Securities Fraud Blog | Find out if your broker is liable for your losses

TAG | auction rate securities

Jun/11

12

Report Says That Structured Products Are ‘Absurdly Destructive’ for Retail Investors

Comments off · Posted by admin in FINRA

In a June 10, 2011, article in InvestmentNews.com, Liz Skinner writes that structured notes and other derivatives products have been marketed by Wall Street as safe and secure investments. Of course, Skinner writes, there’s safe and then there’s safe. Retail investors of all stripes have lost at least $113 billion by purchasing these purportedly safe instruments, according to a new study conducted by the nonpartisan policy center Demos and The Nation Institute, a media think tank.

“In my three decades of Wall Street experience, I have not seen any other product as absurdly destructive as retail investments linked to structured products,” securities arbitration consultant Louis Straney wrote in the report.

Considering financial institutions appear to be ramping up the sales of these products,that’s worrisome. Indeed, structured notes with principal protection are among the most popular products being pitched to income-oriented investors, the study said. These investments combine a zero-coupon bond and an option whose payoff is linked to an underlying asset, index or benchmark, or a basket of benchmarks. The notes, which pay off based on the performance of the linked index, can provide reasonable returns and upside potential — certainly attractive given today’s puny money market and CD rates.

Liz Skinner writes that last year, banks and brokers sold more than $52 billion in structured notes, according to the study. In the past, the notes were sold strictly to sophisticated institutional investors. In recent years, however, structured notes have been repackaged and sold to retail investors — often, senior citizens —as a principal protection tool. But as the name implies, structured products can be complex. Last week, regulators warned investors that structured notes with principal protection often come with confusing terms, low guarantees and can tie up money for as long as a decade. The alert from the Securities and Exchange Commission and the Financial Industry Regulatory Authority Inc. stressed that the investments are not risk-free.

The SEC said principal-protected notes vary wildly by issuer and that investors tend to ignore or don’t understand what is spelled out in prospectuses. Also, the commission warned that principal-protected notes do not always protect principal. Some issuers of principal-protected notes guarantee only a certain amount of the principal — in some cases, as little as 10%. Sometimes, the principal is protected only if a contingency stipulated in the prospectus is met. Other sellers of the notes do guarantee 100% of principal. But even that’s not a lock. If the issuer of the note goes bankrupt, the investor likely will lose all or most of the money invested.

The InvestmentNews.com article goes on to say that in April, for example, UBS Financial Services Inc. agreed to pay $10.7 million in fines and restitution to settle Finra allegations that its advisers misled investors about the “principal protection” feature of structured notes issued by Lehman Brothers Holdings Inc. that it sold a few months before that firm collapsed. In its complaint, Finra said that some UBS advisers didn’t understand the complexity of the 100% principal-protected notes that Lehman issued and failed to tell investors that they were unsecured obligations. In settling the case without admitting wrongdoing, UBS said that it was pleased to have the matter resolved and that most structured-product sales had been done properly.

Skinner writes that the Securities Industry and Financial Markets Association, which represents most Wall Street firms, did not respond to a request for comment Thursday about the suitability of structured products for retail investors.

They Are A Scared Group

The $113 billion that the report said individuals have lost includes more than just investments in principal-protected notes. It also included auction-rate securities, as well as certain municipal bond hedge funds (as reported by regulators or lawyers monitoring losses).

“Ninety-nine percent of the $113 billion cited is not to be attributed to the structured products industry, in particular principal-protected notes, which by and large have performed superbly in this volatile market environment,” said Keith Styrcula, spokesman for the Structured Products Association.The only losses from structured notes have been those from the Lehman bonds — probably less than one billion dollars in the U.S., he said.

Abuses relating to structured products and/or derivatives have been reported in about a third of the 50 states. The director of Alabama’s securities commission, Joe Borg, said he’s looking into cases involving income-oriented investments that lost money.

“There’s no doubt that structured products are targeted toward older folks,” Mr. Borg wrote in the report. “There’s the issue of outliving their money when it is tied up in low-yielding CDs and bonds. They’re a scared group.”

If you feel you have been an alleged victim of  your broker/brokerage selling you unsuitable structured notes, please call a Securities Arbitration Lawyer for a free consultation on how to recover your losses.  To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com.

Soreide Law Group, PLLC., representing investors nationwide before FINRA  the Financial Industry Regulatory Authority.

· · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · ·

May/11

25

Nuveen Investments Fined $3 Million by FINRA for Use of Misleading Marketing Materials Concerning Auction Rate Securities

Comments off · Posted by admin in FINRA

WASHINGTON — On May 23, 2011, the Financial Industry Regulatory Authority (FINRA) announced that it has fined Nuveen Investments, LLC, of Chicago, $3 million for creating misleading marketing materials used in sales of auction rate preferred securities (ARPS). The Nuveen Funds’ ARPS were a form of auction rate securities, which are long-term securities with interest rates or dividend yields that are reset periodically through an auction process. In contrast to other types of auction rate securities, the Nuveen ARPS were preferred shares issued by closed end mutual funds to raise money for the funds to use to invest.

It was reported on the FINRA website that by early 2008, over $15 billion of Nuveen Funds’ ARPS had been sold to retail customers by third-party broker-dealers. Nuveen did not sell the ARPS to customers, but in its role as distributor for Nuveen Funds, it created marketing brochures that were used by the broker-dealers who sold the ARPS to retail customers. The brochures were the primary sales and marketing material Nuveen created for the auction rate preferred securities. FINRA found that the brochures, also available on Nuveen’s website, failed to adequately disclose liquidity risks for ARPS. Nuveen neglected to include the risks that auctions for the ARPS could fail, investments could become illiquid and that customers might be unable to obtain access to funds invested in the ARPS for a period of time should the auctions fail. Instead, the brochures contained misleading statements which described the ARPS as safe and liquid investments. Also, FINRA found that Nuveen failed to maintain adequate supervisory procedures to ensure that the materials it used to market the auction rate preferred securities accurately described the features and risks of the securities.

 Brad Bennett, FINRA Executive Vice President and Chief of Enforcement, said, “Nuveen was aware of facts that raised significant red flags about the ability of investors to obtain liquidity for their Nuveen auction rate securities yet failed to revise their marketing brochures to disclose these risks. This failure deprived investors of important information.”

It was reported that Nuveen failed to revise disclosures in their brochures after a lead auction manager responsible for approximately $2.5 billion of the ARPS notified Nuveen in early January 2008 that it intended to stop managing Nuveen auctions. On January 22, 2008, the lead manager did not submit support bids in an auction for a series of Nuveen auction rate preferred stock and that auction failed. FINRA found that the auction failure and Nuveen’s inability to find a replacement for the lead manager raised serious questions for Nuveen about whether investors in Nuveen’s ARPS would be able to obtain liquidity for the securities in future auctions. Despite this, Nuveen failed to revise its marketing brochures to reflect these risks and, thus, the brochures were misleading. In February 2008, widespread auction failures occurred throughout the auction rate securities market, including auctions for Nuveen funds ARPS.

The Nuveen funds have redeemed approximately $14.2 billion of the $15.4 billion of the ARPS that were outstanding on February 12, 2008. As part of the settlement, Nuveen agreed to use its best efforts to effect redemptions of any remaining outstanding Nuveen funds ARPS. Nuveen neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.

This information was obtained on FINRA’s website.

If you or a family member have become a victim of the alleged fraudulent schemes of Nuveen Investments, LLC, call a Securities Arbitration Lawyer for a free consultation on how you could potentially recover you losses.  To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC., representing investors nationwide before FINRA  the Financial Industry Regulatory Authority.

· · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · ·

May/11

15

Learn How to Recover Your Losses on Frozen Raymond James Auction Rate Securities

Comments off · Posted by admin in FINRA

When the auction rate securities mess was first brought to light, there was an article in the St. Petersburg Times in 2009, reporting that while institutions like Bank of America are placating regulators and investors by buying back the hard-to-trade securities from customers, Raymond James chief executive Tom James told clients in a letter that the company doesn’t have access to financing to cover “anything near” the $1-billion outstanding owned by its clients.

Even if he could buy back the securities, James said, regulators would not give his company credit for the securities because they are illiquid. James also wrote that some large banks that have pledged to buy back securities “perhaps even with funds provided by the federal government for other purposes,” but have not yet repurchased everything.

The market for auction rate securities, which had been sold by nearly every large firm on Wall Street as a cash equivalent, seized up in February 2008, precipitating the stock market crash that September.

ARS or auction-rate securities, are long-term debt instrument designed to trade like short-term securities. They were issued by many municipalities and closed-end mutual funds, and often pitched to small investors as safe and easily redeemable. In early 2008, as the credit crunch intensified, the $300-billion auction-rate market froze, leaving investors unable to sell their holdings. When the market for the securities froze, Raymond James Financial’s clients held $1.9 billion in auction rate debt.

In a lengthy letter to clients in 2009, filed with the Securities and Exchange Commission, James alluded to other underwriters that allegedly knew that auctions were failing, had suppressed research reports or employed executives who liquidated their own positions while still selling to clients. “To the best of my knowledge, we didn’t participate in those types of acts,” James wrote.

Also in his letter, James said he couldn’t remember a significant number of failed auctions in auction-rate securities for almost 20 years. James said he understood clients could conduct business with whomever they wish. But he urged patience and understanding, noting that he personally still owns a large number of auction-rate securities.

In some of the more recently settled auction-rate cases, claimants allegethat their brokers recommended, and then invested their money in, an auction rate securities when they opened their account with Raymond James & Associates in or around January 2008.

The claimants also alleged that the broker’s “actions and conduct created the false impression that there were deep pools of liquidity in the auction market,” according to the arbitration award.

In one instance, the key to the investors’ $925,000 recent award, was the timing of the purchase which was reported in InvestmentNews.com. Thirty-five days after the couple made the purchase, their securities came up for auction for the first time. The auction failed, he said, and the clients never had the chance to go to auction.

If you feel you have a claim against Raymond James Financial, Inc., for selling you Auction Rate Securities (ARS) and would like to potentially recover your losses, contact  a lawyer for a free consultation at Soreide Law Group, PLLC, at:  www.stockmarketlawsuit.com or call (888) 760-6552.

Soreide Law Group, PLLC., representing investors nationwide before FINRA  the Financial Industry Regulatory Authority.

· · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · ·

May/11

14

Raymond James Could Pay Up to $50M due to Distressed ARS

Comments off · Posted by admin in FINRA

Because of distressed auction-rate securities (ARS), Raymond James Financial Inc., could face a loss of $25 million to $50 million, if it has to buy them back  from their clients.

In a May 10, 2011, article from InvestmentNews.com, Bruce Kelly writes that  the Securities and Exchange Commission (SEC), the New York attorney general’s office, and the Florida Office of Financial Regulation have been investigating the firm, which has had negotiations with the regulators to resolve the matter.

“Were we to repurchase that ARS portfolio, the fair value could be less than the par value of such securities by an amount ranging from $25 million to $50 million,” the company said in a filing with the SEC. “This estimate does not include any ARS held by our clients who transferred to another broker-dealer.”

Kelly writes that Raymond James clients held about $370 million in auction-rate securities, at the end of March. The distressed market for the securities, which many brokerage firms sold, touting their liquidity, was one of the first major signs of the credit crisis that eventually shook Wall Street and the economy in 2008 and 2009.

The large investment banks that underwrote the frozen securities quickly entered into settlements with regulators to buy back the securities from retail clients. Raymond James sold the product but was not an underwriter.

“We believe we have meritorious defenses, and therefore, any action by a regulatory authority to compel us to repurchase the outstanding ARS held by our clients would likely be vigorously contested by us,” the firm said

It was reported that Raymond James has more than 5,000 registered reps and advisers in employee and independent sales channels.

If you feel you have a claim against Raymond James Financial, Inc., for selling you Auction Rate Securities and would like to potentially recover your losses, contact  a lawyer for a free consultation at Soreide Law Group, PLLC, at:  www.stockmarketlawsuit.comor call (888) 760-6552.

Soreide Law Group, PLLC., representing investors nationwide before FINRA  the Financial Industry Regulatory Authority.

· · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · ·

May/11

6

Joey Wade Dean, Hot Springs, Arkansas, Barred by FINRA

Comments off · Posted by admin in FINRA

Joey Wade Dean (CRD #3061136, Registered Representative, Hot Springs, Arkansas)
was barred from association with any FINRA member in any capacity. The sanction was based on findings that Dean willfully made material misrepresentations and omissions to customers that were either intentional or reckless in connection with the purchase of securities.

The findings stated that Dean sold the customers unsecured firm debts and
misrepresented that their principal was protected and falsely guaranteed the customers a rate of return.

The findings also stated that Dean executed unauthorized sales of shares of the securities from customers’ accounts. The findings also included that Dean
recommended and effected unsuitable transactions in customers’ accounts because of
the extraordinary concentration of a single issuer’s securities in the customers’ accounts.
(FINRA Case #2008012833801)

This information was obtained on FINRA’s website.

If you have become a victim of these alleged fraudulent schemes of  Joey Wade Dean, call a Securities Arbitration Lawyer for a free consultation on how you could potentially recover you losses.  To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC., representing investors nationwide before FINRA  the Financial Industry Regulatory Authority.

· · · · · · · · · · · · · · · · · · · · · · · · ·

May/11

2

Timothy J. Roth Accused of Stealing $6Mill from Clients Mutual Fund Shares

Comments off · Posted by admin in FINRA

It was announced 0n March 21, 2011, on the SEC’s website that the SEC obtained an emergency court order freezing the assets of Urbana, Illinois money manager Timothy J. Roth for stealing more than $6 million of his clients’ mutual fund shares, liquidating the shares, and sending the ill-gotten gains to various accounts and companies under his control. The Court also entered a temporary restraining order prohibiting Roth from violating the anti-fraud provisions of the federal securities laws.

According to the SEC article, there was a civil complaint filed by the SEC. Roth worked for Comprehensive Capital Management, Inc. (“CCM”), a New Jersey-based registered investment adviser. The SEC’s complaint alleges that from October 2010 through February 2011, Roth stole more than $6 million worth of mutual fund shares from several employee deferred compensation plans for whom he provided investment advice.

The SEC complaint alleges that Roth, who worked out of CCM’s office near Urbana, Illinois, secretly caused the Plans’ mutual fund shares to be transferred to an account under his control, even though no such transfer had been requested or authorized by the Plans or the Plans’ participants. The SEC alleges that after selling the Plans’ shares, Roth funneled the cash proceeds to various accounts and companies under his control or for his benefit. According to the SEC’s complaint, at the time he was engaging in his scheme, Roth did not tell the Plans or their participants about the transfers. Instead, Roth sent them bogus account statements that deliberately omitted his surreptitious transfer of the mutual fund shares. Thus, the account statements overstated the Plans’ account holdings and concealed Roth’s theft.

In the SEC article they go on to say that the SEC’s complaint charges Roth with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and with aiding and abetting violations of Sections 206(1), 206(2), and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-2 thereunder. In addition to the emergency relief already obtained, the complaint seeks preliminary and permanent injunctions, disgorgement, and civil penalties from Roth. The SEC’s complaint also names Roth’s companies as relief defendants and seeks disgorgement from them. The Court’s freeze order extends to the assets of the relief defendants. A hearing on the SEC’s motion for preliminary injunction has been set for 1:00 p.m. on March 30, 2011, at the U.S. District Court for the Central District of Illinois courthouse in Peoria, Illinois before Judge Michael M. Mihm.

This article was obtained on the SEC’s website.

If you or a family member have become an alleged victim of Timothy J. Roth of Comprehensive Capital Mangement, Inc., CCM , call a Securities Arbitration Lawyer for a free consultation on how to recover your investment losses.  To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com.  Soreide Law Group, PLLC., representing investors nationwide before FINRA  the Financial Industry Regulatory Authority.

· · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · ·

Apr/11

17

Jefferies & Company, Inc., Fined by FINRA, $1.5 Million for Failing to Disclose Additional Compensation Paid and Conflicts in Sale of Auction Rate Securities

Comments off · Posted by admin in FINRA

WASHINGTON — The following article appeared on FINRA’s website on April 14, 2011.  The Financial Industry Regulatory Authority (FINRA) announced that it has fined Jefferies & Company, Inc. $1.5 million for failing to disclose additional compensation received and conflicts in connection with the sale of auction rate securities (ARS). FINRA also ordered Jefferies to repay $425,000 in fees and commissions earned from the sale of ARS to the affected customers. FINRA also took action against the three brokers involved in the sale of these products, sanctioning two Jefferies brokers, Anthony Russo ($20,000 fine and five business-day suspension) and Robert D’Addario ($25,000 fine and 10 business-day suspension), and filing a complaint against a third, Richard Morrison, for their role in not disclosing the additional compensation and conflicts.  Russo, D’Addario and Morrison comprised the firm’s Corporate Cash Management (CCM) group that provided investment advice and services, including purchasing and selling ARS, to 40 Jefferies institutional clients.

 The FINRA article goes on to say that FINRA found in its settlement, and alleged in the Morrison complaint, that from Aug. 1, 2007, to March 31, 2008, Jefferies — through Russo, D’Addario and Morrison — failed to disclose material facts to a group of eight corporate customers for whom they exercised discretion to purchase and sell ARS. The brokers used their discretion to purchase for these customers new-issue ARS that paid them and the firm additional compensation. By exercising discretion, Jefferies and the brokers were obligated to disclose that they received this additional compensation, and that they could have purchased other comparable or similar ARS with higher yields. In 32 other transactions, they used their discretion to purchase ARS for the customers from other CCM group customers, but failed to disclose the conflict created because they acted as agent for both the buying and selling customer. They also failed to disclose the existence of comparable or similar ARS with higher yields.

We also learn that FINRA found that Jefferies committed several other violations in connection with its ARS business, including exercising discretion without written authority; failing to deliver official statements in connection with purchases of municipal new issue ARS; using misleading ARS advertising and marketing materials; selling restricted (Rule 144A) ARS to a customer that was not qualified to buy them; failing to implement an information barrier with a customer; deficiently completing order tickets for ARS trades; and, failing to establish and maintain an adequate supervisory system, including written supervisory procedures, relating to the operation of the CCM group and its preparation and use of advertising and sales material for ARS.

 Brad Bennett, FINRA Executive Vice President and Chief of Enforcement, said, “In exercising discretion over customers’ accounts, Jefferies was obligated to ensure that its customers were aware of material facts about the transactions. Instead, Jefferies and its brokers failed to disclose the additional compensation they earned in selling new issue ARS to their customers, their role in effecting trades between client accounts, and the existence of comparable or similar ARS with higher yields.”

It was announced in the article on FINRA’s website that in reaching the settlement, FINRA took into account that in December 2008, Jefferies spent approximately $68 million in a partial voluntary buyback of ARS held in retail accounts. As part of the settlement announced today, which included findings relating to Jefferies’ ARS advertising and inadequate supervisory review of ARS advertising, Jefferies agreed to purchase ARS from additional retail accounts. Also, in July 2008, Jefferies began remitting all trailing commissions received for frozen ARS held in customer accounts directly to its customers on a go-forward basis, and as of October 2010, had remitted in excess of $868,000.

FINRA said that as part of the settlement, Jefferies also agreed to participate in a special FINRA-administered arbitration program to resolve eligible investor claims for consequential damages.

FINRA notes that in concluding this settlement, Jefferies, Russo and D’Addario neither admitted nor denied the charges, but consented to the entry of FINRA’s findings. The Morrison complaint is not yet adjudicated. Under FINRA rules, a firm or individual named in a complaint can file a response and request a hearing before a FINRA disciplinary panel. Possible remedies include a fine, censure, suspension or bar from the securities industry; giving up gains associated with the violations; and payment of restitution. The issuance of a disciplinary complaint represents the initiation of a formal proceeding by FINRA in which findings as to the allegations in the complaint have not been made, and does not represent a decision as to any of the allegations contained in the complaint. Because the complaint referenced above is unadjudicated, uninterested persons may wish to contact the respondents before drawing any conclusions regarding the allegations in the complaint.

If you feel you have been an alleged victim of  Jefferies & Company, Inc., or it’s brokers, or you have found yourself in a similar situation, call a Securities Arbitration Lawyer for a free consultation on how to recover your losses.  To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC., representing investors nationwide before FINRA  the Financial Industry Regulatory Authority.

· · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · ·

Apr/11

5

Lawrence Ira Goldstein Fined and Suspended by FINRA

Comments off · Posted by admin in FINRA

Lawrence Ira Goldstein (CRD #3223787, Registered Representative, Beverly Hills, California)

submitted a Letter of Acceptance, Waiver and Consent in which he was fined $6,623, which includes the financial benefit Goldstein received, and suspended from association with any FINRA member in any capacity for 10 business days. Without admitting or denying the findings, Goldstein consented to the described sanctions and to the entry of findings that he recommended purchases and sales of securities to a customer of his member firm that were unsuitable for that customer based upon the customer’s financial status, tax status, investment objectives, and other information available to him about the customer’s circumstances and needs. The findings stated that the customer opened an account at Goldstein’s member firm, deposited a $100,000 inheritance into her account and indicated investment objectives of “current income (conservation)” and “current income (aggressive).” The findings also stated that Goldstein initially recommended that the customer invest in auction rate securities; the customer followed Goldstein’s recommendation and Goldstein invested the entirety of her account in auction rate securities even though these recommendations were not unsuitable for the customer. The findings also included that Goldstein later recommended that the customer begin to liquidate the auction rate securities and transition into preferred securities, focusing on new issues, with the understanding that if a particular preferred security appreciated to a degree that Goldstein believed it beneficial to sell the security rather than receive dividends, the security would be sold and another preferred security would be purchased; the customer agreed to follow his recommendation.

FINRA found that Goldstein recommended the purchase of preferred securities that were rated below investment grade. FINRA also found that Goldstein recommended, and the customer purchased, preferred securities that were increasingly below investment grade or not rated, and the recommendations that the customer purchase below-investment-grade securities were unsuitable for the customer because they exposed her principal to excessive risk of loss. In addition, FINRA determined that by recommending and then investing the customer’s assets in these preferred securities that were below investment grade, and also by over-concentrating the customer’s account in below investment-grade preferred securities, Goldstein recommended and made investments in the customer’s account that were unsuitable for the customer.The suspension was in effect from February 22, 2011, through March 7, 2011.

(FINRA Case #2008013000801)

 This information was obtained on FINRA’s website.

 

If you feel you have been a victim of the alleged fraudulent schemes of  Lawrence Ira Goldstein, call a Securities Arbitration Lawyer for a free consultation on how to recover your losses.  To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC., representing investors nationwide before FINRA  the Financial Industry Regulatory Authority.

· · · · · · · · · · · · · · · ·

Mar/11

31

E*Trade to pay $25,000 settlement to North Carolina Investors

Comments off · Posted by admin in FINRA

In the CharlotObserver.com article written by David Bracken, he writes that E*Trade Securities will pay a $25,000 civil penalty under a settlement reached with the state over auction rate securities it sold to North Carolina investors.

In the past, auction rate securities were often marketed to investors as short-term investments that could easily be sold for cash on short notice. But market for the products disappeared in early 2008, leaving investors trapped holding products that could not be resold.

Bracken writes that the settlement, announced by the Secretary of State’s Office today, required E*Trade to show the state that it had made investors “whole,” meaning they had reached some form of satisfactory deal with them. E*Trade will also reimburse the state $400,000 for investigation costs related to the case.

When the markets froze, E*Trade had at least 47 North Carolina investors holding roughly $8,375,000 in ARS products.

In the article the state said its investigation had found that E*Trade regularly represented ARS products to customers as safe investments suitable for short-term cash management purposes.

It found that salesmen had not been properly trained by the company to sell the products and had failed to consistently failed to disclose the risk that, if the auctions failed, clients would not be able to sell their auction rate securities and could be stuck with illiquid investments.

“This is the first case in the country where E*Trade has signed a settlement concerning its role in selling auction rate securities to misled investors,” Secretary of State Elaine F. Marshall said today in a release. “We are incredibly pleased to be the first state where we were able to make sure the investors have been made whole, where a fine has been levied, and where the bad practices used have been made public.

The settlement, announced by the Secretary of State’s Office, required E*Trade to show the state that it had made investors “whole,” meaning they had reached some form of satisfactory deal with them.

If you feel you have also been an alleged victim of  E*Trade Securities, please call a Securities Arbitration Lawyer for a free consultation on how to recover your losses.  To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC., representing investors nationwide before FINRA  the Financial Industry Regulatory Authority.

· · · · · · · · · · · · · · · · · · · · · ·

Mar/11

22

The SEC Charges Three Firms and Four Individuals in Los Angeles-Based Boiler Room Operation

Comments off · Posted by admin in FINRA

Washington, D.C. – In an article from the SEC’s website, it says that the Securities and Exchange Commission yesterday charged three firms and four individuals involved in a boiler room scheme operating out of Los Angeles that defrauded investors who they persuaded to buy purportedly profitable trading systems.

Representatives of Spyglass Equity Systems Inc., the SEC alleges, cold-called investors and made false and misleading statements to help raise more than $2.15 million from nearly 200 investors nationwide for two related investment companies – Flatiron Capital Partners LLC (FCP) and Flatiron Systems LLC (FS). However, only a little more than half of that money was actually used for the advertised trading purposes, and much of the trading that did occur failed to use the purported trading systems. FCP and FS wound up losing about $1 million in investor funds. The managing member of the two firms – David E. Howard II – misused almost $500,000 of investor money for unauthorized business expenses as well as personal expenses including travel, entertainment, and gifts for his girlfriend.

The SEC’s Website article goes on to say that along with Howard, FCP and FS, Spyglass and its owners – Richard L. Carter, Preston L. Sjoblom and Tyson D. Elliott – also are charged with fraud in connection with the unregistered securities offerings.

“This operation pressured elderly and unsophisticated investors to entrust their money to purportedly can’t-miss trading systems that were not only unsuccessful, but in many instances unused,” said Donald M. Hoerl, Director of the SEC’s Denver Regional Office. “They kept delivering false claim after false claim until the money dissipated.”

Howard conspired with Spyglass to sell the securities, according to the SEC’s complaint filed in federal court in the Central District of California, and Spyglass earned an estimated $1 million in the deal. The trading systems pitched to investors by Spyglass representatives could only be used if the investor also funded a brokerage account at FCP. However, FCP was not a broker-dealer and thus could not offer brokerage services to customers.

The SEC’s complaint alleges that Howard and FCP provided each investor with instructions on how to fund their “account” with FCP, but included in the instruction packet a copy of the FCP Operating Agreement that indicated the investor was actually purchasing a membership interest in FCP. Many of the investors recruited by Spyglass were elderly and unsophisticated investors who did not understand that they were purchasing a security interest in FCP.

The SEC alleges that Spyglass representatives falsely touted a successful performance history and level of automation of the trading systems, and misled investors to believe that FCP had a positive reputation and solid affiliations in the brokerage industry. To seal the deal, Spyglass offered investors a money-back guarantee if the system did not generate a profit within the first 180 days of trading. However it was only after an investor paid Spyglass a license fee of about $6,000 that Spyglass put the investor in contact with Flatiron, ostensibly to open a brokerage account.

According to the SEC’s complaint, FCP pooled investor funds so Howard and others could trade the funds using various trading techniques. When the trading was not successful and it became clear that Spyglass would have to pay refunds to its clients, Howard provided Spyglass with another trading system and organized FS to purportedly operate the new system. Using false and misleading claims of prior success of this new trading system and Spyglass’s relationship with FS and Howard, FCP investors were persuaded to transfer their investments from FCP to FS. Under the direction of Sjoblom and Carter, Spyglass then began selling the FS trading system to new investors using a sales pitch similar to the one it used to sell the FCP. Investors were again misled to believe they would be opening brokerage accounts, this time with FS. They were later provided with an FS Operating Agreement indicating they were actually purchasing a membership interest in FS. Howard used FS investor funds to trade in equities, futures and off-market securities.

It was noted that when FS ran out of funds in December 2008, the SEC alleges that Howard took steps to conceal the fraudulent scheme by telling members that he had ceased all trading in order to conduct an audit of the trading accounts. However, Flatiron never hired an auditor and no audit was ever performed.

The article states that the SEC’s complaint charges Spyglass, Sjoblom, Carter, Elliott, FS, FCP and Howard with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder; FS, FCP and Howard with violations of Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933; Spyglass, Sjoblom, Carter and Elliott with violation of Section 15(a) of the Exchange Act; FS and FCP of violations of Section 7(a) of the Investment Company Act of 1940; Howard with violations of Section 206(1), (2) and (4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder; and Spyglass, Carter, Sjoblom and Elliott with aiding abetting Howard’s violations of Section 206(4) of the Advisers Act and Rule 206(4)-8 thereunder. The SEC seeks permanent injunctions, disgorgement plus prejudgment and post-judgment interest, and financial penalties.

The SEC acknowledges the assistance of the Commodity Futures Trading Commission (CFTC), which charged Carter and his company The Trade Tech Institute Inc. in a related enforcement action filed in federal court in the Central District of California.

If you feel you have been a victim of the alleged fraudulent schemes of  Spyglass Equity Stystems, Inc., Flatiron Capital Partners, LLC, (FCP), Flatiron Systems, LLC, (FS), or any of the Broker-Dealers listed or anyone allegedly representing them, call a Securities Arbitration Lawyer for a free consultation on how to recover your losses.  To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC., representing investors nationwide before FINRA  the Financial Industry Regulatory Authority.

· · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · ·

Older posts >>

Find it!

Theme Design by devolux.nh2.me
To top