Securities Law Blog

According to a recent Wall Street Journal report, federal prosecutors are stepping up their investigations into the subprime woes that are gripping the US economy. The Manhattan US Attorney’s office, according to the article, has notified the SEC that is wants to see information that the Staff has gathered in connection with its investigation of Merrill Lynch & Co. The SEC is examining, among others things, whether the firm booked the securities at inflated prices despite knowledge that the valuations had dropped. The move by federal prosecutors comes as the SEC has elevated its probe to the “formal investigation” stage-which gives the C ommission broad subpoena powers in aid of its investigation. Cooperation between the SEC and prosecutors and the self regulatory investigations (such as FINRA) is expressly provided for in documents such as the Form 1662, given to all witnesses subpoenaed by the Commission.

For more information on this subject contact securities attorneys, Michaels, Ward & Rabinovitz, LLP.

The top executive of a Boca Raton financial firm and the former president of several penny stock companies are among the five people charged in connection with a hedge fund scheme that defrauded investors of more than $200 million, according to published reports. An indictment for the US Attorney’s Office for the Southern District of Florida, charges each of the five men with six counts of wire fraud and one count of conspiracy. The indictment alleges that between October 1999 and July 2003, the five men manipulated the closing price of thinly traded shell company stocks to falsely inflate the value of Lancer Group hedge funds. The SEC had previously shut down the funds, and filed a civil lawsuit against the funds’ operators. According to the reports, the scheme allegedly netted one of the individuals, Michael Lauer, over $40 million while costing investors hundreds of millions.

For more information on this subject contact securities attorneys, Michaels, Ward & Rabinovitz, LLP.

The Massachusetts Securities Division (MSD) recently filed an action against Merrill Lynch, alleging that the brokerage firm defrauded the City of Springfield Massachusetts in connection with Springfield's investment of approximately $14 million of the city's budget surplus into three so-called collateralized debt obligations (CDOs). CDOs are pools of debt securities backed by mortgage loans. According to the Complaint filed by the MSD, the Merrill brokers did not communicate to the city that they had invested the money in CDOs, never explained the risks of the investments and never produced documentation regarding the risk factors. Interestingly, the day before the MSD filed this action, the Massachusetts Attorney General, Martha Coakley, announced that Merrill had reimbursed the city for all of its losses in the investments. Merrill terminated the registered representatives who sold the CDOs, Manuel Choy and Carl J. Kipper, after the AG-brokered settlement and the MSD suit.

The MSD complaint may be found at: http://www.sec.state.ma.us/sct/sctml/mlidx.htm

FINRA recently announced that it has created a Panel to screen enforcement cases before they are filed, called the Disciplinary Advisory Committee (“DAC”). According to a report in the Wall Street Journal, Jim Shorris, executive director of FINRA enforcement, said “It gives the staff an opportunity to hear about significant cases”. Once an enforcement team finishes an investigation, it presents the case to a committee of around a dozen senior managers, according the WSJ report. The committee can then suggest amending the charges, allow the case to proceed, or send it back for more “legwork”, among other things. The Office of Disciplinary Affairs provides another level of review by vetting settlement agreements before they are finalized. According to the report, the DAC came to FINRA from NYSE regulation via FINRA enforcement chief Susan Merrill.

The North American Securities Administrators Association said recently that it has 11 legislative priorities for 2008, and the most important one is that it preserves the authority of state securities regulators. In a statement, NASAA said that its agenda supports the group’s efforts to “advance investor protection and promote an efficient and effective regulatory environment necessary to maintain investor confidence in the capital markets”. Besides protecting regulators from conflicts (and some would say encroachment) from federal regulation, NASAA said its priorities also include s trengt hening the arbitration process for investors and enhancing corporate accountability standards

For more information on this subject contact securities attorneys, Michaels, Ward & Rabinovitz, LLP.