Investment Fraud Lawyer Blog

As reported by Reuters, Ken Okada, a former stockbroker with Bear Stearns, was sentenced on Tuesday to three years probation, a year of home confinement, and fined $300,000 for his role in an insider-trading scheme.

Okada was one of 13 people charged in 2007 in what authorities have called the most pervasive insider trading rings since the 1980s.

Okada used information from UBS AG research reports, before the reports were made public, to execute hundreds of trades totaling $17.5 million.

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In addition to being the financial center of the South, Atlanta now has the dubious distinction of ranking second only to New York as a hotbed for investment fraud according to the a front page story in the April 25 – May 1, 2008 issue of the Atlanta Business Chronicle.

In April, the Securities and Exchange Commission (SEC) launched the “PAUSE” program to provide investors with regularly updated factual information, derived from investor complaints and other sources, about the questionable email or telephone solicitations from, securities firms. This program will shed light on a dark corner of the financial world attracted by Atlanta’s decade-long economic boom.

Continue reading "SEC: Atlanta is a Hotbed of Investment Fraud" »

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The Federal Reserve’s actions to bail out Bear Stearns have far reaching implications for all investors and taxpayers. Two well-respected columnists at the New York Times – business reporter Gretchen Morgenson and Op-Ed columnist and Princeton economist Paul Krugman – have strongly criticized the Federal Reserve’s decision to bail out Bear Stearns.

Morgenson, whose column appeared on Sunday morning March 16 before the announcement of the purchase of Bear Stearns by JP Morgan at a fire sale price of $2 per share, wrote of the possible consequences of living in a world where regulators will rescue “even the financial institutions whose recklessness and greed helped create the titanic credit mess....” She predicted that such consequences could include a weaker currency, rampant inflation, a continuation of the year-long slow bleed at banks and brokerages firms, or all of the above.

By agreeing to a 28-day credit line to Bear Stearns on Friday, the Federal Reserve Bank of New York all but admitted that its doctrine is “Rescues ‘R’ Us” and that no sizable firms with a book of mortgage securities or loans out to mortgage issuers could or would be allowed to fail.

Continue reading "Bear Stearns' Bailout: The US Is Now Officially On The Road To Becoming "Bailout Nation"" »

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Posted In: Common Securities Broker Abuses , Subprime Mortgage & Collateralized Debt Obligation Problems

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The recent purchase of Bear Stearns by JPMorgan Chase & Co. for a price of $2 per share will cause a “major negative revaluation” of financial stocks, according to Meredith Whitney, an analyst with Oppenheimer & Co.

As reported on Bloomberg.com, Whitney said, “Financial stocks have further downside of as much as 50 percent based upon 1990/1991 multiples of tangible book values. As we believe we will begin to see goodwill writedowns during the first half of this year, we believe investors will focus more on tangible book value and stocks will quickly revalue to far lower levels.”

As of 7 a.m. EST, Bear Stears was down 88 percent to $3.50. Lehman Brothers Holdings Inc. was down 17 percent to $32.50, JPMorgan was off 1.6 percent at $35.94, and Goldman Sachs Group Inc. was down 7.9 percent to $144.50.

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Posted In: Common Securities Broker Abuses , Subprime Mortgage & Collateralized Debt Obligation Problems

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As reported last week in the Wall Street Journal by Carrick Mollenkamp and Alistair MacDonald, for the third time this year a global bank has been caught with trading irregularities. Two weeks ago, it was Lehman Brothers Holdings Inc.’s turn to suspend two traders in its London office pending an equities trading inquiry.

The bank's inquiry focused on how the traders were valuing securities tied to complex equity derivatives. In their simplest form, equity derivatives allow a bank’s clients or in-house trading desk to hedge against volatile stock markets by locking in prices with indexes or specific stocks.

Continue reading "More Problems Valuing Derivative Securities" »

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A report released on February 6 entitled, "An Empirical Study: Perception of Fairness of Securities Arbitration," concludes that 55.1% of respondents were dissatisfied with the outcome of their arbitration cases. Many of those surveyed also viewed the arbitration system as unfair and their arbitration panels as biased. The report was based on responses from more than 3,000 customers, lawyers and representatives of brokerage firms. (This blog reported on this study on February 7th).

Sara Hansard of Investment News recently revisited this study in a February 25th article. Although the Securities Industry and Financial Markets Association (SIFMA) and the Financial Industry Regulatory Authority Inc. (FINRA) participated in the survey, both claim that the 13% response rate was too low and therefore conclusions were "mixed."

Managing director and associate general counsel of SIFMA, Kevin Carroll, said that it was unfair to highlight only investor dissatisfaction with the arbitration system. In a statement about the survey, SIFMA said that 58% of respondents characterized arbitrators as competent and 73% said they listened to arbitrators. "The [survey] results don't show a system that's broken," Carroll said.

Continue reading "Controversy Continues Over Arbitration Study Findings" »

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On January 30, 2008, the North American Securities Administrators Association Inc. (NASAA) released a list of 11 "pro-investor legislative priorities" that it plans to support this year.

Investment News journalist Bruce Kelly reported that “state securities regulators are worried that the recent emphasis on making U.S. capital markets more competitive could lead to the pre-emption of their power by federal regulators.” Thus, NASAA’s first priority is to “support a strong and effective regulatory structure for capital markets."

NASAA's second priority is to "restore fairness and balance in the securities arbitration system."

Continue reading "NASAA's 2008 Legislative Agenda" »

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Posted In: Common Securities Broker Abuses , Elder Abuses

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In its February 2008 issue, Smart Money magazine noted that, while the options for investing beyond mutual funds may be more attractive than in the past, there are still choices that most investors should avoid. Four such products are:

1. Variable Annuities (VAs)

Brokers and insurance companies tout the tax advantages of VAs, which grow tax free like IRAs. But distributions from VAs are taxed at ordinary income rates – roughly double the capital gains taxes that would be owed if the assets were held in a taxable account. Once you add in payments for the underlying investments and insurance protection fees, a VA could cost an investor five times as much as an investment held in a taxable account. Put $20,000 in a low-cost annuity for 20 years, for example, and you could still have earned $15,000 less than if you had made the same investment in a taxable account.

Continue reading "Four Investment Options To Avoid" »

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Posted In: Common Securities Broker Abuses , Variable Annuities and Equity-Indexed Annuities

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Every couple of years, a rogue trader, such as Jerome Kerviel of Societe Generale, bursts on the scene when losses in the billions are uncovered. Such a person is always considered a fluke, since normal people would not take such risks. According to a recent article by Jenny Anderson in The New York Times, however, the emerging field of neurofinance, combining psychology, neuroscience, and economics, reveals that there may be a bit of a rogue trader in each of us. Scientists in this field have discovered that people are hard-wired for money. People respond to high-stakes trading just as they would to the lure of sex or even drug addiction. The riskier the trades get, the more the brain craves the activity.

Brian Knutson, a professor of psychology and neuroscience at Stanford University, is a pioneer in neurofinance who is examining how the brain makes decisions. Knutson’s studies reveal that people sometimes get high on making money. “The more you think you can gain from the risk, the more you take the risk and the more activation in the circuitry,” Knutson said.

Continue reading "Risky Trading As An Addictive High, Say Researchers" »

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According to a study conducted for the Securities Industry Conference on Arbitration (SICA), most securities customers involved in arbitration do not believe that the process is fair to all parties and reported dissatisfaction with the outcome of their disputes.

Compiled by Cornell University’s Survey Research Institute, An Empirical Study: Perception of Fairness of Securities Arbitration summarized the responses of 3,000 participants on both sides of arbitration cases. Although most participants believed the arbitration panel appeared competent, only 40% believed the arbitration panel was open-minded. Participants were split on whether the process is economical. Most desired an explanation of the awards.

Continue reading "Securities Arbitration Participants Say Process Is Unfair" »

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As more baby boomers approach retirement age, the demand for high-quality financial advice has been on the rise. To meet this demand for competent advice, brokerage firms began touting themselves through advertisements and other marketing mediums as “full service” firms capable of providing sound financial advice on a wide array of issues from retirement planning to tax advice. In recent years, it also seemed like every day a new credential popped up next to the names of these so-called “financial professionals.”

This marketing campaign has served to confuse investors. Experts in the industry have long believed that ordinary investors have no idea that there are different types of financial advisers and, more importantly, that each may owe different legal duties to their clients. Because of the anticipated confusion among consumers, the SEC requested that RAND Corporation conduct a study to examine the public’s understanding between the two main types of financial professionals, brokers and investment advisers.

In a nutshell, according to the RAND study, a broker is defined as someone who conducts transactions in securities on behalf of others, while an investment adviser is someone who provides advice to others regarding investments. According to the RAND study, consumers discern absolutely no difference between the two, believing that both types of financial professionals are acting in their best interest.

Continue reading "Financial Advisors vs. Investment Advisers vs. Brokers: Rand Corporation Study Concludes That Investing Public Sees Them All The Same" »

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Just days after the Wall Street Journal published an article suggesting that the brokerage firm Ameriprise Financial Services was being investigated by state securities regulators for charging customers hundreds of dollars for financial plans that they never received, the New Hampshire Bureau of Securities Regulation filed a complaint against the firm.  

The complaint alleges that the brokerage company failed to deliver nearly 500 financial plans, conducted unapproved sales contests and intentionally limited compliance oversight.  Additionally, the Minneapolis-based brokerage company was accused of failing to disclose adequately all fraudulent activities to the state of New Hampshire while it was under supervision by the state and by an independent consultant in 2005.

In a press release issued by New Hampshire, the Bureau Director stated, “What we’ve found is an unprecedented and widespread compliance failure on a number of levels within the company as well as an unprofessional workplace environment and attitude that would do little to inspire the trust and confidence of New Hampshire investors… This conduct was a direct result of an Ameriprise sales culture more concerned with sales commissions than compliance.” The regulator said that the company could face penalties and client restitution of up to $10 million.

On the day that the Wall Street Journal article was published, Page Perry, LLC questioned on its website whether the incidents described in that article pointed to a wide spread compliance problem within the firm.  The comments from the Bureau Director above would appear to answer, at least in part, this question.

Page Perry, LLC is a nine lawyer Atlanta-based law firm with over 125 years collective experience representing investors in securities related litigation and arbitration.  While past results are not necessarily indicative of future success, Page Perry’s attorneys have recovered over $1,000,000 for clients on more than 30 occasions.  The firm is currently involved in cases against Ameriprise Financial Services.

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On October 25, 2007, the Financial Industry Regulatory Authority (FINRA) censured and fined the brokerage firm UBS Financial Services $370,000 for failing to report critical information about its brokers, including customer complaints, regulatory actions and criminal disclosures, on FINRA’s Central Registration Depository (CRD).  

The CRD is very important to investor protection because the system is designed to keep track of an individual broker’s and brokerage firm’s disciplinary history.  Through the CRD system, investors have the ability to assess the background of brokers and make a more informed decision about whether to hire or retain them to manage their money.  To find out more information about your broker, visit the Broker Check link on FINRA’s homepage, www.finra.org.  

Page Perry’s experience with FINRA’s Broker Check feature is that the CRD reports generated are not as complete as the CRD reports that are also available through state securities regulators.  To obtain a copy of a CRD Snapshot report from your state regulator, visit the North American Securities Administrators Association’s (NASAA) website, www.nasaa.org, to obtain your state securities regulator’s contact information.  The NASAA website also has helpful information in the Senior Investor Resource Center section on how to avoid becoming a victim of investment fraud.

Page Perry, LLC has also represented investors against brokerage firms for failing to report accurately the reasons that a broker departs from a firm.  For example, in many instances, an unscrupulous broker will get fired from Firm A for defrauding his or her customers. Firm A, however, falsely reports the broker’s departure as “voluntary.”  The unscrupulous broker is then able to get hired at Firm B where he or she defrauds more customers. In fact, in many cases, customers who have already been defrauded at Firm A will unknowingly follow the unscrupulous broker to Firm B because of the trust relationship that exists between the customer and the broker.  In this circumstance, Firm A may be able to be held liable for the losses at Firm B because the unscrupulous broker would never have been hired at Firm B had the truth been disclosed about his departure from Firm A.

As stated in FINRA’s press release, "Investors, regulators and others rely heavily on the accuracy and completeness of the information in the CRD public reporting system - and, in turn, the integrity of that system depends on timely and accurate reporting by firms," said Susan Merrill, FINRA Executive Vice President and Chief of Enforcement.
    

 

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According to an October 17, 2007 article in the Wall Street Journal, several states, including New Hampshire and Alabama, are investigating allegations that large numbers of Ameriprise customers are paying hundreds of dollars for financial plans that they never received.  Instead, advisors are allegedly forging customer names to make it appear that investors received these expensive plans.

According to the article, Ameriprise spokesman Benjamin Pratt minimized the alleged problem by describing these as “isolated incidents.”  But are they really so isolated?

Page Perry's experience suggests otherwise.  In March 2007, Page Perry filed an arbitration against Ameriprise Financial Services, Inc. for failure to deliver written financial plans paid for by the client.  The client's financial advisor, operating out of Ameriprise's Chattanooga, Tennessee branch office, also forged the client's signature to a number of documents to make it appear as though the client had agreed to pay for the financial plan and had in fact received it.  This arbitration is still pending.

Recent history also suggests that these problems are not isolated incidents.  Consider, for example, that this past July, a federal judge in New York approved a $100 million class action settlement by investors who alleged that American Express Financial Advisors’ (Ameriprise’s predecessor company) financial plans were generic and were designed as a way to steer clients into proprietary American Express insurance and investment products.  According to the class action complaint, the firm imposed sales quotas on its advisors to sell financial plans and proprietary products.  Page Perry’s experience suggests that firm-wide quotas lead to firm-wide compliance and suitability problems for customers who are often unsophisticated and looking for an advisor to trust.

In addition, even though not mentioned in the Wall Street Journal article, Ameriprise agreed in October 2007 to pay $225,000 in penalties to Georgia Secretary of State’s office to settle consumer complaints stemming from a fraud and forgery case.  As part of the settlement, Ameriprise also agreed to a two-year reporting and monitoring period.  According to a recent article in the Atlanta Journal-Constitution, the settlement followed an investigation launched by the Georgia Secretary of State’s office in which investigators found that the company failed to discover forgeries of customer signatures on financial documents.

According to the Wall Street Journal article, the Alabama Securities Commissioner Joseph Borg “believes more than 200 Ameriprise plans weren’t delivered to customers in Alabama.”  He also stated that Ameriprise was cooperating with his investigation and has “already made a bunch of refunds” to customers who did not receive a plan.  Also, Page Perry’s investigation efforts have uncovered information suggesting that customers in North Carolina may be victims of forgery in connection with the sale of these financial plans. 

Page Perry, LLC represents investors across the nation seeking to recover losses from financial professionals and their firms for engaging in unlawful conduct.

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Federal and state regulators are investigating a widespread practice of brokers targeting seniors at “free lunch” seminars.  Regulators warn that such seminars are among the top investment scams for 2007.  Seniors and persons who may or may not be contemplating retirement are lured by complimentary meals, often at upscale hotels, restaurants, golf courses and retirement communities, and promised “educational” information with no sales pitches.  All too often, however, the brokers use the occasion to pitch unsuitable investments and retirement strategies, including cashing in their pensions, reinvesting the proceeds, retiring early, and living on the substitute paycheck from their investments that never materializes.

This is “a problem that can have absolutely devastating consequences for a large proportion of our population,” said Mary Shapiro, Chief Executive Officer of the Financial Industry Regulatory Authority (FINRA), and Chairman of the FINRA Investor Education Foundation, in an interview.

Continue reading "Fraudulent 'Free Lunch' Seminars Target Seniors" »

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Posted In: Common Securities Broker Abuses , Early Retirement Scams , Elder Abuses , Variable Annuities and Equity-Indexed Annuities

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On September 5, 2007, the United States Senate Special Committee on Aging held a hearing on Advising Seniors About Their Money:  Who Is Qualified- and Who Is Not? Senator Kohl from Wisconsin began the hearing by stating that the purpose of the hearing was to examine the growing national problem of poorly trained senior investment specialists and take the first step in much needed reform. He also stated that an investigation conducted by this committee had found that many seniors are losing their retirement income and savings by placing their trust in so-called “advisors” who in many cases may not deserve that moniker.  

The hearing focused on the controversial “Certified Senior Advisors” because the Senate investigation found that these advisors often have little to no education and no experience in extremely complicated financial matters and investment products such as equity-indexed annuities.  Senator Kohl stated that seniors should be able to trust the people who invest their money.  They should not be worried that the title after their advisor’s name is often times scarcely more than a marketing ploy and one that is not earned through a rigorous educational or financial training.

Among those who gave testimony were Christopher Cox, SEC Commissioner, Joseph Borg, the Alabama Securities Commissioner, and Lori Swanson, Attorney General from the State of Minnesota.  These regulators provided suggestions as to how annuity sales practices could be improved industry wide and advocated for the insurance companies that issue these policies to seniors to take responsibility for their agents.

Continue reading "Senate Holds Hearing On Controversial “Certified Senior Advisor” Titles And Allianz Life Insurance’s Annuity Sales Practices" »

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According to an AP press release, a former investment broker in Ohio and Maryland has been accused by the Justice Department of helping the founder of an investment fund manipulate the stock price of Duluth, Ga.-based logistics company Innotrac Corp. to assist his client, David Dadante, and the IPOF Fund that Dadante controlled.

Stephen J. Glantz, 54, of Chagrin Falls, Ohio, and Phoenix, Md., was charged Tuesday with securities fraud and making false statements.  The Justice Department alleges that from August 2002 through November 2005, Glantz helped Dadante accumulate nearly 4.2 million shares of Innotrac, with a large portion purchased on margin, according to the charges. Margin involves borrowing money to purchase securities and using those securities as collateral. If convicted, Glantz could receive up to 20 years in prison for the securities fraud and five years for false statements.

Dadante, 53, of South Euclid, Ohio, pleaded guilty Aug. 16 to securities fraud and is scheduled to be sentenced on Nov. 1 in U.S. District Court.  According to an SEC complaint last year, Dadante raised about $50 million from at least 110 investors. He is accused of using new investor money to pay guaranteed returns to previous investors and taking millions of dollars for his own use. Prosecutors have said Dadante lost about $28 million through bad trades.

Based on the press release, it appears that this alleged fraudulent scheme was nothing more than a Ponzi scheme that undoubtedly cost many investors their life savings.  While in many instances, victims of Ponzi schemes do not ever recoup their losses, Page Perry, LLC has helped investors navigate their way through these unfortunate situations.  In some instances, solvent companies or individuals are involved in these scams and victims may be able to recoup some or all of their losses.   

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