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April 21, 2014

SEC Charges San Diego Investment Adviser

Last week, the SEC filed charges against a San Diego investment advisory firm called Total Wealth Management, its Chief Executive Officer, Chief Compliance Officer, and an investment adviser representative for misleading investors and breaching their fiduciary duties to their clients. The SEC alleges that Total Wealth, its owner, and CEO made secret revenue sharing agreements through which they paid themselves kickbacks and neglected to inform clients of the conflicts of interests created by such agreements. Additionally, Total Wealth and CEO, Jacob Cooper, materially misrepresented the extent of the due diligence they performed on the investments they recommended. CCO, Nathan McNamee, and investment adviser representative, Douglas Shoemaker, breached their fiduciary duties while also defrauding clients by neglecting to reveal conflicts of interest and hiding their kickbacks they got from the investments they recommended.

The SEC further alleges that Total Wealth and Cooper willfully violated antifraud provisions of the federal securities laws and that McNamee and Shoemaker either violated the antifraud provisions as well or at least aided and abetted the violations. Total Wealth and company are also being charged with violations of Form ADV disclosure rules as well as the custody rule. The order from the SEC seeks the return of allegedly illegally-received gains plus interest, financial penalties, an accounting, and remedial relief.

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 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 16, 2014

Ruling Upcoming On Fiduciary Duty For Brokers

Should brokers be required to act in the best interest of their clients when providing personalized investment advice, including recommendations about securities, to retail investors? The answer to that question is close to a resolution. Financial advisers registered with the SEC are already held to this fiduciary duty known as the "best interest" standard. Brokers, however, are held instead to a standard of "suitability," which means that they must reasonably believe that their investment recommendations are suitable for the investor's objectives, means and age. The 2010 Dodd-Frank act ordered the SEC to study this issue and allowed it to establish a fiduciary standard for brokers. SEC Chairman Mary Jo White said the commission would make a decision by the end of the year.

Advocates of a fiduciary standard for brokers assert that investors do not understand the rules in their current iteration, which allows for abuse by brokers who are keen on selling products that give them a commission, whether or not those products are in the best interest of the investor. With the suitability standard, brokers can recommend the worst of whatever is available that is suitable, but applying the "best interest" standard to brokers would add to compliance and liability costs, which would likely trickle down to the investors. Critics of the "best interest" standard also argue that the products available to investors would be greatly limited if the standard is applied.

Many in the brokerage industry say that if the fiduciary standard were applied to brokers then it should allow for more flexibility than the standard that investment advisers operate under in order to preserve customer choice by not limiting the range of products that brokers can offer. Some fiduciary-standard advocates are concerned that regulators are headed toward a middle ground that they fear will fall short of what is necessary.

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 14, 2014

According To The SEC, More Than 200 Private-Equity Firms Have Imposed Bogus Fees

The SEC has announced that over half of the private-equity firms it has investigated have charged unjustified expenses and fees to investors without their knowledge. The 2010 Dodd-Frank Act gave the SEC more power in overseeing money managers and allowed the SEC to examine some firms for the first time. At the close of 2012, the SEC's examiners had found that particular advisers were wrongfully collecting money from companies included in their portfolio, improperly calculating fees, and using assets from the funds to pay for their own expenses. Bloomberg has reported that some of these issues are the products of mistakes while others are intentional.

Private-equity firms utilize debt and investor capital to purchase companies that they will subsequently go public with or sell for profit. Annual management fees are usually 1.5-2% of committed funds and the firms usually keep 15-20% of the investment profits. Many buyout firms will charge fees to the companies they acquire to help pay for related expenses. Investors sometimes get part of the proceeds. Private-equity firms have been the subject of criticism. Some critics say that abuse by such firms can happen because the organizations tend to be so "opaque." Managers receive wide discretion, which can make it difficult for investors to know what is happening.

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 8, 2014

What Is Bitcoin?

Digital currencies, like bitcoin, have become popular as an alternative to cash or more traditional lines of credit. Crypto-currencies can be traded in online exchanges for more conventional currencies, like the dollar, or can be used to buy goods and services, which is customarily done online. Bitcoin was created in 2009 by an unknown person using the alias Satoshi Nakamoto. Traditionally, the capitalized "Bitcoin" refers to the technology and the network, and the lower case "bitcoin" refers to the currency itself.

What makes bitcoin unusual is that it is not controlled by any single entity, and as a result the United States treasury has called bitcoin a decentralized currency. This is what has made bitcoin so popular. Transactions can be made with no middlemen, no banks. There are no transaction fees, and complete anonymity can be maintained. While each bitcoin transaction is recorded in a public log, the names of the buyers and sellers are never revealed, only the users' wallet IDs. Additionally, Bitcoin makes international payments easy and cheap because bitcoins are not tied to any country or subject to regulation.

Unlike traditional forms of currency, a bitcoin's value can drastically fluctuate in response to user demand. Joseph Borg, the Director of the Alabama Securities Commission has stated that "[t]he value of Bitcoin and other crypto-currencies can be highly volatile and investors should be aware that investments that incorporate ambiguous money systems can lead to very real risks, including the potential to lose one's money!"

Bitcoins themselves are created through mining. Mining consists of a group of Bitcoin users who provide their computing power in order to confirm and record payments into a public ledger in return for transaction fees and new bitcoins. These people actually compete to mine bitcoins by using their computers to solve complex math puzzles. As of now, a winner is granted 25 bitcoins about every ten minutes. Bitcoin mining should not be undermined. By giving miners bitcoins, the miners are being rewarded for performing a task of network administration and transaction verification, thus providing the role of a centralized authority that Bitcoin otherwise would not have.

Bitcoin users can send and receive bitcoins using a special type of wallet software on their PCs, cell phones, or web applications. These digital wallets exist in the cloud as well. The most popular ways of acquiring bitcoins is through mining or trading them for goods and services. Also, several marketplaces called" bitcoin exchanges" allow people to buy or sell bitcoins using different currencies. The largest known bitcoin exchange is called Mt. Gox.

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 4, 2014

Dewey Staff's Guilty Pleas Shine Light On Alleged Fraud

Recently, more details on an alleged scheme to conceal the actual financial condition of Dewey & LeBoeuff LLP were uncovered when a judge revealed the identities and statements of former employees who pleaded guilty to engaging in the fraud. The former employees include accountants, billing staff, and back-office workers. The statements maintain that the employees helped overstate revenue and used accounting tricks to conceal losses and cash shortages until the firm was forced to file for bankruptcy in 2012. In the aggregate, the statements appear to show a small group of people who carried out the wishes of Francis J. Canellas and Joel Sanders while knowing what they were doing was wrong.

One former billing manager and one former file clerk both acknowledged that Sanders pressured them into creating invoices they knew would not be sent to clients and that they knew this behavior was inappropriate. Other employees stated that they lied directly to outsiders about the firm's financial situation. The indictment filed by the Manhattan District Attorney's office names four employees, including Sanders, former Executive Director Stephen DiCarmine, and former Chairman Steven Davis. Sanders and Canellas are mentioned throughout the newly released statements while DiCarmine and Davis are sparsely mentioned.

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 3, 2014

Rajat Gupta Loses Appeal On Insider Trading Charges

The United States Court of Appeals for the Second Circuit upheld the verdict against Rajat Gupta, the former Managing Director of McKinsey & Company. Gupta was convicted on charges of insider trading last year, being found guilty on three counts of securities fraud and one count of conspiracy. The court sentenced Gupta to two years in jail, one year of additional supervision upon release, and a $5 million fine. Gupta had been free on $10 million bail, but the bail agreement only lasted until the appeals process was finalized.

The court order stated that Gupta's appeal was "without merit." The primary evidence against Gupta consists of wire-tapped phone calls between Gupta and Raj Rajaratnam. Gupta's legal team argued that this evidence is hearsay and should not have been admissible in Gupta's original trial. The court of appeals disagreed and also declined to hear "state of mind" testimony from Gupta's daughter, which his attorneys believe would have shown how angry he was after Rajaratnam tricked him into providing privileged trading information.

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.

April 1, 2014

Bugatti-Driving 26-Year-Old Linked To Penny-Stock Website

For a number of years, many had wondered who operated one of the biggest penny-stock websites, but now a lawsuit has linked John Babikian, a Bugatti-driving 26-year-old, to the site. Babikian used AwesomePennyStocks, an email list, to boast stock in a coal company while selling his own shares, according to the SEC. Over five years, messages about the firm caused spikes in share prices that lifted the combined value of the stocks by as much as $3 billion. AwesomePennyStocks messages also fueled a balloon in the stock of prescription-drug distributor by more than $700 million in two months. Tom Sporkin, the former chief of marketing intelligence for the SEC stated that it was the biggest that he had ever heard of. According to the SEC, Babikian left Canada in 2012 because of tax-evasion allegations. His whereabouts are currently unknown, but he was last known to be living in Monaco.

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 7, 2014

Securities and Investment Lawyers Petition Congress For More Disclosures From FINRA's BrokerCheck

A group of securities and investment attorneys has asked Congress to provide more information to consumers about the brokers that handle their money. FINRA does not go as far as some U.S. state securities regulators do in providing disclosures to investors, the group said. The report raises questions about whether the Financial Industry Regulatory Authority's BrokerCheck service provides all the information investors need to choose a broker.

Some examples of the kind of information that BrokerCheck omits are reasons why a broker was fired in the past, bankruptcy for more than ten years ago, criminal charges, and other issues that an investor should know about their broker. This is true even though FINRA and states get the information that is disseminated via BrokerCheck from a larger database that has most of this information.

"Immediate legislative change is needed to prevent consumers from being misled into believing that BrokerCheck reports are comprehensive when they are not," The Public Investors Arbitration Bar Association (PIABA) wrote in the report.

The PIABA report also stated that another important issue with FINRA: a Wall Street Journal investigation found that the public records of some 1,600 brokers failed to include criminal charges and other problematic issues that should have been in their files.

FINRA oversees nearly 636,000 brokers and 4100 brokerages.

More than 75 percent of state securities regulators refer investors to BrokerCheck from their websites,

Continue reading "Securities and Investment Lawyers Petition Congress For More Disclosures From FINRA's BrokerCheck" »

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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December 27, 2013

CFTC Investigates Managed Futures Fees

In October 2013, Bloomberg.com published an article titled "How Investors Lose 89 Percent of Gains from Futures Funds". The article examined the disconcerting disparity between fees charged and the return for investors, stating, "According to data filed with the U.S. Securities and Exchange Commission and compiled by Bloomberg, 89 percent of the $11.51 billion of gains in 63 managed-futures funds went to fees, commissions and expenses during the decade from Jan. 1, 2003, to Dec. 31, 2012."

After publication of the Bloomberg.com article, the Commodity Futures Trading Commission opened an investigation into the high fees associated with futures funds. According to a recent Bloomberg.com titled CFTC Opens Probe Into Fees Charged by Managed Futures Funds, Bart Chilton of the CFTC wants more transparency when it comes to the long term effect of fees on investors. There is a great concern over the impact these large fees have on investors' retirement security. According to the article, the investigation, which was announced mid December, is going forward with support from the Senate.

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