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The New York State Supreme Court has ruled that the $45M institutional investor fraud case against Patriarch Partners and owner Lynn Tilton may proceed. The financier had sought to have the fraud charges against her dropped.

The plaintiff is Norddeutsche Landesbank Girozentrale. The German bank, known as Nord/LG, invested in Tilton’s Zohar debt fund. Nord/LG later accused Tilton of misrepresenting the fund’s structure and brought a collateralized debt obligation lawsuit against her and her firm.

The German bank contends that it didn’t know that fraud might have occurred until the US Securities and Exchange Commission brought a civil case against Tilton and her firm in 2015. The regulator wants disgorgement of about $200M in allegedly bogus fees that Tilton and Patriarch purportedly collected for their services. The SEc also wants to bar Tilton from the industry.

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A class action securities case has been brought against Western Union Company (UW) by purchasers of the company’s publicly traded securities. The purchasers would have bought the securities between 2/24/12 and 1/19/17. The lead plaintiff is an institutional investor. The lawsuit is UA Local 13 Pension Fund v. The Western Union Company.

The lawsuit contends that Western Union and a number of its current and ex-directors and/or officers made false and misleading statements and did not disclose adverse information about Western Union’s business and compliance policies. Instead, Western Union and senior management purportedly told investors that the Company’s compliance program was robust and in compliance with the laws, both of which the plaintiff claims were false.

Western Union is accused of aiding and abetting a network of international criminal activities, not putting into place compliance programs that were effective, and disregarding misconduct so as to profit. The alleged violations purportedly caused Western Union shares to become artificially inflated.

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The Financial Industry Regulatory Authority is ordering Purshe Kaplan Sterling Investments (PKS) to pay almost $3.4M in restitution to a Native American tribe. The tribe had paid excessive sales fees for the purchase of Business Development Companies (BDCs) and non-traded Real Estate Investment Trusts (REITs).

Gopi Vungarala was the Purshe Kaplan Sterling registered representative for the tribe from 7/2011 through at least 1/15/15. He was also the tribe’s Treasury Investment Manager at the same time. It was his job was to oversee the group’s investment portfolio.

FINRA’s case against Vungarala in this matter has yet to be resolved. However, Purshe Kaplan Sterling must also pay $750K for its purportedly inadequate supervision of nontraded REIT and BDC sales.

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New York Life Settles Self-Dealing Allegations
New York Life Insurance Company has settled a 401(K) lawsuit accusing the company of self-dealing in its 401(k) plans. The case involved a MainStay-branded S&P 500 index mutual fund that plaintiffs believe was retained out of the insurer’s self-interest even as participants saved less money than they would have if they had been able to invest in non-proprietary funds that were less expensive.

The lawsuit alleged that class members had paid about $3.9M in excessive fees. The plaintiffs accused the mutual life insurer of committing breach of fiduciary duty under ERISA.

New York Life and its subsidiaries own and run the MainStay funds.

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FINRA Fines LPL Financial $900K

The Financial Industry Regulatory Authority has fined LPL Financial (LPLA) for either not sending or failing to create records showing that it had sent over 1.6 million mandatory account notices to customers over a 36-month period. Under industry rules, account notices have to be sent to customers at three-year intervals which is when determination of suitability is evaluated. FINRA said that LPL did not send more than 25% of such written notices over a period of seven years.

The financial firm accepted the self-regulatory organization’s settlement but is not denying or admitting to the findings. However an LPL spokesperson said in an email that the firm had self-reported the matter and was committed to “enhancing” structures for compliance and risk management.

Citigroup Global Markets Inc. (C) has been ordered to pay $25M penalty by the U.S. Commodity Futures Trading Commission to settle charges alleging spoofing in US Treasury futures markets. The regulator is also accusing the firm of not doing a diligent enough job of supervising agents and employees that were involved with the spoofing orders, which purportedly took place between 7/16/2011 and 12/31/2012.

Spoofing

Spoofing involves a trader making an offer or bid but with the intention of calling off the bid or offer before it actually goes through. According to the CFTC’s order, through five traders, Citigroup took part in spoofing over 2500 times in different Chicago Mercantile Exchange (CME) U.S. Treasury futures products. The spoofing strategy purportedly applied involved making offers or bids of at least one thousand lots but with no intention of allowing them to be executed.

Brian J. Ourand, a former Live Nation Entertainment and SFX Financial Advisory Management Enterprise executive, has pleaded guilty to wire fraud. Ourand admitted to embezzling almost $1M from heavyweight champion Mike Tyson, NBA basketball stars Glen Rice and Dikembe Mutombo, and another athlete.

According to prosecutors, Ourand began defrauding clients in 2003. They say that he used the funds to pay for hotel stays, tanning sessions, gambling activities, private school tuition for a girlfriend’s relative, and other expenses.

Ourand was charged in 2015 with multiple criminal counts, including wire fraud, mail fraud, and aggravated identity theft. As part of his plea agreement, the former financial adviser will repay the money he stole from the athletes.

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In London, six traders have pleaded not guilty to charges accusing them of trying to rig Euribor, which is the Brussels-based equivalent of the London Interbank Offered Rate (Libor). Euribor is key in establishing the rates on financial contracts, loans, and other financial products around the world.

The defendants include former Deutsche Bank (DB) trader Christian Bittar, current Deutsche trader Achim Kraemer, and former Barclays (BARC) traders Philippe Moryoussef, Colin Bermingham, Carlo Palombo, and Sisse Bohart. They are charged with one count of conspiracy to defraud through the making or obtaining of false or misleading Euribor rates in order allegedly enhance trading profits.

The criminal charges are related to a probe by the Serious Fraud Office. Five other traders from Deutsche Bank and Societe Generale were previously charged.

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A 401(K) participant is suing Aon Hewitt for its purported involvement in a kickback scam involving Financial Engines. Aon Hewitt is not the first company to be subject to such allegations involving the 401(K) advice provider.

According to a participant in the Caterpillar 401(k) Retirement Plan, the alleged “covert kickback operations” cost retirement savers millions of dollars as a result of the excessive fees paid to Financial Engines for managed-account services. The complaint contends that the service fees were much higher than needed because of an agreement between Aon Hewitt and Financial Engines in which the latter paid the former kickbacks.

The kickbacks were purportedly a substantial percentage of the fees that Financial Engines charged, even though Hewitt and its sister companies, which are also defendants in the 401(K) lawsuit, didn’t provide any investment advisory services in exchange for the payments. According to plaintiff Cheryl Scott, Aon Hewitt received a 20-25% kickback.

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Port Authority Admits Wrongdoing Related to Failure to Disclose Bond Risks to Investors
The Port Authority of New Jersey and New York will pay a $400K to resolve Securities and Exchange Commission charges accusing the municipal issuer of knowing about the risks involved a number of NJ roadway projects yet failing to tell investors who bought the bonds that would pay for these projects about the risks. The Port Authority admitted wrongdoing.

According to the SEC’s order, the Port Authority sold $2.3B of bonds even though there were questions as to whether certain projects exceeded their mandate and might not be legal to execute. Despite these concerns, the Port Authority did not mention the risks in offering documents.

SEC Cases Seeks to Hold Companies Accountable for FCPA Violations
Already this year, the SEC has brought and/or settled a number of civil cases involving alleged violations of the Foreign Corrupt Practices Act. Early last month, Biomet, a medical device manufacturer, agreed to pay over $30M to settle parallel Justice department and SEC probes over purported repeat FCPA violations.

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