December 12, 2014

Morgan Stanley Fined $4M by the SEC for Market Access Rule Violation

The Securities and Exchange Commission is ordering Morgan Stanley (MS) to pay $4 million for violating the market access rule. The rule mandates that brokerage firms implement adequate risk controls before giving customers market access. An SEC probe, however, found that Morgan Stanley, which gives institutional customers direct market access via an electronic trading desk, did not have the necessary controls in place to stop a rogue trader from putting in orders that went over pre-set trading thresholds.

David Miller, who was an institutional sales trader, than purportedly exploited access to the market. Without Morgan Stanley’s knowledge he committed financial fraud that would later result in the closure of Rochdale Securities, which was the financial firm where he worked. Miller, who has since partially settled the SEC’s case, pleaded guilty to parallel criminal charges. He was sentenced to 30 months behind bars.

Miller misrepresented to Rochdale Securities that a customer had given authorization to buy Apple stock. While the customer order was for the purchase of 1,625 Apple shares, Miller instead put in numerous orders, buying 1.625 million shares. He intended to share in the profit if the stock made money but if it didn’t he planned to say he made a mistake about the order’s size.

However, the stock went down on the day of the purchases and Rochdale went under its net capital net requirements to trade securities. The firm forced to shut its operations to cover the $5.3 million losses.

In its order to settle the administrative proceedings, the SEC said that the Apple stock orders that Miller routed through Morgan Stanley’s trading desk on October 25, 2012 eventually totaled approximately $525 million. This went way beyond Rochdale’s $200 million pre-set aggregate daily trading limit.

To execute the orders Morgan Stanley’s electronic desk at first upped Rochdale’s limit to $500 million and then $750 million. However, Morgan Stanley staff did not perform the necessary due diligence to make sure the credit raises were warranted. One reason for this, says the regulator, is that Morgan Stanley’s written supervisory procedures did not give reasonable guidance for personnel who were responsible for deciding whether to raise customer trading thresholds.

The SEC said that Morgan Stanley violated the Securities Exchange Act of 1934.’s Rule 15c3. The firm settled the case without denying or admitting to the findings In addition to paying the $4 million, the broker-dealer agreed to cease and desist from causing or committing market access rule violations in the future.

If you believe your financial losses are a result of securities fraud, please contact our securities firm today. The SSEK Partners has helped thousands of investors get their money back. Please call us today to request you free case consultation.

Read the SEC Order (PDF)


More Blog Posts:
Goldman Sachs Must Pay $7.6M to Two Brokers for Wrongful Termination, Institutional Investor Securities Blog, December 8, 2014

Madoff Ponzi Scam Victims Recover Over $10 Billion, Institutional Investor Securities Blog, December 5, 2014

SEC Claims Fraud Involving a REIT and Bogus Senior Resident Occupants, Institutional Investor Securities Blog, December

December 11, 2014

Citigroup, Credit Suisse, Deutsche Bank, Merrill Lynch, & Other Firms Ordered by FINRA to Pay $43.5M Over Activities Related to Toys “R” Us IPO

The Financial Industry Regulatory Authority is fining 10 firms $43.5 million in total for letting their equity research analysts solicit investment business and offering favorable research coverage related to the the planned Toys “R” Us initial public offering. The firms were fined: $2.5 million for Needham & Co. LLC; $4 million for Wells Fargo Securities, LLC (WFC), Deutsche Bank Securities Inc. (DB), Morgan Stanley & Co., LLC (MS), and Merrill Lynch, Pierce, Fenner & Smith Inc. respectively; and $5 million each for JP Morgan Securities LLC (JPM), Barclays Capital Inc. (BARC), Goldman Sachs & Co. (GS), Citigroup Global Markets Inc. (C), and Credit Suisse Securities USA LLC (CS). FINRA rules state that firms are not allowed to use research analysts or promise favorable research to garner investment banking business.

In 2010, Toys “R” Us and its private equity owners asked the ten firms to compete for involvement in an initial public offering. The self-regulatory organization said that all of the institutions used equity research analysts when soliciting for this role.

The company asked the analysts to create presentations to determine what their views were on certain issues and if they matched up with the perspectives of the firms’ investment bankers. The firms knew that how well their analysts did with this would impact whether or not they would be given the underwriting role in the IPO.

In the presentations, the firms explicitly or implicitly made known that they would provide reasonable research coverage in exchange for involvement in the IPO. While Toys “R” Us offered each firm a part in the IPO, ultimately the actual offering never went through. FINRA also said that Needham, Barclays, JP Morgan, Citigroup, Goldman Sachs, and Credit Suisse lacked the adequate supervisory procedures for research analyst involvement in investment banking pitches.

By settling, the firms are not denying or admitting to the charges. They are, however, consenting to an entry of the SRO’s findings.

FINRA also just fined Citigroup $3 million for its failure to deliver exchange-traded fund paperwork on over 250,000 customer purchases. The bank failed to send prospectuses on 160 ETFs that clients purchased in 2010 and on more than 1.5 million exchange-traded funds that were bought between 2009 and 2011. Over 250,000 brokerage clients were affected.

The self-regulatory organization said that Citigroup lacked the correct procedures to oversee this process. Instead, the bank depended on a manual system that was missing a definite chain of supervision to verify whether prospectuses had been sent. The firm discovered the issue in 2011, self-reporting to FINRA. Citi paid a $2.3 million for similar issues in 2007.

FINRA Fines 10 Firms a Total of $43.5 Million for Allowing Equity Research Analysts to Solicit Investment Banking Business and for Offering Favorable Research Coverage in Connection With Toys"R"Us IPO, FINRA, December 11, 2014

Citigroup Fined by Finra for Failing to Deliver ETF Prospectuses
, Bloomberg, December 12, 2014


More Blog Posts:
Ex-California Insurer Charged with Running $11M Ponzi Scam, Stockbroker Fraud Blog, December 8, 2014

Ex-Ameriprise Manager Who Helped with SAC Capital Insider Trading Case Settles Charges Against Her, Institutional Investor Securities Blog, December 9, 2014

CFTC, FINRA, and SEC Fight Investor Fraud Together, Stockbroker Fraud Blog, December 5, 2014

December 9, 2014

Ex-Ameriprise Manager Who Helped with SAC Capital Insider Trading Case Settles Charges Against Her

Former Ameriprise Financial (AMP) Manager Reema D. Shah, who pleaded guilty to securities fraud earlier this year, will pay $390,103 to settle both the criminal and Securities and Exchange Commission cases against her. Shah, who was a tech stock picker for Ameriprise subsidiary RiverSource Investments, LLC, illegally recommended Yahoo Inc. stock in 2009 after she became privy to nonpublic data about a search engine partnership between the technology company and Microsoft Corp.

According to government officials, Shah traded information between ’04 and ’09 with research analysts, hedge fund managers, and consultants, including Robert W. Kwok, who was the source of the data about Yahoo and Microsoft. Shah previously gave information to Kwok about the company Autodesk and its acquisition of Moldflow Corporation. Kwok went on to buy 1,500 Moldflow shares, allegedly because of the tip, and made a $4,750 profit.

The regulator claims that because of the insider trading information that Kwok gave her, Shah compelled certain funds that she helped manage to buy about $700,000 Yahoo shares. These were later sold at a $388,807 profit.

Shah has since worked with federal agencies to provide information that helped in a number of insider trading probes, including the securities fraud case against SAC Capital Advisors, which led to that firm paying $1.8 million in penalties.

In that case, SAC Capital, now called Point72, pleaded guilty on charges related to insider trading committed by its employees. The hedge fund is no longer managing outside money and now only oversees the funds of its founder Steven Cohen and his employees.

Meantime, Shah, will not see any jail time. She is, however, serving two years probation.

If you suspect that your financial losses are due to securities fraud, contact our law firm today.


SEC settlement ends saga for former Ameriprise exec who aided SAC Capital insider case
, Investment News, December 9, 2014

SAC Capital $1.8 billion penalty approved
, CNN, April 10, 2014


More Blog Posts:

CFTC, FINRA, and SEC Fight Investor Fraud Together, Stockbroker Fraud Blog, December 5, 2014

Goldman Sachs Must Pay $7.6M to Two Brokers for Wrongful Termination, Institutional Investor Securities Blog, December 8, 2014

Madoff Ponzi Scam Victims Recover Over $10 Billion, Institutional Investor Securities Blog, December 5, 2014

December 8, 2014

Goldman Sachs Must Pay $7.6M to Two Brokers for Wrongful Termination

A Financial Industry Regulatory Authority (FINRA) arbitration panel says that Goldman Sachs Group Inc. (GS) has to pay two brokers $7.6 million because they were wrongfully terminated. Luis Sampedro and Christopher Barra, who are now with UBS (UBS), claim that the Goldman made them forfeit deferred commissions after letting them go.

The two of them were a team at the financial firm until 2007. They filed their arbitration claim in 2010.

The withholding happened after the financial firm modified its compensation plan, requiring that a percentage of the brokers’ commission be retained as restricted stock units to vest. Goldman, however, fired the two men before their stock vested.

According to the brokers, the forfeiture requirement violates California state law. They also contended that the firm violated a federal law that protects military employees from retaliation and harassment in the workplace.

Barra, who was an Army Reserves lieutenant colonel and graduated from West Point, said that a firm manager chastised him and then took retaliatory action because Barra went on reserve duty in 2006 and had to be away from work. Months later, he and Sampedro were fired.

The FINRA panel found that Goldman was liable under the law and ordered the firm to pay Barra $100,000 for the violation, which is part of the $7.6 million reward. The two brokers had sought $7 million. The award ordered includes $2 million in punitive damages.

SSEK Partners Group is a securities fraud law firm.

Goldman must pay two brokers $7.6 mln for wrongful termination -panel, Reuters, December 8, 2014


More Blog Posts:

Madoff Ponzi Scam Victims Recover Over $10 Billion, Institutional Investor Securities Blog, December 5, 2014

CFTC, FINRA, and SEC Fight Investor Fraud Together
, Stockbroker Fraud Blog, December 5, 2014

SEC Files Charges Against Former Broker-Dealer Owner Over Fraudulent Stock Sales
, Stockbroker Fraud Blog, December 2, 2014

December 5, 2014

Madoff Ponzi Scam Victims Recover Over $10 Billion

Six years after the collapse of Bernard Madoff’s multi-billion dollar Ponzi scam, over $10 billion has been recovered—that’s close to 60% of the principal that went missing after his arrest in 2008. Nearly $6 billion has been paid back to investors. Trustee Irving Picard recently provided these figures in an interim report.

Thousands of investors lost $17.5 billion in principal because of Madoff’s scheme. Even as a significant amount of the money has been returned to them, billions of dollars are being kept in reserve until the securities fraud lawsuits filed by victims wanting bigger payouts are resolved.

The Securities Investor Protection Corp. has spent over $1 billion to facilitate the recovery process. Picard was tasked with recovering investors’ funds. He has worked with forensic accountants, lawyers, and others to figure out who was owed money and who should be sued for benefiting from Madoff’s Ponzi scam. He has even able to recover investor funds via hundreds of lawsuits involving the Madoff clients and banks that didn’t know they were benefiting from the fraud.

Already, Picard has filed over 1,000 lawsuits against feeder funds that sent customer money to Madoff, as well as “net winners” that withdrew more than what they paid. Among the individuals he sued that took more cash from their accounts than what they put in is Edward Blumenfeld. The New York real estate developer settled for $62 million.

Picard also settled with the estate of now deceased Florida investor Jeffrey Picowar for $7.2 billion, as well as recovered $325 million from JP Morgan Chase & Co. (JPM), which was Madoff’s primary bank. Recently, the trustee arrived at a deal with Herald Fund and Primeo Fund, which both funneled cash to the Ponzi scam. They consented to pay $497 million to resolve lawsuits over withdrawals from Madoff’s firm.

Madoff, who pleaded guilty to securities fraud, is serving 150 years in federal prison.

Prosecutors say that Madoff’s Ponzi scam began in the early 1960’s and went on for decades, defrauding famous and wealthy investors, along with average investors, financial instittuions, charities, and others. Bogus trades and account documents were used to make individual and institutional investors think that they owned securities in the largest American companies. According to final account statements, fake profits were at around $47 billion.

Now, five ex-Madoff employees are getting ready to hear their prison sentences for their involvement in his Ponzi scam. These individuals are the only defendants linked to the scheme to stand trial. They are Madoff’s former assistant Annette Bongiorno, ex-Madoff operations manager Daniel Bonventre, account manager JoAnn Crupi, and ex-Madoff computer programmers George Perez and Jerome O’Hara. They are accused of conspiring with Madoff to deceive investors. Earlier this year, a jury found them guilty on all charges in a 31-count indictment.

Madoff scam recovery hits $10 billion, almost 60% of lost money, at a cost of $1 billion, InvestmentNews, November 22, 2014

5 ex-Madoff employees face prison terms, USA Today, December 4, 2014


More Blog Posts:
SEC Files Charges Against Former Broker-Dealer Owner Over Fraudulent Stock Sales, Stockbroker Fraud Blog, December 2, 2014

SEC Claims Fraud Involving a REIT and Bogus Senior Resident Occupants, Institutional Investor Securities Blog, December 3, 2014

SEC Files Charges Against Former Broker-Dealer Owner Over Fraudulent Stock Sales, Stockbroker Fraud Blog, December 2, 2014

December 4, 2014

Money Manager Paul Greenwood Gets 10 Years in Prison for $1.3B Investment Fraud

The U.S. Commodity Future Trading Commission says that hedge fund Paul Greenwood has been sentenced to ten years behind bars. Greenwood, who was the general partner of WG Trading Co., pleaded guilty to numerous criminal charges, including securities fraud, wire fraud, money laundering, commodities fraud, and conspiracy in 2010.

Greenwood and fellow WG Trading manager Steven Walsh were indicted on charges that accused them of conspiring to bilk investor of $554 million in an investment scam that U.S. prosecutors say ran from 1996 through 2009. Greenwood admitted to “sort of” operating a Ponzi scam and spending a minimum of $75 million of investors’ funds to pay for his passion for museum-grade teddy bears and other lavish spending. The scheme purportedly cost investors somewhere between $800 million to $900 million.

U.S. District Judge Miriam Goldman Cedarbaum, who sentenced Greenwood, told him to forfeit another $83.5 million. He has until February 9, 2015 to report to prison. Prosecutors told the judge that Greenwood helped the government with its case. He also assisted a court-appointed receivership in finding around $900 million, which is nearly 90% of investor claims. As part of his plea deal, Greenwood said he would forfeit at least $331 million to the government.

Greenwood and Walsh previously had minority ownership of the professional hockey team the New York Islanders. The ownership was just one example of investments the two men made that weren’t in line with the arbitrage strategy they presented to investors.

Walsh, who had pleaded guilty to securities fraud was recently sentenced to twenty years behind bars. He consented to forfeit over $50 million. Walsh admitted to giving false notes to investors and promising that their investments would be repaid plus interest.

The SEC sued both men and the CFTC also filed its own case. Greenwood settled the SEC’s case against him four years ago.

According to the Consent Orders submitted in the CFTC case, Greenwood and his co-defendant solicited over $7.6 billion from institutional investors via WG Trading Investors, LP, Westridge Capital Management, and other entities. Among those bilked were university foundations, charitable foundations, and retirement plans. Carnegie Mellon University, which invested nearly $50 million and University of Pittsburgh, which invested over $65 million, were among the alleged victims.

The defendants are accused of falsely portraying that pool participants’ funds would be used in a single investment strategy involving index arbitrage. Instead, the two of them siphoned the money. The CFTC said that Greenwood and the codefendant misappropriated $554 million in investor money, using more than $130 million for personal spending.

If you are an institutional investor or a high net worth investor and you suspect your losses may be due to securities fraud, please contact The SSEK Partners Group today. We have helped thousands of investors get their money back.

Paul Greenwood Sentenced to 10 Years in Federal Prison for Billion-Dollar Investment Scam, CFTC, December 4, 2014


More Blog Posts:
CFTC, FINRA, and SEC Fight Investor Fraud Together, Stockbroker Fraud Blog, December 5, 2014

CFTC Notifies Justice Department of Criminal Rate Rigging, Looks at Possible Swaps Loophole, Institutional Investor Fraud, September 9, 2014

Citigroup Global Markets Ordered by FINRA to Pay $15M Fine for Supervisory Failures Involving Equity Research, IPO Roadshows, Institutional Investor Fraud, November 29, 2014

December 3, 2014

SEC Claims Fraud Involving a REIT and Bogus Senior Resident Occupants

The U.S. Securities and Exchange Commission claims that two ex-executives at Assisted Living Concepts Inc. committed fraud by listing bogus occupants at certain senior residences to satisfy the lease requirements to run the facilities. The regulator is accusing former CFO John Buono and previous CEO Laurie Bebo of coming up with a scam that included bogus disclosures and manipulation of records and books when it started to look as if Wisconsin-based assisted living provider was going to default on covenants in a lease agreement with Ventas Inc., which is a real estate investment trust.

Per the covenants, ALC was obligated to keep up minimum occupancy rates and coverage rations while running the facilities or otherwise default on the lease. A default would have obligated the company to pay whatever rent was due for the lease’s remainder of term, which would have been tens of millions of dollars.

According to the SEC Enforcement Division, to meet covenant requirements Buono and Bebo told accounting personnel to work out coverage ratios and occupancy rates by factoring in phony occupants. These nonexistent occupants included Bebo’s relatives and friends, in addition to previous and former ALC employees (including some who had been fired and who hadn’t yet been officially hired), as well as a seven-year-old “senior resident.” Without this false information, contends the agency, ALC would have not met convenant requirements by substantial margins for several quarters in a row.

Buono is accused of certifying ALC’s quarterly and yearly reports even though they fraudulently represented that the company had complied with the required covenant. At the time of the purported fraud from 2009 into 2012, ALC, which now belongs to a private equity firm, ran over 200 residences made up of thousands of units. When Bebo sought to go into a lease to run eight Ventas-owned facilities in 2008, a number of company directors and officers opposed the move because of the covenant provisions.

Read the SEC Order (PDF)

Our REIT lawyers and securities fraud attorneys represent institutional clients and individual investors. Contact the SSEK Partners Group today.


More Blog Posts:
SEC Files Charges Against Former Broker-Dealer Owner Over Fraudulent Stock Sales, Stockbroker Fraud Blog, December 2, 2014

Citigroup Global Markets Ordered by FINRA to Pay $15M Fine for Supervisory Failures Involving Equity Research, IPO Roadshows, Institutional Investor Securities Blog, November 29, 2014

$13B JPMorgan Chase Mortgage Settlement Was Not Sufficient, Says Whistleblower, Institutional Investor Securities Blog, November 15, 2014

November 29, 2014

Citigroup Global Markets Ordered by FINRA to Pay $15M Fine for Supervisory Failures Involving Equity Research, IPO Roadshows

The Financial Industry Regulatory Authority says it is fining Citigroup Global Markets, Inc. (C) $15 million for not adequately overseeing communications between clients and equity researchers and trading staff and sales members, as well as for letting one of its analysts indirectly take part in road shows that marketed IPOs to investors.

According to the self-regulatory organization, from 1/05 to 2/14, Citigroup did not satisfy its supervisory duty related to possible selective dissemination involving non-public research to clients and trading and sales teams. Citigroup had put out about 100 internal warnings about equity research analyst communications during this time. Yet, despite detecting violations related to client communications and selective dissemination, notes FINRA, there were long delays before the firm would discipline analysts. Also, contends the regulator, the disciplinary measures were not severe enough to discourage repeat violations.

The SRO reports that “idea dinners" were held, hosted by the equity research analysts at Citigroup, and attended by certain trading and sales personnel, as well as institutional clients. At the dinners, the analysts would talk about stock picks that were sometimes not in alignment with their published research. Even though Citigroup knew there was the risk of improper communications at these gatherings, the firm did not adequately monitor communications or give analysts proper guidance regarding what was considered permissible communications. In another purported instance, an analyst that worked with a Citigroup affiliate in Taiwan gave out research data about Apple Inc. to certain clients. A Citigroup equity sales employee then selectively disseminated the information to other clients.

Also, notes FINRA, in 2011 a Citigroup senior equity research analyst helped two companies prepare presentations for investment banking road shows. During that time and into last year, Citigroup did not prohibit equity research analysts from helping issuers work on materials for road show presentations.

By settling, Citigroup is not denying or admitting to the FINRA charges.

Contact The SSEK Partners Group if you suspect that you were the victim of securities fraud.

FINRA Fines Citigroup Global Markets Inc. $15 Million for Supervisory Failures Related to Equity Research and Involvement in IPO Roadshows, Stockbroker Fraud Blog, November 24, 2014


More Blog Posts:

Citigroup, Bank of America Are Selling Soured Home Loans, Sources tell Bloomberg, Stockbroker Fraud Blog, November 13, 2014

Citigroup Global Markets Fined $1.85M By FINRA, Must Pay $638K Restitution Over Non-Convertible Preferred Securities Transaction Valuations
, Stockbroker Fraud Blog, August 27, 2014

DOJ Launches Criminal Probe Into JPMorgan, Citigroup Foreign Exchange Business, Institutional Investor Securities Blog, November 4, 2014


November 28, 2014

Wells Fargo Sued Over Allegedly Biased Lending in Chicago

Cook County, Illinois is suing Wells Fargo & Co. (WFC) for engaging in purportedly predatory and discriminatory lending practices in the Chicago area. The county said that the U.S. mortgage lending company targeted female, Hispanic, and black borrowers.

Per the mortgage lending lawsuit, for over a decade Wells Fargo discriminated against female and minority borrowers in the area to increase profits. Cook County claims that the bank went after borrowers from the time the loans were created through foreclosure and even during equity stripping, which included unnecessary or inflated fees and rates and refinancing penalties. The county believes its property tax base was eroded, it had to spend money to deal with abandoned properties, and some 26,000 borrowers were impacted. Cook County says damages could be as high as $300 million or greater.

It wants to stop Wells Fargo’s alleged practices and is seeking punitive and compensatory damages. Cook County also notes that certain practices involved the former Wachovia Corp, which Wells Fargo now owns. Meantime, the bank says that the accusations in the mortgage lending lawsuit have no merit.

Wells Fargo is not the only bank that Cook County has sued over mortgage lending. It also filed complaints against HSBC Holdings Plc. (HSBC) and Bank of America Corp. (BAC).

The California city of Los Angeles has also sued Bank of America and Wells Fargo along with Citigroup (C) and JPMorgan Chase & Co. (JPM) over their mortgage lending practices.

Meantime, in the wake of new guidelines recently issued by mortgage giants Freddie Mac (FMCC) and Fannie Mae (FNMA), some of the biggest mortgage lenders in the country are getting ready to relax standards for borrowers. The guidelines go into effect on December 1, 2014. According to The Wall Street Journal, this could allow hundreds of thousands of consumers who otherwise wouldn’t be able to obtain mortgages.

Lenders will likely broaden the scope of the kinds of borrowers that are able to qualify by lowering credit-score requirements and granting more flexibility to consumers who had credit problems because of a one-time incident, like a huge medical bill or losing a job.

Lawsuit accuses Wells Fargo of biased lending in Chicago area, Reuters, November 28, 2014

Mortgage Lenders Set to Relax Standards, The Wall Street Journal, November 28, 2014


More Blog Posts:
FINRA Orders Houston-Based USCA Capital Advisors LLC to Pay $3.8M to 19 ExxonMobil Retirees, Stockbroker Fraud Blog, November 24, 2014

Insider Trading Roundup: Ex-Broker Pleads Guilty to Securities Fraud Involving IBM Acquisition, BNP Officials Are Under Scrutiny, and Ex-Billionaire Is Tried In Historic Brazilian Case, Institutional Investor Securities Blog, November 19, 2014

Rajaratnam Brother Settles Insider Trading Charges Involving Hedge Fund Advisory Firm Galleon Management, Stockbroker Fraud Blog, October 23, 2014

November 26, 2014

Goldman Sachs, HSBC Sued For Manipulating Precious Metal Prices

A class action securities case is accusing Goldman Sachs Group (GS), HSBC Holdings Plc (HSBC), BASF SE (BAS), and Standard Bank Group Ltd. of manipulating prices for palladium and platinum. According to lead plaintiff Modern Settings LLC, the companies used insider information about sales orders and client purchases to make money from price movements for the precious metals, which are used in jewelry, cars, and other products.

The lawsuit, filed in Manhattan federal court, is the first of its kind in the United States. Similar complaints have been filed in New York accusing banks of rigging gold’s benchmark price.

According to this securities case, the defendants took part in daily conferences to establish the global price benchmarks for palladium and platinum. They said that this impacted derivative products based on the metals, while giving the four companies the ability to make trades in the metals prior to the movements. This purportedly resulted in in “substantial profits” for the banks, while harming those not in the know. Class action members are said to have lost value in tens of thousands of transaction.

The complaint uses analysis of price moves over seven-years beginning in October 2007. A judge will have to approve whether the plaintiff can represent other metal buyers.

Regulators have been clamping down on benchmarks after discovering that the prices in currencies and interbank-loans were being manipulated. In August, Silver was the first precious metal to modify its procedure, while gold fixing’s procedure will also be modified. The new mechanism for palladium and platinum will be implemented starting next month.

Earlier this year, AIS Capital, a hedge fund, filed a class action lawsuit accusing Barclays PLC (BARC), HSBC Holdings PLC, Deutsche Bank AG (DB), Société Générale SA, and Bank of Nova Scotia for purportedly manipulating gold’s price. According to the plaintiff, the banks worked together, along with unnamed co-conspirators, to manipulate the prices of gold derivatives contracts and gold so they could make money.

AIS Capital Management, which invest in gold futures, physical gold, and equities of gold-mining companies, noted that its Gold Fund dropped 67% in value last year as the cost of precious metals fell by nearly a third. The plaintiff pointed to several occasions when the gold price either dropped or fell not long after one of the gold-fixing conference calls attended by the defendants. The price of gold would then shift in the opposite direction right after the benchmark was established.

The institutions meet twice a day to figure out a snapshot of the price, also known as the London fix. This is the global benchmark for gold’s spot price that is used by central bankers and jewelers to place a cost on deals and figure out the value of securities linked to gold, including exchange-traded funds. The lawsuit also alleges that banks placed spoof trades to shift prices on the derivatives and physical markets toward their favor.

AIS Capital Management Sues Gold-Fix Banks
, The Wall Street Journal, March 11, 2014

HSBC, Goldman Rigged Metals’ Prices for Years, Suit Says, Bloomberg, November 26, 2014


More Blog Posts:
FINRA Orders Houston-Based USCA Capital Advisors LLC to Pay $3.8M to 19 ExxonMobil Retirees, Stockbroker Fraud Blog, November 24, 2014

Insider Trading Roundup: Ex-Broker Pleads Guilty to Securities Fraud Involving IBM Acquisition, BNP Officials Are Under Scrutiny, and Ex-Billionaire Is Tried In Historic Brazilian Case, Institutional Investor Securities Blog, November 19, 2014

Rajaratnam Brother Settles Insider Trading Charges Involving Hedge Fund Advisory Firm Galleon Management, Stockbroker Fraud Blog, October 23, 2014

November 25, 2014

HSBC to Pay $12.5M Settlement to SEC Over Charges That It Violated Securities Laws

The Securities and Exchange Commission is charging HSBC Private Bank (HSBC) with violating U.S. federal securities laws. According to the regulator, the Swiss private banking arm did not register with the agency before providing clients in this country with cross-border brokerage and investment advisory services.

HSBC Private Bank as agreed to pay $12.5 million to resolve the SEC’s charges. It is also admitting to wrongdoing.

According to the SEC order over the settled administrative proceedings, the private banking arm and its predecessors started providing the services at issue over 10 years ago, growing its clients base to up to 368 U.S. accounts while collecting about $5.7 million in fees. Banking personnel came to this country over three dozen times to solicit clients, offer advice, and fulfill securities transactions. The managers who completed these tasks were not registered to provide these services nor were they affiliated with a registered brokerage firm or investment adviser. These managers also communicated via e-mail and postal mail with clients in the U.S.

HSBC Private Bank left the U.S. cross-border business in 2010, closing almost all of its client accounts here or moving them by the end of 2011.

The SEC says that the private banking arm knew that it was at risk of violating federal securities laws with its managers’ actions and even put into place specific compliance initiatives to manage and mitigate risks. According to the regulator’s order, HSBC violated on purpose certain sections of the Securities Exchange Act of 1934 and the Investment Advisers Act of 1940.

HSBC has admitted to the facts presented in the SEC’s order, acknowledging that it violated federal securities laws. In addition to accepting a cease-and-desist order and a censure, the bank consented to pay over $5.7 million in disgorgement, $4.2 million in prejudgment interest, and a $2.6 million penalty.

SSEK Partners Group is an institutional investor fraud law firm.

Read the SEC Order (PDF)


More Blog Posts:
SEC Enforcement: Wedbush Settles SEC Probe for $2.4M, High-Frequency Trading Firm Gets $16M Penalty, and the Regulator Suspends Companies Touting Ebola Treatment, Stockbroker Fraud Blog, November 22, 2014

SEC Sanctions UBS, Charles Swab, Oppenheimer, & 10 Other Firms For Improper Sales of Puerto Rico Junk Bonds, Stockbroker Fraud Blog, November 3, 2014

SEC News: Regulator Grants $30M Whistleblower Award and Charges Washington Investment Advisory Firm $600K for Undisclosed Principal Transaction, False Advertising, Stockbroker Fraud Blog, September 23, 2014

November 22, 2014

SEC Issues 2014 Whistleblower Program Report

According to the Securities and Exchange Commission’s 2014 Annual Report to Congress on the Dodd-Frank Whistleblower Program, the regulator issued nine whistleblower awards, including one $30 million award issued to one whistleblower.

The report states that over 40% of those who received awards were either former or present employees of the companies on which they reported. 80% of these whistleblowers tried to bring up the issues to the companies first before going to the regulator. They only approached the regulator after an employer did not act to rectify the misconduct. Whistleblower award recipients also included fraud victims, individuals with personal ties to the fraudsters, consultants, and contractors.

The SEC also noted that it brought its first enforcement action against an employer that retaliated against a whistleblower. The Dodd-Frank Act has an anti-retaliation program that is supposed to protect individuals who bring a whistleblower claim. In that action, Paradigm Capital Management got into trouble for retaliating against a trader who told the SEC that the firm had taken part in allegedly unlawful transactions. Paradigm was ordered by the SEC to pay $2.2 million to resolve the employee’s retaliation claim.

The Office of the Whistleblower said that it has gotten 3,620 tips for the year to date, which is nearly 400 more than in 2013. Complaints appeared to primarily involve offering fraud, corporate disclosures and financials, and manipulation.

The SEC said that successful whistleblower cases typically involved individuals who identified specific people involved in a fraud or could provide documents to substantiate their claims. The alleged wrongdoing that they reported either was still going on or had just recently ended.

Whistleblower Awards
Whistleblowers may be entitle to a percentage of what is recovered in a fraud case if the individual is among the first to present original, relevant information that leads to a successful enforcement action by the government, with sanctions going over $1 million. The SEC does not accept all whistleblower claims.

Last year, the Commission rejected over 200 claims. One individual turned in 196 claims. The main reasons the SEC denied claims included lack of original formation related to the case, a claimant failing to turn in the application for an award within 90 days of the Notice of Covered Action, and there was no resulting successful enforcement action despite the information provided by a claimant.

SSEK Partners Group is a securities law firm that represents individual investors and institutional investors. Contact our stockbroker fraud lawyers today.

The SEC Whistleblower Report (PDF)


More Blog Posts:
Citigroup, Bank of America Are Selling Soured Home Loans, Sources Tell Bloomberg, Stockbroker Fraud Blog, November 13, 2014

Fidelity, Schwab, and Pershing Suspend Trading of Schorsch Nontraded Real Estate Investment Trusts, Institutional Investor Securities Blog, November 13, 2014

Puerto Rico’s Prepa Sees 219% Rise in Overdue Accounts With At Least $1.75 Billion Owed
, Stockbroker Fraud Blog, November 18, 2014

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