Recently in Securities Law Violations Category

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 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 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.

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.

Continue reading "Jefferies Agrees To Pay $25 million For Mortgage Backed SecuritiesViolations" »

March 12, 2014

RBS reaches $275 million mortgage-backed securities settlement

On Feb. 19, RBS officials announced that the company had reached a $275 million settlement with the U.S. government to resolve allegations of misleading investors in mortgage-backed securities. The settlement is the third-largest settlement in the U.S. class action against banks packaged and sold mortgage securities.


This case was originally filed in 2008 by New Jersey Carpenters Health Fund and the Boilermaker Blacksmith Pension Trust. The suit accused RBS and others of violating U.S. securities law by packaging and selling an estimated $25.39 billion of securities in 14 separate offerings to linked to the Harborview Mortgage Loan Trusts. These mortgage loans did not meet underwriting guidelines, a fact the suit says RBS concealed. The loans later sank to junk status.

This settlement is just a drop in the bucket compared to the estimated losses suffered by investors. As more and more of these settlements take place it is important that investors take actions to protect their legal rights in these sorts of cases.

Continue reading "RBS reaches $275 million mortgage-backed securities settlement" »

March 5, 2014

Morgan Stanley Says $111M MBS Suit Distorts Contract Terms After Failure Of Own Underwriting

A Morgan Stanley subsidiary on Tuesday argued that a New York judge should dismiss a breach of contract suit brought by a trust over $110.8 million in losses suffered by investors in mortgage-backed securities. Morgan Stanley argued that a grant of the remedies sought by the investors would rewrite the underlying contracts.

An attorney for the financial services juggernaut also argued that the claims should be time barred since more than six years have passed since the purchase of these assets.

In its complaint, the plaintiffs claim that despite promising that the loans it securitized and sold to the plaintiff met strict underwriting rules and were not in danger of foreclosure, Morgan Stanley Mortgage Capital Holdings LLC allegedly included at least 371 loans in the deal that they knew violated one or more of the agreed-upon eligibility terms and later did not repurchase the loans even after the plaintiff had made Morgan Stanley aware of the violations.

What is worse is that Morgan Stanley said there is no remedy available to the plaintiff's even though they sold them securities that clearly violated the underwriting terms.

Plaintiff's council argued that they were no longer bound to a single remedy as was outlined in the original agreement between the two parties because of the gross negligence displayed in the underwriting of these assets.

"The gross negligence was the failure to provide proper underwriting procedures to these mortgage loans when they were first underwritten. They made representations and warranties to us that in fact they were compliant ... that there was no problem, there was no mistake," Council for plaintiffs said. "If this is not gross negligence, I don't know what would be considered gross negligence."

Continue reading "Morgan Stanley Says $111M MBS Suit Distorts Contract Terms After Failure Of Own Underwriting " »

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.

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

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.

Continue reading "Scottrade Admits to Wrongful Record Keeping" »

September 23, 2013

JPMorgan Chase Admits Fault in SEC Settlement

The latest news regarding JPMorgan Chase is that the SEC fulfilled their pledge to force them to admit their wrongdoing according, to a recent InsuranceJournal.com article.
JPMorgan admitted, as part of a $920 million dollar agreement, that it violated federal securities laws when it failed to catch traders hiding losses in 2012, according to the article.

The SEC, under Chairman Mary Jo White, has revamped their previous policy of allowing defendants to settle without admitting or denying any wrongdoing and now focus on having the wrong doer admit their fault. In February 2013, U.S. District Judge Jed Rakoff rejected a settlement with Citigroup Inc. in part because their was not an admission of guilt. Read more about Judge Rakoff's decision in our blog post from February 13, 2013.

This settlement, with the admission of fault, was narrowly approved 2-1 by the SEC commissioners who were eligible to vote on the matter, according to the InsuranceJournal.com article. In the past, the argument that an admission of fault would breed private lawsuits has been persuasive. However, an SEC spokesperson, quoted in the article, stated that the admission would not "disadvantage JPMorgan in a private lawsuit."

Continue reading "JPMorgan Chase Admits Fault in SEC Settlement" »

April 2, 2013

FINRA Bars Broker for Unsuitable and Unapproved Securities Transactions Involving 31 NFL Players

According to a FINRA press release, broker Jeffrey Rubin of Lighthouse Point, Florida, is barred from the securities industry for making unsuitable recommendations to invest in illiquid, high-risk securities issued in connection with a now-bankrupt casino in Alabama. Mr. Rubin was barred after after an investigation spearheaded by FINRA's Departments of Enforcement and Member Regulation.

Mr. Rubin, while a registered broker at Lincoln Financial Advisors Corporation and Alterna Capital Corporation, also operated a Florida-based company, Pro Sports Financial. Pro Sports Financial provided financial-related "concierge" services to professional athletes for an annual fee. Rubin recommended that one of his NFL clients invest thr majority of his liquid net worth, approximately $3.5 million, in four high-risk securities. Without informing his employer member firm and without their approval, Rubin recommended and facilitated his client investing $2 million in the now failed Alabama casino project.

Mr. Rubin referred other investors to the casino project while employed by Alterna Capital Corporation and International Assets Advisory, LLC without the firms' knowledge or approval. FINRA found that from approximately January 2008 through March 2011, 30 additional NFL player clients of Mr. Rubin's concierge firm, Pro Sports Financial, invested approximately $40 million in the casino project. These investments provided Mr. Rubin with a 4 percent ownership stake in the defunct casino and $500,000 from the project promoter for these referrals.

FINRA's Executive Vice President and Chief of Enforcement, Brad Bennett, said, "This case demonstrates how broker misconduct can target high-income, inexperienced, and vulnerable investors. Jeffrey Rubin took advantage of professional athletes who placed their trust in him." In settling this matter, Rubin neither admitted nor denied the charges, but consented to the entry of FINRA's findings.

Continue reading "FINRA Bars Broker for Unsuitable and Unapproved Securities Transactions Involving 31 NFL Players" »

July 12, 2012

THE FRANKOWSKI FIRM INVESTIGATE DUKE ENERGY CORPORATION

The Frankowski Firm, LLC announces the commencement of an investigation into Duke Energy Corporation, ("Duke" or the "Company") to determine whether it has violated securities laws by issuing false and misleading statements to its shareholders in light of recent disclosures made about the Company's $32 billion merger with Progress Energy.

On July 2, 2012, Duke closed it $32 billion merger with Progress Energy.  Shortly after the merger closed, Duke fired its CEO, prompting a former Progress Energy director to announce that the Progress Energy board of directors had been mislead prior to the merger.  The North Carolina Utilities Commission has also announced that it was revisiting whether it was mislead as to the terms of the merger.  When the true nature of the merger was revealed to investors, the share price of Duke's stock dropped significantly on high trading volume.  We are investigating whether the Company issued false and misleading statements to the investing public in connection with the merger.

What You Can Do

If you are a Duke shareholder, you may have legal claims under the securities laws.  If you wish to discuss this investigation, or have questions about this notice or your legal rights, please contact attorney Richard Frankowski via toll-free telephone at 888-390-0036.  There is no cost to you.

Continue reading "THE FRANKOWSKI FIRM INVESTIGATE DUKE ENERGY CORPORATION" »