Securities Law Blog

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.

FINRA recently announced that Banc One Securities Corp. agreed to be fined $225,000 to resolve charges that it made unsuitable sales of deferred variable annuities to nearly two dozen clients, many over 70 years old. In a press release, FINRA said that BOSC also agreed to allow the 23 customers who purchased the deferred variable annuities to sell them without penalty. Normally, the Vas would be subject to a six year surrender period. The firm also agreed to reimburse surrender fees to clients who had already sold their Vas and paid those fees. BOSC merged with J.P> Morgan Securities in 2006. In settling, neither firm admitted nor denied the allegations. This case is further proof that, despite all the foc us on CDOs and other subprime woes—variable annuity sales remain a target for regulators.

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