or possession of all excess and fully paid margin securities that it held for customer accounts (in 2004 and 2005), as well as other violations.

The SEC And The U.S. Attorney’s Office File Separate Criminal And Civil Actions In Major Insider Trading Schemes Involving Confidential Information From UBS Securities And Morgan Stanley

Published on: March 12, 2007 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. Attorney’s Office announced the unsealing of criminal actions against a dozen individuals for allegedly stealing and trading on inside information from Morgan Stanley and UBS Securities, LLC, two Wall Street brokerage firms. The SEC also filed charges against these individuals in a separate civil case.

Former Morgan Stanley attorney Randi Collotta and former UBS Securities LLC executive Mitchell Guttenberg are two of the individuals out of more than a dozen people being charged by the U.S. Attorney’s Office for two bribery schemes and two insider trading schemes. Participants made over $8 million in illegal trading profits. U.S. Attorney Michael Garcia says all of the criminal defendants are in custody. Four of them have pleaded guilty.

Garcia said that the defendants violated the trust that had been given to them, made money illegally, and took extensive measures to hide their alleged illegal actions. Concealment measures included secret meetings, paying cash kickbacks, and communicating in code using disposable cell phone.

SEC Charges Against Two Former Citigroup Officials For Fraudulent Fund Dealings Are Dismissed

Published on: March 8, 2007 | by Shepherd Smith Edwards & Kantas, LLP

Charges by the Securities and Exchange Commission have been dropped against Lewis Daidone and Thomas Jones, two former Ex-Citigroup Officials. The SEC had charged the two men with alleged involvement in a fraud scheme that let Citigroup gain millions of dollars in profits, which should have gone to specific mutual funds.

According to Judge Richard Conway Casey of The U.S. District Court for the Southern District of New York, the SEC’s push for injunctive relief and civil penalties is time-barred. He also said that there is no factual support for the Commission’s disgorgement claim.

The court said that the SEC sought three forms of relief-permanent injunctions, civil penalties, and disgorgement-for one cause of action-aiding and abetting 1940 Investment Advisers Act Section 206 violations. The remedies, according to the judge, are not available. The civil penalties and injunction relief is time-barred (the charges did not meet the 5-year statute of limitations) and the disgorgement request was not supported by enough facts. The SEC filed its suit in 2006, six years after the alleged wrongdoing that took place in 1999.

Former UBS Vice President Pleads Guilty To Conspiring With Hedge Fund Operator And Founder Of Capital Management Group To Bilk At Least $2.5 Million From Over 40 Investors

Published on: March 7, 2007 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. Attorney’s Office says that Justin Paperny, a former account vice president at UBS Financial Services, Inc., has pleaded guilty to helping Capital Management Group founder Keith Gilabert bilk at least $2.5 million from investors.

Paperny pled guilty to wire fraud, securities fraud, and conspiracy to commit mail fraud, while admitting that he helped Gilabert fraudulently run GLT Venture Fund. Paperny also said that he lied to investors so that they would invest in the fund, took kickbacks from Gilabert, and conspired with him to mislead investors about the hedge fund’s performance history, the oversight of Capital Management Group by his brokerage firm, and any risks connected to investing in Capital Management Group.

That said, Paperny also says that he informed management at the brokerage firm that GLT had not been adhering to its investment strategy and that authorities at his firm knew of Gilabert’s fraudulent behavior. The investigation is pending. Paperny faces a possible 5-year federal prison term. He has agreed to cooperate with investigators as a condition of his guilty plea.