It was announced on the SEC’s website, April 7, 2011, that The Securities and Exchange Commission filed of a civil injunctive action in U.S. District Court in Los Angeles, California against MAM Wealth Management, LLC (MAM), MAMW Real Estate General Partner, LLC (MAMW), Alex Martinez and Ralph Sanchez, alleging fraud in connection with client investments in a $10.3 million risky real estate venture. According to the Commission’s complaint, from July 2007 through March 2009, Martinez, a MAM and MAMW principal, and Ralph Sanchez, a MAM registered representative and MAMW principal, had 50 of their advisory clients invest in MAM Wealth Management Real Estate Fund, LLC (Fund). The complaint alleges that Martinez and Sanchez misrepresented to some clients that the Fund was a safe, relatively liquid investment, was earning 9% per year, and would show profits in three years.

This complaint alleges that the defendants have violated the antifraud provisions of the federal securities laws, including violations of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder by MAM, MAMW, Martinez and Sanchez and Sections 206(1) and 206(2) of the Investment Advisers Act by MAM and Martinez and aiding and abetting violations of Sections 206(1) and 206(2) of the Investment Advisers Act by Sanchez. The SEC seeks permanent injunctions, disgorgement of ill-gotten gains plus prejudgment interest, and monetary penalties.

The complaint also alleges that they used their discretionary authority over other clients’ funds to invest them in the Fund, even though it was unsuitable for their conservative investment goals. The complaint alleges that many accounts were retirement accounts and that the Fund was an unsuitable investment for clients who did not have the ability and willingness to accept the risks of losing their entire investment. The complaint further alleges that the defendants caused the Fund to use client funds to make risky mortgage loans.

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In an article for InvestmentNews.com, Dan Jamisen writes that industry observers are worried that a new Finra reporting rule — set to go into effect July 1 — could open up brokerage firms to enforcement actions.

Finra’s Rule 4530 will require the self-reporting of violations, which means that broker-dealers will have to report to the Financial Industry Regulatory Authority Inc. within 30 calendar days whenever they have “concluded, or reasonably should have concluded,” that a firm or a broker “has violated any securities-, insurance-, commodities-, financial or investment-related laws, rules, regulations or standards of conduct of any domestic or foreign regulatory body or self-regulatory organization.”

The new rule, which consolidates NASD Rule 3070 and NYSE Rule 351, largely parallels existing New York Stock Exchange rules but will be new for legacy NASD firms.

“The reporting of internal conclusions is a big change,” said Dave Bellaire, general counsel of the Financial Services Institute Inc., which represents independent-contractor firms.

“It’s a different mindset to look internally” and report problems, he said.

The broker-dealers always have reported external findings to Finra, including regulatory actions or certain arbitration awards and other information.

“Some of the internal-control reporting is going to be very problematic,” said Lisa Crossley, regulatory-compliance liaison for the National Society of Compliance Professionals. It “will be an administrative burden, and firms can get into trouble over something that Finra says should have been reported,” but wasn’t.

The broker-dealers will have to develop procedures to determine what they need to report, Mr. Bellaire said.

“With July 1 fast approaching, broker-dealers need to be designing systems,” he said.

These new rules will catch some broker-dealers unaware because of the long rulemaking process and the fact that firms are now busy with annual compliance reviews, Ms. Crossley said.

“This sort of thing goes off the radar until it starts brewing again,” she said.

FINRA GIVES B-D GUIDANCE

The new standard, requiring a report when a firm “reasonably should have concluded” that a violation occurred, was floated in a draft last summer — and came as a surprise. The similar NYSE rule has no such standard.

The Securities Industry and Financial Markets Association and other industry groups protested the reporting trigger in comment letters.

Firms, the regulator said, should report “conduct that has widespread or potential widespread impact,” arose from “a material failure of the firm’s systems” or involves “numerous customers, multiple errors or significant dollar amounts.”

In the final rule approved by the SEC in November and in its notice this month, Finra provided more guidance on the type of internal conclusions that must be reported.

Finra has said in other SEC filings that the purpose of the should-have-known standard is to ensure that firms do not intentionally ignore a reportable event.  A Finra spokeswoman declined to comment further.

“We think Finra has largely resolved those concerns” over the should-have-known standard, said James McHale, managing director and associate general counsel at SIFMA.

“[Finra has] clarified the types of events that would need to be reported, and clarified a reasonable-man standard” for what has to be reported, he said.

Some industry observers said Finra has given itself too much leeway to go after broker-dealers.

“At some point, I think you’re going to see regulators beat up on some firms for not reporting allegations or findings that the regulators deem should have been reported,” said Joel Beck, founder of The Beck Law Firm LLC and a former Finra attorney.

“It’s not necessarily an objective standard,” he said.

Previously, Finra enforcers have taken into consideration whether a firm self-reports problems and fixes them, Mr. Beck added. But that might change.

“With the new rule, it appears a firm will have to report a problem; it’s no longer optional,” Mr. Beck said.

Thusly, self-reporting may no longer earn any leniency with enforcers.

These rules also expand reporting requirements in other areas. More customer disputes may have to be reported, for example. Firms report to Finra customer settlements or awards with damages against a broker of $15,000 or more and against a firm of $25,000 or more. Finra now wants firms to include in those threshold calculations attorney’s fees and interest penalties, a change that will increase the number of cases firms have to report, Ms. Crossley said.

Industry observers also have been concerned about the duplicate reporting of information through the new Rule 4530 and disclosure forms. In response, Finra said firms won’t have to file disclosures that have been made on the Form U5, the broker termination report. Finra told the SEC that it will work to eliminate duplicate filings for disclosures made on Forms U4 and BD.

The FSI isn’t buying that promise. In a December comment letter, the group noted that in 1995, Finra, then known as NASD, made the very same pledge “without [any] resulting progress.”

Finra is “trying to move in the direction of reporting information once,” Mr. Bellaire said, “but there’s still a lot of … ground to be taken” in eliminating duplicate filings.

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

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It is well known that the greatest-yielding investments usually carry the highest levels of risk. One high yielding interest-paying investment is the promissory note. The notes are  means by which companies raise capital. Legitimate promissory notes are marketed to sophisticated or corporate investors that have the resources to research thoroughly the companies issuing the notes. They then determine whether the issuers have the capacity to pay the promised interest and principal.

Promissory notes can be a good investment for sophisticated or corporate investors. These notes provide a reasonable reward for those who are willing to accept the risk. However, promissory notes that are marketed to the general public often turn out to be scams.  Even legitimate notes carry some risk that the issuers may not be able to meet their obligations.

There have been many instances of unscrupulous individuals pushing bogus promissory notes. They’re being sold as instruments that guarantee above-market, fixed interest rates, while safeguarding their principal. While fraudulent promissory notes appear to give investors the two things they desire most — higher returns and safety — they may not be worth the paper they’re printed on. Remember, if something sounds too good to be true, it probably is.

Fraud Can Cost Some Investors Their Life Savings

Here are two unfortunate examples of how investors lost their money:

Fraud. Investors in Georgia lost more than $2.5 million after purchasing promissory notes that, according to the salespersons promoting the product to earn high commissions, would pay for new ambulances for a start-up company. The investors were told that their investments were “risk free.” After the ambulances were purchased, they would be leased to pay back the money the company borrowed. The ambulances would also be used as collateral for each investor’s promissory note. But the company never purchased the ambulances with the money it received. Instead, it pledged the same fictitious ambulance as collateral.

Business Risk. At least 100 investors nationwide invested more than $4 million in promissory notes that promised to pay an interest rate of 13 percent over nine months. The funds were for a company selling premium coffee at drive-through kiosks. Savvy, slick marketing materials hyped the company and its products. The promissory notes were sold by individuals who were neither registered or licensed to sell securities. The company collapsed, defaulting on its notes. Investors lost all of their principal, including $200,000 in life savings of an Oregon resident.

In both cases, the notes were sold by unregistered salespersons. The law requires that anyone selling securities must be registered or licensed. (Some states require licensing while others require registration.) That’s why you should verify the registration or license of the person who wants you to invest with them.

How Does a Promissory Note Work?

The legitimate promissory notes are a form of debt that is similar to a loan or even an IOU. Companies issue these notes to finance any aspect of their business, from launching new products to repaying more expensive debt. In return for the loan, companies agree to pay investors a fixed return over a set period of time.

Even legitimate promissory notes are not risk-free. These notes are only as sound as the companies or projects they’re financing. Promising, smart public companies can stumble because of competition, bad management decisions, or unfavorable market conditions. If a company’s financial health weakens suddenly, it may not be able to pay interest and principal to investors.

Who Can Sell Promissory Notes?

The salespeople who market promissory notes include securities brokers, insurance agents, financial planners, and investment advisers. Since promissory notes are usually securities, they must be sold by salespeople who have the appropriate securities license or registration.

Do Promissory Notes Need To Be Registered?

Most promissory notes must be registered as securities with the SEC and the states in which they’re being sold. But remember that some promissory notes, such as those that have nine-month or shorter terms, may be “exempt.” That means that they don’t have to be registered. Since these notes fly under the radar screen of securities regulatory review, they have been the major source of investor complaints and fraudulent activity.

Registration is important because the process generally involves what is known as “due diligence.” In short, that means that financial professionals, including lawyers and accountants, have looked into the notes and companies behind the notes. While due diligence does not guarantee that you will be repaid, it means that you are much more likely to be given accurate information that will help you make an informed decision.

How Promissory Note Scams Work

Promissory notes have become a vehicle for fraud primarily because there is a growing investor appetite for above-market interest rates with little risk. The sellers of bogus notes promise high, fixed-rate returns — ranging as high as 15 percent to 20 percent — coupled with “guaranteed safety.” They market these notes to individual investors, hoping to lure buyers who won’t ask how such a high-yield investment could carry such low risk.

In a far-reaching regulatory crackdown on the fraudulent sales of promissory notes in mid-2000, securities regulators nationwide brought 370 actions against firms that defrauded more than 4,500 investors out of $170 million. It’s important to remember that in many of these cases, investors won’t get their money back because the fraudsters have already spent it.

In one case, promoters of fraudulent promissory notes said the funds were earmarked for projects that ranged from the digging of sandpits to developing resorts in the Caribbean, but the investors’ dollars were used instead to finance the high-flying lifestyles of the individuals behind the issuers and to pay high commissions.

Some Telltale Signs of Promissory Note Fraud

What are the red flags you should look for when being offered a promissory note investment?

Here’s a list:

“Insured” or “guaranteed” returns. To create a false sense of safety, the sellers of these notes may say they “insure” the payment of interest and principal, using either nonexistent insurers or those that reside offshore and may not be legitimate or registered to offer insurance within the United States.

“Risk-free” notes. Your risk with promissory notes is that the issuing company will not be able to make principal and interest payments. Since risk and reward are intrinsically related, it pays to remember that there is no such thing as a low-risk, high-reward investment.

A start-up’s notes that are labeled “prime quality.” In the securities industry, prime quality investments require that a company have an established history of operations and earnings. So if the company issuing the so-called “prime” notes is a start-up or new company, steer clear.

Short-term notes. Notes with a nine-month term may be exempt from securities registration.  

The promise of above-market returns. Returns that are higher than those of similar investments should raise questions.

Notes from a stranger. A call or visit from a stranger hawking promissory notes is usually a good sign that the investment is fraudulent. But, remember, too, that only an investment professional familiar with your financial situation is in a position to determine if this investment is appropriate for you.

Investment checklist:

Steer clear of nine-month promissory notes.These short-term notes, which are sometimes exempt from securities registration, have been the source of most – but not all – of the fraudulent activity unearthed by securities regulators in the promissory note area. Since these notes are sometimes exempt from registration, you might not be entitled to some of the redress that the securities laws or regulators provide.

Buy only from licensed or registered securities brokers. Insurance agents, financial planners, and investment advisers cannot sell securities – including promissory notes – without a securities license or registration. You should make sure the broker selling the note is registered or licensed by contacting your state securities regulator or the Public Disclosure Program of NASD Regulation. Call 800-289-9999 or log on to www.nasdr.com and click on “About Your Broker” to verify a broker’s license or registration and obtain a background report on the broker detailing any existing legal or regulatory problems. 

Ask yourself: Does this investment make sense for me? Before making any investment, determine what you are looking for and whether it fits into your portfolio. Investigate before you invest. And don’t forget to consider the risk-reward ratio the investment is offering – a higher yield generally means higher risk. Then comparison-shop. Look for similar or nearly as high returns with less risk whenever possible.

Fully research each opportunity.Check with your state securities regulator or the SEC’s EDGAR database (www.sec.gov) to determine if a promissory note is properly registered – or whether it’s exempt from registration. To find your state regulator, check with the North American Securities Administrators Association (www.nasaa.org).  If you suspect that your investment is a fraud, be sure to alert your state regulators or the SEC.

This information comes from the SEC’s website.

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.

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The Securities and Exchange Commission (SEC) filed an emergency civil enforcement action in U.S. District Court in Boston alleging fraud by Gregg Rennie of Quincy, Massachusetts, in 2009. Then, the District Court granted the Commission’s request for a temporary restraining order, asset freeze, and other relief.

Gregg T. Rennie recently  pled guilty in U.S. District Court to 13 counts of securities fraud and one count of wire fraud. He potentially faces decades in prison and fines in the millions of dollars.

In addition to restraining the defendant from violating Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933; Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder; and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940, the District Court’s order froze the defendants’ assets. The order prohibited the defendant from soliciting, accepting, or depositing any money from investors and requires him to provide an accounting for investor funds.

The SEC’s filing alleged that, from early 2007 -2009, while working at an insurance and financial services agency in Providence and acting as an investment adviser, Rennie defrauded clients in Massachusetts and New Hampshire. According to the SEC’s complaint, Rennie told his clients that their money would be invested in risk-free “federal housing certificates” that paid up to 12% per year, tax free, and were offered by a real estate investment company based in Boston. When in fact, the complaint alleged that the investments were completely fictitious and that Rennie had no relationship with the real estate investment company whose name he used. According to the Commission’s filings, Rennie defrauded clients who were elderly, including one man who was 89 years old. The filings alleged that Rennie persuaded some clients to cash out their investments in annuities, resulting in substantial surrender charges, in order to invest in his fraudulent program. According to the complaint, Rennie used investor proceeds to pay personal expenses, and withdrew thousands of dollars in cash from the account where investor funds were sent.

Rennie, 44, of Quincy, MA. was the former host of the “Your Money” radio program. Christians were targeted in the scheme, which gathered at least $3.2 million, prosecutors said.

“He stole no less than $3.2 million from a number of victims, including an elderly gentleman whom Rennie had known since his childhood, retirees who invested their retirement savings with Rennie, and individuals who listened to Rennie’s radio show,” prosecutors said. “His victims also included a church congregation that had invested funds that the congregation had raised in anticipation of building a new church.”

The Securites and Exchange Commission brought this action in collaboration with the Massachusetts Securities Division, which also filed an administrative action seeking immediate suspension and subsequent revocation of Rennie’s Massachusetts broker-dealer agent registration.

The Commission acknowledged the assistance provided by the Financial Industry Regulatory Authority in this matter as reported on the SEC’s website.

If you are a victim of the alleged fraudulent tradings schemes of  Gregg Rennie, call a FINRA Securities arbitration lawyer for a free consultation on how to recover your losses.  To speak with an attorney, call 888-760-6552, or visit http://www.stockmarketlawsuit.com/greggrennie.html. Soreide Law Group, PLLC., representing investors nationwide before FINRA and the NFA.

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According to the SEC’s complaint, Capitol was operating at a loss by late 2004 and had virtually no operations by 2005 when, in a classic Ponzi scheme manner, Shapiro began using funds from new investors to pay principal and interest to earlier investors.

According to the SEC’s website these are among the alleged misrepresentations that Shapiro made to investors:

• He falsely told investors their funds would be used as short-term financing to purchase and resell groceries for Capitol’s business.
   
• He falsely touted Capitol’s financial success as well as his own.
   
• He falsely assured investors that their principal was secure because Capitol would not broker the sale of the goods without first obtaining a purchase order from a buyer.
   
• He falsely told investors that Capitol would pay the principal and interest from the profits it received when it resold the goods.

The SEC’s complaint further alleges that Shapiro misappropriated at least $38 million of investor funds to enrich himself and finance outside business activities unrelated to the grocery business, including a sport representation business and real estate ventures. His lavish lifestyle includes a $5 million home in Miami Beach, a $1 million boat, luxury cars, expensive clothes, high-stakes gambling, and season tickets to premium sporting events. Shapiro additionally tapped approximately $13 million of investor funds to pay large undisclosed commissions to individuals who attracted other investors.

Many Ponzi schemes are typically aided by large financial institutions.  If your brokerage or broker has worked with Capitol Investments USA and Nevin Shapiro, or other financial service providers that may have been involved with Mr. Shapiro’s alleged fraud directly or indirectly, please contact Soreide Law Group to help recover your losses.  It is also possible that some victims’ retirement accounts have been invested in this ponzi scheme.  They may be liable for your loss.

If you are a victim of the alleged fraud by Nevin K. Shapiro, or are an investor in Capitol Investments, USA, Inc.,  call a FINRA 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 and the NFA.

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Washington, DC — The Financial Industry Regulatory Authority (FINRA) announced today that it has settled charges with HSBC Securities (USA) and US Bancorp Investments, Inc. relating to the sale of auction rate securities (ARS) that became illiquid when auctions froze in February 2008 .

US Bancorp Investments, which was fined $275,000, has completed a repurchase of more than $150 million of Auction Rate Securities held in customer accounts.

HSBC, was fined $1.5 million, had by July 2008 repurchased more than 90 percent of its then current customers’ Auction Rate Securities and in October 2008 it offered to repurchase all of the remaining ARS held in those customers’ HSBC accounts. In total, HSBC repurchased more than $562 million of Auction Rate Securities held by its customers. As part of the settlement, HSBC has agreed to offer to repurchase additional ARS sold to certain customers who transferred accounts before its previous buy-backs and to customers who chose not to participate in prior offers.

FINRA has concluded ARS-related settlements with 14 firms, totaling nearly $5 million in fines. Firms that have reached settlements with FINRA have returned more than $2 billion to investors. Investigations continue at a number of additional firms.

“The failure of each of these firms to adequately disclose the risks associated with auction rate securities left customers unprepared for the failure of the auction market,” said James S. Shorris, FINRA Executive Vice President and Executive Director of Enforcement. “As with our previous ARS settlements, FINRA’s first priority has been to ensure investor access to the money frozen in their ARS investments. We are pleased that these firms have completed or agreed to complete offers to buy back frozen ARS from their customers.”

 HSBC

FINRA found that during the period, HSBC sold in excess of $1 billion worth of student loan, municipal and preferred ARS to its customers.

 FINRA found that up until February 2008 – when widespread auction failures froze ARS holdings – HSBC retail brokers recommended and sold ARS to customers, representing them as liquid and safe investments. But as of December 2007, it had become apparent to HSBC that credit markets were deteriorating and there were increased risks in ARS. In a December 2007 conference call, HSBC managers continued to suggest that brokers recommend ARS to retail customers, describing spikes in yields as “very advantageous” to customers. While noting “never say never” to the possibility of a failed auction, the managers indicated that they did not believe problems in the credit markets would affect ARS.

FINRA also found that HSBC’s advertising and marketing were not fair and balanced and that HSBC had sold certain unregistered ARS securities to customers who were not qualified to own them.

US Bancorp

FINRA found that US Bancorp used internal marketing materials prepared by other securities firms that did not provide a balanced or adequate disclosure of risks of ARS. They described it as a “great place for short-term money” and a “cash alternative,” but failed to disclose the liquidity risks of ARS. Other materials compared ARS yields to those of money market securities but failed to disclose the material differences between the investments, including differences in liquidity, safety and potential fluctuation of return. FINRA also found that US Bancorp failed to maintain procedures reasonably designed to ensure that its registered representatives accurately described ARS to customers during sales presentations. FINRA further found that ARS were added to the firm’s approved product list without first being subjected to the usual due diligence process.

 HSBC and US Bancorp have agreed to a comprehensive settlement plan that has been applied in FINRA’s previous ARS settlements. In these settlements, FINRA took into account that both firms had initiated their own repurchase offers and that each had offered to buy back ARS that had not been purchased at their firms.

In addition to individual retail ARS investors, the buy-back offers include non-profit charitable organizations and religious corporations or entities, trusts, corporate trusts, corporations, pension plans, educational institutions, incorporated non-profit organizations, limited liability companies, limited partnerships, non-public companies, partnerships, personal holding companies and unincorporated associations that made individual ARS purchases and whose account value did not exceed $10 million.

As part of the settlements, the firms also agreed to participate in a special FINRA-administered arbitration program for eligible investors to resolve investor claims for consequential damages – that is, damages investors may have suffered from their inability to access funds invested in ARS. In concluding these settlements, the firms neither admitted nor denied the charges, but consented to the entry of FINRA’s findings as reported by FINRA.

 Did your broker or brokerage sell you Auction Rate Securities from US Bancorp Investments or HSBC Securities?   Call a FINRA Securities arbitration lawyer for a free consultation on how to recover your losses.  To speak to an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC. Representing investors nationwide before FINRA and the NFA.

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The Securities and Exchange Commission on Friday, April 16, 2010, charged Goldman Sachs, with defrauding investors in a sale of securities tied to subprime mortgages.

The SEC said it charged New York-based Goldman Sachs and a vice president, Fabrice Tourre, for  failure to disclose conflicts in a 2007 sale of a collateralized debt obligation. Investors in the CDO lost over $1 billion, the SEC said.

The SEC’s civil fraud complaint alleges that Goldman Sachs did allow the hedge fund Paulson & Co. — run by John Paulson, who made billions betting on the subprime collapse — to help select securities in the CDO.

Goldman Sachs didn’t tell investors that Paulson was shorting the CDO, or betting its value would fall.  The CDO’s value plunged within months of its issuance, and Paulson walked off with $1 billion, the SEC said.

“The product was new and complex but the deception and conflicts are old and simple,” said Robert Khuzami, director of the Division of Enforcement for the SEC.

Goldman Sachs said that “the SEC’s charges are completely unfounded in law and fact and we will vigorously contest them and defend the firm and its reputation.”

Goldman Sachs shares fell 13% following the announcement, wiping out $12 billion of shareholder value. Shares of Deutsche Bank, another big player in the structured securities markets of the bubble era, slid 8%.

“This litigation exposes the cynical, savage culture of Wall Street that allows a dealer to commit fraud on one customer to benefit another,” Chris Whalen, a bank analyst at Institutional Risk Analytics, said in a note to clients Friday.

Khuzami said the case was the first brought by a new SEC division investigating the abuses of  structured products such as CDOs in the credit crisis. He said the investigation continues but declined to comment further.

“We continue to examine structured products that played a role in the financial crisis,” Khuzami said in a phone call with reporters. “We are moving across the entire spectrum of products, entities and investors that might have been involved.”

The SEC alleged that Paulson & Co. paid Goldman Sachs approximately $15 million for structuring and marketing the deal, known as Abacus 2007-AC1.

Khuzami said Paulson wasn’t charged because, unlike Goldman Sachs, which sold the securities to investors, it didn’t have a duty to fully disclose conflicts to other investors.

A CDO is a financial instrument backed by pool of assets, usually loans or bonds. In this case, the instrument in question is a so-called synthetic CDO — which is backed not by actual loans but by a portfolio of credit default swaps referencing residential mortgage-backed securities.

While many CDO deals performed poorly, particularly in the latter stages of the housing bubble, the Abacus CDO at the center of this case blew up particularly quickly.

Within six months of the deal’s closing, 83% of the residential mortgage-backed securities in the portfolio had been downgraded, the SEC said. Within nine months, 99% had been downgraded reported Colin Barr, senior writer for Fortune magazine.

Call a FINRA Securities arbitration lawyer for a free consultation on how to recover stock losses and securities losses.  Call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC. Representing investors nationwide before FINRA and the NFA.

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Washington, D.C., March 24, 2010 — The Securities and Exchange Commission today charged a Wall Street investment banker, another securities professional, and one of their friends in a clandestine insider trading ring that netted approximately $1 million in illicit profits by trading ahead of at least 11 mergers, acquisitions, and corporate deals.

The SEC alleged that Igor Poteroba, an  investment banker with UBS Securities LLC’s Global Healthcare Group in New York City, tipped Aleksey Koval with highly confidential inside information about impending transactions involving pharmaceutical companies. Koval, who held positions at a securities industry firms at the time, then traded in stocks and options of the companies targeted for acquisition. Koval also tipped their friend Alexander Vorobiev, who traded ahead of four of the deals. Among the means of communication used to illegally tip and trade on the inside information were coded e-mail messages that referred to securities and money as “frequent flyer miles” and “potatoes.” They coded one e-mail exchange about insider trading as a discussion about a Macy’s wedding registry.

“They thought it was clever to use code words such as frequent flyer miles and wedding registry gifts to conceal their insider trading scheme,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “These words were code for nothing more than ‘we are breaking the law.’”

Antonia Chion, an Associate Director in the SEC’s Division of Enforcement, added, “Securities professionals cannot exploit their positions of trust and confidence to illicitly enrich their friends and themselves.”

According to the SEC’s complaint, that was filed in federal district court in Manhattan, Poteroba, Koval, and Vorobiev are each Russian citizens who attended college in the 1990s at the University of New Haven in Connecticut. Poteroba joined UBS in its Healthcare Group in 1999 and was eventually promoted into an Executive Director position in 2006.

The SEC alleges that the scheme began as early as July 2005, when Poteroba illegally tipped Koval in advance of the acquisition of Guilford Pharmaceuticals Inc. by MGI Pharma. Poteroba later sent a coded e-mail to Koval about the insider trading opportunity, signaling that Poteroba had given money to Koval and wanted to use those funds in this transaction:

Poteroba: Keep me posted as to how * * * [m]any frequent flier miles you’ve got this far and how many you plan to get by Friday[.] Will be in Boston tomorrow[.] Plans for a trip look fine so far[.] Worst case we can get a refund by Monday, hopefully we do not[.]

Koval: As I mentioned, I just got into this frequent flyer program. I got five thousand of sign-in bonus miles but thinking maybe if I fly often, I will get additional three to five K miles.

Poteroba: On the frequent flyer program topic you mentioned, I think you should sign up for another flight, if you can, since they are providing bonus mileage soon[.]

According to the SEC’s complaint, Koval wired $5,000 into a brokerage account of Vorobiev that was inactive for nearly six months. Koval then bought 2,100 shares of Guilford stock in the account at a total cost of $4,983. Both monetary amounts are consistent with the amount of 5,000 “sign-in bonus miles” referred to in the coded e-mails. A few days later, Koval wired an additional $4,800 into Vorobiev’s account and purchased an additional 2,030 shares of Guilford stock at a cost of $4,780. The money transfer and subsequent stock purchases are consistent with Koval’s coded statement that he “will get additional three to five K miles.” On July 21, 2005, Guilford publicly announced that it would be acquired by MGI Pharma, and Guilford’s stock closed 41 percent higher than the increase over the prior day’s closing price. That same day, Koval and Vorobiev sold most or all of the Guilford stock in their accounts as well as Guilford shares in a brokerage account in the name of Vorobiev’s wife.

With respect to subsequent insider trading transactions, the SEC’s complaint alleges that Poteroba continued to supply confidential information to Koval about various mergers. They continued to use coded e-mail messages to maintain communications during the insider trading scheme. For example, after Poteroba illegally tipped Koval with material, nonpublic information concerning ID Biomedical Corporation’s plans to be acquired, they exchanged instructions by referring to money as potatoes:

Subject Line: Potatoes

Poteroba: Let me know if you finished your recent harvest arrangements and how many kilos are available for my parents. They are in Turkey now and could use some once they are back.

Koval: This year the potato yield was not as high as the last one. Whatever is collected is now being transported in the warehouse, with special climate conditions, from where it is going to be available for delivery. My estimates are about 6.8 kilo per square yard. …Of course, some potato [sic] need to be left for the next year [sic] seeds [sic] but it should not be a concern since I have a vendor who will provide enough once the spring comes.

According to the SEC’s complaint, the “6.8 kilo” figure is an approximate reference to $7,000 that had been wired out of a brokerage account two weeks earlier and subsequently returned.

The SEC’s complaint alleges that Poteroba and Koval used another coded e-mail communication to conduct insider trading based on material, nonpublic information about an acquisition involving Molecular Devices Corporation:

Subject Line: Let me know if you’ve started your wedding registry at Macy’s

Poteroba: Happy to talk about sales items and etc. … sale ends soon …so hurry up.

Koval: Yep, I have set it up. Better do it now when they have [a] sale. I could not believe how many things one needs once engaged. Single life was much easier if you ask me. It is always [a] good idea to know about coupons available. I try to follow up on the rebates programs currently in place but often miss many due to lack of time. Thanks for pointing it out to me. … Although wedding day is not yet announced, I hope to get all the important items ahead of time: I even started buying small things that [are] usually not important until you need them.

Poteroba: Good points…sale ends on Friday…see if you can get registered for as many items as possible…more you get now…more you save…We should start tracking these events more actively.

According to the SEC’s complaint, Poteroba and Koval exchanged the coded messages to signal that Koval should purchase Molecular securities (“get registered for as many items as possible”) and that the opportunity to buy Molecular securities prior to the public announcement would last until Friday, Jan. 26, 2007 (“sale ends on Friday”).

The SEC alleges that some of the insider trading was done through brokerage accounts held in the names of Tatiana Vorobieva (Vorobiev’s wife) and Anjali Walter (Koval’s wife) and that portions of the proceeds from the illicit trading were received by Vorobieva and Walter. Accordingly, Vorobieva and Walter are named as relief defendants to recover investor assets now in their possession.

The SEC’s complaint charges Poteroba, Koval, and Vorobiev with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10-b5 thereunder, the general antifraud provisions of the federal securities laws, and Section 14(e) of the Exchange Act and Rule 14e-3 thereunder, the tender offer fraud provisions. The Commission seeks permanent injunctive relief, disgorgement of illicit profits with prejudgment interest, and the imposition of financial penalties against the defendants, and disgorgement of illicit profits with prejudgment interest from the relief defendants.

The SEC thanks the U.S. Attorney’s Office for the Southern District of New York, the Federal Bureau of Investigation, and FINRA for their cooperation and assistance in this matter. The SEC acknowledges the assistance of the Ontario Securities Commission. The SEC also acknowledges the cooperation of UBS Securities LLC.

Call a FINRA Securities arbitration lawyer for a free consultation on how to recover stock losses and securities losses.  Call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC. Representing investors nationwide before FINRA and the NFA.

Aleksey Koval · Alexnder Vorobiev · broker · brokerage account · etrade · Financial Industry Regulatory Authority · FINRA · FINRA arbitration · finra lawyer · finra securities arbitration · fraud · Global Healthcare Group · Guilford Pharmaceuticles Inc. · Igor Poteroba · insider trading · investment banker · investments · MGI Pharma · securities arbitration · UBS Securities · unauthorized trades

 By Bruce Kelley

Mass. securities regulator looking for more info from independent firms Massachusetts securities regulators are chasing down information from six independent broker-dealers concerning the sales of two private placements that blew up last summer. Secretary of the Commonwealth William Galvin said in a statement today that subpoenas have been sent to QA3 Financial Corp., National Securities Corp., CapWest Securities Inc., Independent Financial Group LLC, Investors Capital Corp. and Centaurus Financial Inc. The Massachusetts Securities Division is requesting information on due-diligence efforts, suitability data and promotional materials related to the sale of private placements marketed by Medical Capital Holdings Inc. and Provident Royalities LLC, according to the statement. The regulator has been increasing its scrutiny of sales of private placements by independent broker-dealers. In late January, the Securities Division slapped Securities America Inc. with a lawsuit, alleging that the firm misled investors who were sold high-risk private placements. Specifically, the agency alleged that Securities America advisers sold $7.2 million in promissory notes to Massachusetts investors without disclosing all the risks involved. That case is pending. Medical Capital and Provident issued billions in notes and other securities sold by a number of broker-dealers, according to today’s statement. “It also has become apparent that Securities America Inc. was not the only broker-dealers selling these” private placements, according to the statement. Mark Goldwasser, CEO of National Securities, said he hadn’t yet seen the subpoena and therefore could not comment. Officials at the five other broker-dealers were not immediately available for comment. Dale Hall, the CEO of CapWest, said that the firm had done a preliminary search of its records so far, and it appeared that it had one client in Massachusetts. The information that Massachusetts regulators are looking for about the sale of private placements was similar to what the Securities and Exchange Commission and the Financial Industry Regulatory Authority had requested he said.

Call a FINRA Securities arbitration lawyer for a free consultation on how to recover stock losses and tax loss selling. Call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC. Representing investors nationwide before FINRA and the NFA.

broker · FINRA · fraud · high-risk · lawsuit · misled investors · non-disclosure · private placements · securities · unauthorized trades

Auction Rate securities investors. Soreide Law Group represents investors nationwide before the FINRA. If you are one of the investors you should contact Soreide Law Group at (888) 760-6552 for a free consultation.

Representing Clients Nationwide Before FINRA

Unfortunately, many of the burned E Trade ARS investors were conservative, income oriented investors in Auction Rate Securities are now discovering that these “just like cash” investments are not liquid and may have little or no value unless they take legal action.

ARS investors thought they had a money market or CD-like securities that they could cash out when needed. As early as last summer, the $330 billion auction rate market began locking up. As the global credit crunch continued, it has been increasingly hard to resell the securities.

broker · etrade · FINRA · fraud · lawsuit · Lawyer · loss · misappropriation · securities · sue · suitability · unauthorized