Securities Law Blog
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On Monday, FINRA charged a New York broker-dealer, as well as a number of current and past registered representatives, with churning customer accounts and other illicit actions the resulted in significant losses to retirees and other investors. According to FINRA enforcement attorneys, Newport Coast Securities Inc. and five of its current and past brokers knowingly engaged in a “manipulative, deceptive and fraudulent scheme” to churn the accounts of about twenty-four customers in order to receive higher commissions.

Newport Coast and three of its brokers are accused of making unsuitable sales of complicated securities to elders and other investors. Two of Newport Coast’s former supervisors are alleged to have ignored a number of warning signs regarding trading activity that led to the near disappearance of many people’s retirement savings. These included large numbers of riskless trades where commissions exceeded 3 percent, high levels of margining and concentration in accounts, and large losses in nearly all of the accounts.

FINRA believes Newport Coast’s managers knew what was happening but only took steps to rectify the situation after the firm’s representatives were placed under additional supervision following a FINRA examination. The misconduct, however, continued. FINRA further charged two of the brokers with obstruction when they allegedly attempted to dissuade certain customers from cooperating in the investigation.

With the exception of one, all of the people named in FINRA’s complaint have left Newport Coast and are now registered with other firms. Donald Wojnowski, who took over as Newport Coast’s chief executive in March 2013, said the firm has spent the past year overhauling its management, compliance and supervisory functions in response to the issues presented in FINRA’s complaint. Wojnowski further stated that Newport Coast has had ongoing discussions with FINRA about a potential settlement and the corrective actions it has been taking.

If you or someone you know has lost money as a result of an investment, please contact Richard Frankowski at 888-390-0036 to discuss your potential legal remedies.

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UBS AG is being formally investigated for money laundering by French officials, who ordered the bank to post €1.1 billion ($1.49 billion) bail amidst a growing investigation into claims that it assisted high-profile clients evade French taxes. Just a month ago, UBS’ French subsidiary was fined a record-setting €10 million for being slow to correct poor oversight procedures that permitted employees to help clients dodge tax liabilities. In late June, French regulator Autorite de Controle Prudentiel (ACP) said the $13 million UBS France fine was the largest allowed under the country’s law. That fine came just weeks after the Swiss bank was placed under a separate formal investigation for their alleged tax evasion assistance.

ACP claims that it first warned UBS of its “grave concerns” in 2007, but the bank waited more than 18 months before it enacted additional controls and corrected the questionable procedures. UBS France’s controls failed to prevent its employees from sharing data that could identify customers who might set up offshore accounts to evade French taxes with the Swiss parent company. The regulator said UBS has fixed the issues and strengthened its procedures since 2009 and said its fine has no bearing in the ongoing criminal investigation.

The new investigation and the $1.49 billion bail amount represent the most recent developments in the ongoing investigation arising from allegations that UBS helped wealthy clients dodge French taxes by opening undeclared bank accounts in Switzerland. The Swiss bank was placed under investigation for “complicity in illegal sales practices” June 7. According to the BBC, investigators are looking into allegations that the bank broke French laws by soliciting potential clients in France. Those allegations came to light after a whistleblower sent a letter to French authorities saying the bank kept a special record between 2002 and 2007 listing undeclared bank accounts. UBS bankers also allegedly used sporting events and musical concerts to seek out affluent clients for tax evasion.

If you or someone you know has lost money as a result of an investment, please contact Richard Frankowski at 888-390-0036 to discuss your potential legal remedies.

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Wayne Burmaster, a broker from Staten Island, New York, will pay $1.3 million in disgorgement to the SEC for selling unregistered penny stock. Burmaster, together with his partner Edward Hayter, sold unregistered shares to investors. Further, they misrepresented the shares as stock in a hospitality holding company, according to the SEC’s complaint. The complaint goes on to allege that Burmaster and Hayter used a fake name, lauded as an accomplished entrepreneur, and solicited the public to invest in their penny stock by using misrepresentations in press releases.

Having sold tens of millions of unregistered shares to a number of companies and giving little to nothing in return, Burmaster and Hayter were able to raise the price and trading volume of the shares, obtaining a profit at the expense of the investors. The SEC asked for disgorgement, civil penalties, and to enjoin Burmaster from further violations and from selling penny stocks. Burmaster failed to make an appearance at a court-ordered pretrial conference, and as such default judgment was entered against him.

The SEC asked for $1.1 million plus interest in disgorgement. That number, an estimation of Burmaster’s illicit gains, was ascertained by an accountant from brokerage account records, wire transfers, and bank account statements. Burmaster argued that he did not personally receive these approximated profits, but Judge John Steele found that this fact, nor his inability to pay, did not preclude the SEC from seeking full disgorgement from him through joint liability. Burmaster will have to pay $1,349,158 within fourteen days of the ruling.

If you or someone you know has lost money as a result of an investment, please contact Richard Frankowski at 888-390-0036 to discuss your potential legal remedies.

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The SEC approved a new FINRA rule that will make it hard for brokers to delete customer complaints from their records in arbitration cases. Rule 2081 will prevent brokers from making settlements with customers requiring the claimant to accept expungement of the case from the broker’s public record. The goal of the new rule is to ensure that brokers cannot conceal customer complaints in run-of-the-mill cases but only more extreme cases.

According to the Public Investors Arbitration Bar Association, expungement requests were granted in 89% of cases resolved by stipulated awards or settlement between 2007 and 2009. That number has since moved up to 96.9% from May 2009 to the end of 2011.

The SEC has stated that arbitrators have granted expungement too often and that it wants accurate and complete information to be available to the public.

Many people, however, believe that the rule is not strong enough, pointing out that brokers would still be able to expunge legitimate complaints once the rule was in place as clients typically do not return to oppose expungement because it’s an ordeal not worth their hassle.

If you or someone you know has lost money as a result of an investment, please contact Richard Frankowski at 888-390-0036 to discuss your potential legal remedies.

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A federal judge in New York ruled this week that Citigroup would not have to face FINRA arbitration regarding claims that its stock dropped precipitously after it hid securitized-loan losses because an arbitration would violate an already existing $590 million dollar settlement over the same claims. An arbitration had been begun by Gary Burgess and Joseph Icon, two former Citigroup employees who claimed not to be included in the 670,000-person settlement class. Burgess argued that he should not have been included because he failed to opt out of the class, and Icon argued that he did not understand the release. U.S. District Judge Sidney Stein, however, was not swayed and held that Burgess and Icon were in fact included in the settlement class, thus blocking the FINRA arbitration. Stein wrote that the claims the two men were trying to bring were the exact same claims previously settled.

In August 2012, Citigroup agreed to pay $590 million to settle consolidated class claims asserting that Citigroup intentionally failed to warn investors of risky exposure to collateralized debt obligations. The settlement was one of the biggest that resulted from the banking industry’s subprime securities fiasco. The consolidated plaintiffs in the case accused the bank of committing securities fraud by making misrepresentations and omitting material facts from February 2007 to April 2008 pertaining to Citigroup’s debt obligation holdings.

If you or someone you know has lost money as a result of an investment, please contact Richard Frankowski at 888-390-0036 to discuss your potential legal remedies.

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Natural Blue Resources Inc., a company cofounded by Nancy Pelosi’s son, Paul Pelosi Jr., was charged with securities fraud last week after the SEC discovered that two convicted criminals were at the company’s helm. Pelosi Jr. was the company’s president and chief operating officer of the company, which is aimed at selling “environmentally-friendly” investments. Four individuals, including Ex-New Mexico governor Toney Anaya, were charged by the SEC and were suspended from trading in the company’s stock.

According to the SEC, James E. Cohen and Joseph Corazzi, both of whom had previous fraud convictions, were secretly running the company. They claimed to be outside consultants, but the SEC’s evidence shows that they actually controlled the company’s business decisions and failed to disclose their previous convictions with investors.

The SEC has suspended trading in Natural Blue stock and discovered that the company has failed to file periodic reports, as required by law, with the SEC for the past four years.

Anaya, Corazzi, Cohen, and former executive Erick Perry were each charged with federal fraud violations. According to the SEC, Natural Blue made “various material misrepresentations about the company, its contracts, and its anticipated revenue in a February 2011 press release as well as on a website and verbally to investors.”

Having cofounded the company in 2009, Pelosi Jr.’s involvement in this case is currently unknown. He served as the company’s president and chief operating officer until January 11, 2010. However, other sources cite Pelosi as the company’s president just last year with Anaya listed as a chairman and the CEO.

Anaya will be barred from participating in any penny stock company for at least five years and fined an undetermined amount. Perry also settled with the SEC, agreeing to pay a $150,000 fine, and permanently banned from serving as an officer or director of a public company and from participating in any offerings of penny stock.

If you or someone you know has lost money as a result of an investment, please contact Richard Frankowski at 888-390-0036 to discuss your potential legal remedies.

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Earlier this month, the SEC charged a group of golfing buddies with trading on inside information about American Superconductor Corporation, an energy technology company out of Massachusetts. The group allegedly received more than $554,000 in illicit profits.

The SEC alleges in its complaint that Eric McPhail on numerous occasions gave his golfing friends non-public information regarding American Superconductor. McPhail received the information himself from a close friend at the country club who was an executive at American Superconductor. McPhail’s source informed him of American Superconductor’s expected earnings, contracts, and other major tentative corporate developments from July 2009 to April 2011.

Instead of keeping the information to himself, as McPhail’s source expected, McPhail often emailed the information to his friends. This group included five golfing buddies and one lifelong friend. All six allegedly traded on the inside information and received illegal profits.

The SEC specifically alleges that McPhail tipped two members of the group just a couple of days prior to American Superconductor’s announcement that it expected its fourth-quarter and fiscal year-end results to be down because of its fractured relationship with Sinovel Wind Group Co., Ltd., American Superconductor’s primary customer. The two members of the group took the information, placed bets through option contracts predicting that American Superconductor’s stock would fall, which it did by 42% after the announcement. From this one tip, one member received $278,289 and the other $191,521.

On other occasions, McPhail told his friends about American Superconductor’s quarterly earnings, contracts, and potential drops in stock prices.

The SEC’s complaint charges the group with violating federal antifraud laws and the SEC’s antifraud rule, seeking to have them be enjoined, return their allegedly ill-gotten gains with interest, and pay financial penalties of up to three times their gains. Three members of the group have agreed to settle the SEC’s charges by consenting to the entry of judgments without admitting or denying the allegations.

If you or someone you know has lost money as a result of an investment, please contact Richard Frankowski at 888-390-0036 to discuss your potential legal remedies.

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Seven people, including the ex-husband of a star from the Sopranos, were arrested Thursday on securities fraud charges stemming from market manipulation of penny stocks. Two of the seven, Craig L. Josephberg and Matthew A. Bell, were registered representatives with independent broker-dealers. Another charged was the CEO of OmniView Capital Advisors LLC, who was married to Sopranos star Jamie-Lynn Sigler in 2003.

From October 2012 to July 2014, the seven and others allegedly decided to scam investors and potential investors in CodeSmart Holdings Inc., Cubed Inc., StarStream Entertainment Inc. and The Staffing Group Ltd. The group engaged in a “pump-and-dump” scheme, using untrue press releases and filing with the SEC to control the price and volume of shares in those companies. Additionally, they fraudulently hid their ownership interest, created price movements and trading volume in the stocks and made unauthorized purchases of stock in accounts of unwitting clients.

The 10-count indictment includes charges of securities fraud, wire fraud, conspiracy to commit securities fraud, mail fraud and wire fraud in connection with the manipulation of the companies.

If you or someone you know has lost money as a result of an investment, please contact Richard Frankowski at 888-390-0036 to discuss your potential legal remedies.

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The U.S. Court of Appeals for the Second Circuit has dismissed an appeal involving the settlement of class action securities claims pertaining to the Bernie Madoff Ponzi scheme. The claims, having been settled, were brought by 118 plaintiffs, who were individual and institutional investors in Madoff feeder funds managed by Fairfield Greenwich Group.

The appeal was brought by non-settling defendants, challenging a portion of the settlement agreement that provides that investors who file claims under the settlement submit to the district court’s jurisdiction for the sole purpose of participating in the settlement and not for any other purpose. The challenging defendants asserted that the district court erred in approving this provision because district courts cannot permit litigants to agree to insulate themselves from personal jurisdiction if it would otherwise be created as a result of the settlement, according to the opinion.

The plaintiffs argued that the non-settling defendants lacked standing to object, in response to which the defendants contended that they have standing because the provision in question prejudices their rights to assert that participation in the settlement should bar or limit investor claims against them in other litigation.

The Second Circuit, however, agreed with the plaintiffs, concluding that the non-settling defendants did have standing, and thus the court dismissed the appeal. The court’s opinion states, “In reaching this result, we join our sister courts in holding that a settlement which does not prevent the later assertion of a non-settling party’s claims…does not cause the non‐settling party ‘formal’ legal prejudice. For these reasons, we conclude that the non‐settling defendants do not have standing to object to the settlement. In view of this conclusion, we decline to address the remaining issues argued on appeal.”

If you or someone you know has lost money as a result of an investment, please contact Richard Frankowski at 888-390-0036 to discuss your potential legal remedies.

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Bill Turner, a New Mexico insurance broker, pleaded guilty last week to thirteen counts of securities fraud and one count of conspiracy to commit securities fraud in a plea bargain. He had originally been charged with 211 counts related to a scam to defraud an investor.

Turner defrauded Johnny Cleveland, his financier, out of hundreds of thousands of dollars in 2011 by selling false insurance policies through the Turner Insurance Agency. Turner solicited investments from Cleveland asking him to finance the policies instead of Turner getting financing from the bank. Cleveland purchased 69 contracts from Turner, and Turner repaid the first eleven in full. However, the scheme was uncovered when Turner could not manage to pay his monthly obligation to Cleveland. According to Cleveland, Turner then had employees falsify documents as Cleveland began to catch on to the scheme.

Under the plea bargain, Turner will pay full restitution to Cleveland, which will be about $215,000. Additionally, Turner is looking at potentially twenty years in prison if he makes full restitution. If he does not, he is facing no less than five and no more than thirty years.

Turner’s scheme is closely related to a Ponzi scheme, in which an operator uses money from new investors to pay back original investors. Here though, Turner kept preying on the same person.

If you or someone you know has lost money as a result of an investment, please contact Richard Frankowski at 888-390-0036 to discuss your potential legal remedies.