Recently in Misrepresentation and Fraud Category

April 18, 2014

Agent Sentenced To Five Years In Southern California For Ponzi Scheme

Michael Zuno Zuniga of Fullerton, California was sentenced to five years in Los Angeles County jail and ordered to pay $1.2 million in restitution for his part in a Ponzi scheme that preyed on senior citizens in the Los Angeles area. The attorney general's office filed a complaint alleging 57 counts against Zuniga, including securities fraud, grand theft, elder abuse, burglary, and conspiracy. The complaint further alleged that Zuniga defrauded senior citizens of about $1.5 million through his extremely organized and complex Ponzi scheme. Zuniga's conduct is alarming as he used his position as a licensed agent to defraud senior citizens. As such an agent, Zuniga owned and conducted business as the Omega Investment Group, an unlicensed entity in Downey, California.

An investigation by the California Department of Insurance and the California Department of Justice discovered a Ponzi scheme targeting Latino seniors through in-home solicitations, through which Zuniga issued more than $1.3 million in fraudulent securities. Eighteen victims were identified in Los Angeles County. Zuniga helped a number of his victims refinance their homes so that they could invest in his scheme. He falsely represented to his victims that Omega was a profitable business that bought and sold foreclosed real estate. He also led his victims to believe that such investments guaranteed a 15% secured interest annually to those invested.

Omega, however, was discovered to not have bought or sold any property for three years before January 2007. The investigation found that Omega was neither a profitable business nor did it secure investments with property or any other assets as promised. Omega's owners diverted $663,000 of the $1.5 million collected to buy real estate for a group known as Homes Brought Current and then used the funds for personal benefit. Payments Omega made to new investors were from prior investor funds, rather than business profit.

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.

April 10, 2014

Statute Of Limitations Extended For Securities Fraud Cases In Alabama

On Tuesday, the Governor of Alabama, Robert Bentley, signed legislation extending the statute of limitations for securities fraud and theft by deception to five years from the date the fraud was discovered. Previously, the statute of limitations for securities fraud had been five years from the date the deal occurred, and the statute of limitations for theft by deception had been three years from when the fraud occurred. The additional time will significantly aid law enforcement in gathering evidence that could lead to charges.

Joseph Borg, the Director of the Alabama Securities Commission, stated that the new state law will make it easier for the state to prosecute securities fraud cases. Borg also noted that during the recession, as interest rates on bank accounts were dropping, many people, especially senior citizens, placed their assets in long-term investments that did not offer a pay out until five or six years later. At that point, the statute of limitations had already run, and any possible fraud was impossible to prosecute. Borg believes that "[t]his [new law] is going to be a big deal for long-term investments."

The bill received final passage in the state legislature on April 3 and did not receive a negative vote in either the House of the Senate.

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.

April 7, 2014

News Corp, Murdoch Avoid Lawsuit Over Phone Hacking

News Corp and its Chairman, Robert Murdoch, avoided a lawsuit last week. U.S. District Judge Paul Gardephe dismissed a suit alleging that News Corp defrauded shareholders by hiding widespread, illegal phone hacking at two of its British newspapers, stating that defendants could not be held liable for statements that predated the period for which shareholders attempted to recoup alleged losses. The suit stemmed from statements made by Murdoch and others after the arrests of Clive Goodman and Glenn Mulcaire, who were imprisoned for hacking the British royal family's phones.

News Corp shareholders brought suit against the corporation alleging that it made statements to the press and in testimony to Parliament that the phone hacking incident was isolated. The shareholders alleged that the phone hacking was rampant at the now-defunct News of the World and The Sun tabloids and that the practice caused News Corp shares to fall seventeen percent in 2002 and ruined its opportunity to purchase British Sky Broadcasting Ltd.

Regardless, Gadephe ruled that nearly all of the statements made predated the class period and that the defendants had no duty to correct them. The court gave the shareholders until April 30 to file an amended complaint.

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.

April 2, 2014

SEC Fraud Trial Regarding Texas Tycoon Samuel Wyly Finally To Start

Samuel Wyly, a Texas investor, and the estate of his late brother, Charles, will go to trial this week against the SEC after years of accusations that they engaged in a $550 million fraud. Many believe that this is the biggest test the SEC will face this year in holding individuals accountable at trial. The SEC alleges that the Wyly brothers hid stock trading from 1992 to 2004 in Sterling Software Inc., Michaels Stores Inc., Sterling Commerce Inc., and Scottish Annuity & Life Holding Ltd by using offshore trusts and entities, also alleging the brothers earned $31.7 million from insider trading in Sterling Software after selling the company in 1999.

Samuel and Charles, who has since died in a car accident, have maintained their innocence by stating that they were not the beneficial owners of the stock held in the trusts. As a result of a recent Supreme Court decision, the trial has been split into two parts. After the jury makes a decision regarding charges branching from the failure to disclose the trusts and trading in them, the second part will be heard by U.S. District Judge Shira Scheindlin, who will rule on the insider trading claims and determine any applicable penalty.

March 27, 2014

Bank Of America To Pay $9.3 Billion To Settle Mortgage Bond Claims

Bank of America has agreed to pay $9.3 billion to settle claims with Fannie Mae and Freddie Mac after selling the institutions faulty mortgage bonds. The Federal Housing Finance Agency alleged that Bank of America misrepresented the worth of loans underlying residential mortgage-backed securities bought by Fannie Mae and Freddie Mac from 2005 to 2007. The settlement resolves suits against Bank of America, Merrill Lynch, and Countrywide and will include $6.3 billion in cash with the rest in securities which Bank of America will buy from Fannie Mae and Freddie Mac. The deal covers about $57.5 billion in mortgage paper and will hurt Bank of America's first-quarter profits, reducing them by $3.7 billion or about 21 cents per share.

By settling, Bank of America has settled liability on 88% of all claims against its residential mortgage-backed securities stemming from its acquisition of Countrywide Financial in 2008 that preceded the financial crisis. FHFA Director Melvin Watt stated that the settlement is "an important step in helping restore stability to our broader mortgage market and moving to bring back the role of private firms in providing mortgage credit." This is the tenth settlement the FHFA has reached in litigation that started in 2011 when it filed 18 lawsuits over about $200 billion in mortgage-backed securities.

March 26, 2014

Arbitrator Lies About Being A Lawyer, Booted

James H. Frank of Santa Barbara, California may have jeopardized the outcomes of almost forty securities arbitrations, some of which date back to more than fifteen years. According to a FINRA spokeswoman, Frank misrepresented himself as being a lawyer and a member of the bar in a number of states. FINRA removed Frank from its roster of arbitrators last year. Frank vehemently denies these allegations, claiming that they are "inaccurate at best" and that the California bar must have lost his records. Additionally, he is unsure as to why FINRA removed him from their roster of arbitrators.

This debacle raises several concerns moving forward. First, this incident adds fuel to the fire for those who oppose mandatory arbitration. This case will certainly hurt perceptions regarding the fairness of arbitration proceedings. Second, the parties involved in Frank's cases are unsure as to whether they can overturn some of his decisions in court. Typically, in such instances when a party wants to overturn an arbitration award in federal court, they must make a request within ninety days of receiving the order. As of now, it is unclear whether petitioners will be granted some flexibility on this issue due to the arbitrator's fraudulent misrepresentations.

March 14, 2014

Jefferies Agrees To Pay $25 million For Mortgage Backed SecuritiesViolations

The Securities and Exchange Commission has charged global investment bank and brokerage firm Jefferies LLC with failing to supervise its employees who sold mortgage-backed securities desk and were in turn lying to customers about pricing.

An SEC investigation found that Jefferies representatives including Jesse Litvak, who the SEC charged with securities fraud last year, lied to customers about the prices that the firm paid for certain mortgage-backed securities. Lying about those prices mislead customers about the true amount of profits being earned by the firm in its trading. Jefferies' policy required supervisors to review the electronic communications of traders and salespeople in order to flag any untrue or misleading information provided customers. However, the policy was not implemented in a way to detect misrepresentations about price.

Jefferies agreed to pay $25 million to settle the SEC's charges as well as a parallel action announced today by the U.S. Attorney's Office for the District of Connecticut.

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March 13, 2014

JP Morgan Settles Suit Over Toxic Mortgage Backed Securities for $400 Million

US banking giant JPMorgan Chase has agreed to pay USD 400 million in a settlement for litigation filed by Syncora Guarantee Inc. over mortgage-backed securities.

Syncora said it would drop the rest of its cases against the banking giant as a result of the $400 million settlement

The securities sold to Syncora came from Bear Stearns, which JPMorgan acquired in 2008 amid the financial crisis. Syncora said JPMorgan misrepresented the quality of mortgage assets linked to the securities.

The Syncora deal comes on the heels of several major JPMorgan settlements, including a $13 billion deal with the Department of Justice in November 2013 that resolved a series of US and state lawsuits over the sale of toxic mortgage-backed securities.

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March 4, 2014

U.S. Supreme Court Limits SLUSA; Allows State-Law Securities Class Actions to Proceed

On February 26, 2014, the Supreme Court decided Chadbourne & Parke LLP v. Troice, 571 U.S. ___ (2014), ruling by a 7-2 vote that the Securities Litigation Uniform Standards Act of 1998 ("SLUSA") does not bar state-law securities class actions in which the plaintiffs allege that they purchased uncovered securities that the defendants misrepresented were backed by covered securities. The decision is the important in that the Court has held that a state-law suit pertaining to securities fraud is not precluded by SLUSA. This is signifigant because it suggests that there are some limits to the broad interpretation of SLUSA's preclusion provision that the Court has recognized in previous cases. Chadbourne should encourage more plaintiffs to pursue securities-fraud claims under state-law theories,the facts of a given case will still dictate what standard will be applied given this most recent ruling.

Chadbourne arose out of a multibillion dollar Ponzi scheme run by Allen Stanford and several of his companies. Stanford and his associates sold certificates of deposit issued by his bank and then used the money for their personal gain. Although these CDs were not covered securities under SLUSA, the defendants misrepresented that they were backed by highly marketable securities that were covered by the Act. After the plaintiffs learned of the fraud, they brought state-law class actions against alleged participants in Stanford's scheme.

The Chadbourne case shows that the hard standard that was created under SLUSA will not preclude all state-law claims and that some state-law suits pertaining to securities fraud will be permissible.

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March 3, 2014

Countrywide Alleges Fraud and Misrepresentations Claims Against It Are Time Barred

Countrywide Financial group is urging a California court to dismiss racketeering claims brought against it by Prudential Life Insurance Company. Prudential's suit alleges that Countrywide used omissions and misrepresentations to sell low-quality mortgage backed securities to unknowing consumers. Countrywide is alleging that the claim is time barred based on an inquiry notice standard that would prevent the suit alleging that more than $500 million of these mortgage backed securities were wrongfully sold by Countrywide.
The inquiry notice standard starts running the statute of limitations at the point when plaintiffs should have been aware of its claimed injury and the source of that injury -- in this case, when "reasonable investor" would have been aware of problems with underwriting at Countrywide -- according to Countrywide's memorandum in support of its motion to dismiss the claims. Opposing council claimed that this notice standard had not been met by the date in question.

February 24, 2014

Scottrade Admits to Wrongful Record Keeping

Last week, Scottrade Inc. became the latest entity to admit wrongdoing in connection with settling SEC charges. In a January 29, 2014 administrative order, the brokerage firm not only agreed to a $2.5 million penalty, but also admitted that it violated federal securities laws when it failed to provide the SEC with complete and accurate "blue sheet" trading data. This settlement marks the fourth such admission since the Commission's June 2013 modification to its "no admit/no deny" settlement policy.

Most of the time a party is not required to admit wrong doing to reach a settlement and, until recently, the SEC supported this policy because they believed it helped to facilitate settlements. Yet in June 2013 the SEC announced that they would reverse this policy and would require public admissions of wrong doing in certain cases. Examples include cases of "egregious" fraud, intentional misconduct, those that involve significant investor impact, or those that are otherwise highly visible.

The charges against Scottrade pertained to "blue sheets", which are standardized documents, generated at the Commission's request, that provide information to the Commission about trades performed by a company or its customers. In March of 2006, Scottrade changed the coding that generated the blue sheets and eventually led to certain trades being left unreported to the SEC. The SEC noticed that there was incomplete trading data and notified Scottrade and only then was this error discovered. There were over 1,000 occasions when the data reported to the SEC was incorrect.

In settling the charges, Scottrade not only admitted that its compliance practices were "inadequate," but also admitted that it "willfully violated" Section 17(a) of the Exchange Act by failing to provide the SEC with correct blue sheet data and to properly maintain and preserve that data. In addition to admitting wrongdoing, the firm agreed to a $2.5 million penalty and an injunction. It also agreed to hire an independent consultant to review its record-keeping policies and procedures.

However, this settlement does not do much in the way of instructing the public and practitioners in the industry of the new policy. There was no intentional misconduct or fraud alleged but the SEC still saw the 6 year gap as egregious. The impact on investors is unknown but could be significant.

SEC Chair Mary Jo White said in a speech last week that we can expect to see more SEC settlements involving admissions in the coming months.

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December 21, 2012

SEC Charges Penny Stock Investors with Fraud

Four industry professionals were charged by the SEC for a fraudulent penny stock scheme that produced around $17 million in illegitimate profits, all the while claiming false federal securities laws exceptions. The SEC defines penny stocks as low-priced (below $5), speculative securities of small companies that are generally quoted over the counter on the OTC Bulletin Board or in the Pink Sheets but may also be traded on the securities exchange.

The SEC press release alleged the four industry professionals acquired somewhere between 30 to 60 percent of the market price, more than one billion unregistered shares, in microcap companies at very deep discounts. Microcap companies are those smaller, public companies with a market capitalization under $250 million. The press release further alleges the four professionals charged told the companies they intended to hold the shares for investment purposes yet instead they quickly sold the shares unregistered. The SEC asserts that they did so claiming to rely on certain state law exceptions that would permit such a sell. The SEC further contends the four charged set up virtual corporations in numerous states to feign the appearance that the exception was valid.

The Director of the SEC's New York Regional Office stated that the four charged allegedly, "repeatedly violated the registration provisions and in the process also committed securities fraud." The penny stock scheme is said to have started in 2007 and went until 2010. The four charged had previously worked in the securities industry as registered representatives, providers of investment management or provided financial advisory services.

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December 12, 2012


Harry Tanner with American Precious Metals, Andrea Tanner and Sam J. Goldman agreed to pay a $24 million settlement after FTC charged they tricked customers to purchase high risk precious metals on credit without disclosing the risks associated with these purchases, according to the Federal Trade Commission's article. This settlement stems from an FTC investigation that started in May, 2011.

The FTC complaint alleged that consumers were unaware that their investments were financed and loans were taken out for up to 80% of the price of the precious metals. The persons who invested in these precious metals were also unaware that their investments were subject to equity calls; to prevent their investments from being liquidated, they might have to pay more money.

While the investigation and litigation has progressed, the court barred the defendants from misrepresenting the risk and earning potential of their investment offers and required clear disclosure of all the total costs and risks before consumers agreed to invest, pending resolution of the case.

In addition to the settlement, Mr. Tanner and Mr. Goldman are also permanently banned from marketing any investment opportunities. Mrs. Tanner is banned from marketing precious metals investments. In addition, all three of them must fully and honestly disclose all material terms about any goods or services they offer consumers in the future and they cannot disclose or benefit from their future customers' personal information.


July 9, 2012


The assets of Aubrey Lee Price, the missing Georgia investor charged with a $40 million dollar investment fraud scheme, have been frozen according to an SEC press release. Mr. Price was allegedly selling an unregistered investment fund PFG that he managed without telling investors that it was tied up in illiquid investments and South American real estate. The press release  stated that Price admitted to using fraudulent methods to cover with investors. According to the quote from Price's letter in the SEC press release, he "falsified statements with false returns" in order to conceal between $20 million and $23 million in investor losses. Aubrey Lee Price's whereabouts are currently unknown.


July 9, 2012


Goldman Sachs has been trying to overturn the $20.5 million arbitration award arising from the 2005 collapse of the hedge fund manager Bayou Group. The NY Times Dealbook article explains that the now defunct Bayou Group accused Goldman Sachs of helping to perpetrate a Ponzi scheme. The United States Court of Appeals for the Second Circuit upheld the award to the creditors of Bayou last Tuesday, according to the article. The Bayou Group's former chief executive is serving a 20 year sentence for his role in the fraud. He pleaded guilty to misrepresenting the value of Bayou's funds and defrauding clients of more than $400 million.

If this large arbitration award is upheld, it may have broader ramifications on Wall Street. The article stated that Goldman Sachs and firms similar to Goldman Sachs, who clear billions of dollars in trades a year and have long-held that their job is simply to clear those transactions, have held that they did not have a duty to police the clients.  This arbitration award and its symbolism to other Wall Street establishments has caused some experts to argue that the award could force a higher duty on Wall Street.