Monthly Archives: November 2009

Access International Advisors LLC’s LuxAlpha Sicav-American Selection Fund could mean hundreds of damages claims for UBS AG and Ernst & Young LLP if investors who lost millions of dollars in the Bernard Madoff-linked fund emerge victorious in their case. The story was first reported Nov. 25 by Bloomberg.

According to the article, individual and institutional investors who lost money through the LuxAlpha Sicav-American Selection Fund are suing UBS and Ernst & Young for “seriously neglecting” their supervisory duties of the fund. It’s now up to a Luxembourg court to decide whether investors have the right to bring direct claims against the fund’s custodian and auditor – UBS and Ernst & Young.

Hearings on the matter started today.

At one time, the LuxAlpha SicavAmerican Selection Fund had $1.4 billion in assets. Following Madoff’s arrest, the fund was dissolved.

UBS’s Luxembourg unit served as the custodian bank to the LuxAlpha Sicav-American Selection Fund. Custodians are responsible for oversight, as well as managing deposits and making payments to investors.

As for Ernst & Young, its role in LuxAlpha included auditing the fund’s annual accounts. In one complaint, a French investor claimed Ernst & Young is “co-responsible” for losses because it “didn’t follow the necessary obligatory controls and checks,” according to the Bloomberg article.

Tell us about your situation with LuxAlpha Sicav-American Selection Fund and Access International Advisors by leaving a message in the Comment Box below or via the Contact Us form. We want to counsel you on your legal options.

MetLife Securities and three affiliates – New England Securities Corp., Walnut Street Securities, and Tower Square Securities – are facing a fine of $1.2 million by the Financial Industry Regulatory Authority (FINRA) for failing to properly monitor and review their brokers’ email correspondence with the public. One of those brokers is Mark Salyer, who stole nearly $6 million from his customers through private securities transactions he initiated to raise capital for various real estate development companies.

In January 2009, the Securities and Exchange Commission (SEC) barred Mark Salyer from associating with any broker, dealer or investment adviser.

The $1.2 million fine also resolves allegations that MetLife supervisors failed to properly monitor brokers’ participation in outside business activities and private securities transactions.

According to FINRA, the failures allowed Salyer and another MetLife Securities broker to engage in undisclosed outside business activities and private securities transactions while working at MetLife Securities. Eventually, those failures cost MetLife Securities customers millions of dollars.

Investors who had accounts MetLife Securities and its three affiliates – New England Securities Corp., Walnut Street Securities, and Tower Square Securities are encouraged to contact us and tell us your story. Please leave a message in the Comment Box below or on the the Contact Us form.

Former Stifel, Nicolaus & Co. and AXA Advisors broker Kenneth Neely pleaded guilty on Nov. 4 to fraud charges connected to operating a Ponzi scheme in which clients from two brokerages – Stifel, Nicolaus & Co. and AXA Advisors – were lured into investing money in Neely’s St. Louis Investment Club and a non-existent real estate investment trust. Neely allegedly enticed investors – some of whom were church members, family and friends – in Missouri, California and Maryland with promises of “no risk” and profitable rates of return.

According to  to a cease and desist order filed by Missouri Secretary of State Robin Carnahan’s Office, Neely began raising money for his scam while working for Stifel, Nicolaus & Co. and AXA Advisors. The scheme, which began in January 2002 and continued until 2009, was kept afloat by Neely allegedly using some of the funds raised from new investors to pay investment returns to other investors. This is the hallmark of a Ponzi scheme.

Stifel Nicolaus and AXA Advisors were not named as respondents in Carnahan’s cease and desist order.

Carnahan’s office initially launched its investigation into Neely after receiving information from one of his former employers, AXA Advisors. On July 29, 2009, Neely was barred by the Financial Industry Regulatory Authority (FINRA) from operating as a broker.

Neely, 56, faces a maximum penalty of 20 years in prison and/or fines up to $250,000, as well as mandatory restitution to his victims, according to the St. Louis Federal Bureau of Investigation. Sentencing is set for January 29, 2010.

Investors who had accounts with Stifel, Nicolaus & Co. or AXA Advisors are encouraged to contact us and tell us your story. You may have a viable claim to recover your losses. Please leave a message in the Comment Box below or on the the Contact Usform.

The Financial Industry Regulatory Authority (FINRA) has won approval from the Securities and Exchange Commission (SEC) to expand its BrokerCheck Service and make the disciplinary records of brokers permanently available online to the public.

Previously, a broker’s record generally became unavailable two years after he or she left the securities industry. FINRA estimates there are more than 15,000 individuals who have exited the securities industry after being the subject of a final regulatory action and whose disciplinary history is not currently available via BrokerCheck.

Disclosure records for former brokers will be available on BrokerCheck beginning Nov. 30.

“This is an important step for investors and for investor protection,” said FINRA Chairman and CEO Richard Ketchum. “Individuals previously barred by FINRA and other regulators have surfaced in a number of recent frauds in other parts of the financial industry that cost unsuspecting investors millions of dollars. It has never been more critical for investors to research the backgrounds of the financial professionals they deal with than it is today.”

In approving the BrokerCheck expansion, the SEC said “it is possible that a (former broker) could become a financial planner or work in another related field where his securities record would help members of the public decide if they should accept his financial advice or rely on his advice or expertise.”

In 2008, individuals used BrokerCheck to conduct 11.6 million reviews of broker or firm records. Investors can access BrokerCheck at www.finra.org/brokercheck.

Various independent broker-dealers that sold Medical Capital securities to investors are the subject of ongoing investigations, as well as class-action lawsuits and arbitration claims filed with the Financial Industry Regulatory Authority (FINRA). The cases themselves focus on the sales practices and due diligence of the broker/dealers that marketed and sold private securities known as Medical Capital Notes.

On July 16, 2009, the Securities and Exchange Commission (SEC) filed fraud charges against Medical Capital Holdings in connection to the sale of $77 million of private securities. On that same day, FINRA issued a “sweep notice” to obtain information from an undisclosed number of broker/dealers about sales of Medical Capital securities.

The SEC’s complaint alleges that Medical Capital and others defrauded investors by misappropriating about $18.5 million of investor funds and misrepresenting to investors that no prior offerings had defaulted or were late in making payments of principal and/or interest.

Based in Tustin, California, Medical Capital purchases accounts receivables of medical providers and then packages them as private investments. Over a six-year period, the firm raised approximately $2.2 billion from 20,000 investors through offerings of notes in Medical Provider Funding Corp. VI and earlier offerings made by five other wholly owned special-purpose corporations (SPCs). Those SPCs include Medical Provider Funding Corp. I, II, III, IV and V.

Today, all five SPCs are in default after failing to make interest and principal payments to investors.

On Sept. 18, 2009, a class action lawsuit – Case No: SACV 09-1084 – was filed in California on behalf of investors who purchased securities issued by Medical Provider Financial Corp. III, Medical Provider Financial Corp. IV, Medical Provider Funding Corp. V and/or Medical Provider Funding Corp. VI. In the complaint, broker/dealers Cullum & Burks Securities, Securities America, Ameriprise Financial and CapWest Securities are named as defendants. Among the allegations cited, the firms are accused of failing to properly investigate the securities and the track record of Medical Capital and its related entities

Currently, Maddox Hargett & Caruso P.C. is investigating potential claims to recover investor losses against various broker/dealers that sold Medical Capital securities. If you have questions about your Medical Capital investments, please contact us by leaving a message in the Comment Box below or on the Contact Us form.

Tom Hargett and Mark Maddox both mistakenly mentioned J.P. Turner in recent blog postings concerning Medical Capital Holdings.  We have learned that these posts were inaccurate, and we apologize to J.P. Turner and retract the statements made about the firm.

Federal regulators are suing Charles C. Slowey, Jr. and the companies he controls – Endeavor Partners, LLC and Endeavor Capital Management Group, LLC – along with Advanced Planning Securities (APS), Oldham Harris and brokers Edward Puttick, Gregory Oldham and Glenn Harris for allegedly swindling retirees and senior citizens out of nearly $12 million. The Securities and Exchange Commission’s complaint, filed Oct. 22, alleges that the individuals gained investors’ trust via free lunch seminars and then convinced them to invest in four questionable real estate securities known as the Endeavor Funds.

According to the SEC’s complaint, investors have lost most of the money they invested in the funds as a result of “false statements and omissions made by Slowey, misappropriation of investor funds by Slowey, large fees and commissions paid to Slowey, Advanced Planning Securities, Oldham Harris, and the failure of the highly risky investments made by the Endeavor Funds.”

The SEC also alleges that Advanced Planning Securities failed to conduct sufficient due diligence into the private placement securities its agents were selling and looked the other way regarding numerous red flags concerning Slowey and the Endeavor funds.

Information in the SEC’s complaint alleges that investors were promised a return of more than 50% on the sale of some properties in which they were investing. In addition, the SEC accuses Slowey of misappropriating more than $1 million of investor funds by charging excessive management fees and taking out an interest-free personal loan to purchase his own home.

Many of the investors to whom the investments were sold had limited financial means, according to the SEC, and few had previously invested in private placement securities or securities based on distressed or subprime mortgages.

When the funds began to experience obvious financial problems, the SEC alleges that Slowey continued to make false statements to investors. For example, the SEC says he specifically told one senior investor in Florida that his investment was safe, when in fact the funds had little money left at that time. Slowey told another senior investor that the funds would recover by the following year, even though he had no basis for making the prediction.

On other occasions, the SEC says Slowey asked investors to reinvest their maturing interest in the Endeavor Funds even though he knew that the funds had lost substantial sums of money and owned only a handful of properties that were worth far less than the $10 million initially deposited by investors.

The SEC’s complaint can be viewed here.

Our lawyers are actively advising individual and institutional investors in evaluating their legal options when confronted Endeavor investments. Leave a message below or via the Contact Us form. We want to counsel you on your legal options.

Ralph Cioffi and Matthew Tannin, the two former Bear Stearns executives who are on trial for allegedly lying to investors about the fiscal health of two hedge funds, will soon find out their fates. On Nov. 9, the month-long trial comes to a close, and a jury will begin deliberations on the charges of securities fraud, wire fraud, conspiracy and insider trading brought by the Office of the United States Attorney for the Eastern District of New York against the two men.

The charges against Cioffi and Tannin are tied to the management – and eventual implosion – of two Bear Stearns hedge funds known as the Bear Stearns High Grade Structured Credit Strategies Fund and the Bear Stearns High Grade Structured Credit Strategies Enhanced Leverage Fund.  Prosecutors contend Cioffi and Tannin told “black and white lies” to investors about the financial state of the two funds despite the fact they were seeing some of the worst market conditions on record.

Over the course of the past few days, prosecutors and defense counsel have presented their closing statements to the jury – and the differences in their approach are notable.

Assistant United States Attorney Ilene Jaroslaw provided the jury with a methodical chapter and verse of the mountain of lies and web of deception that resulted in more than $1.5 billion of investors’ capital being wiped out.  Meanwhile, counsel for Cioffi and Tannin responded in a way that can best be summarized as the “you should believe us and trust our interpretation of the facts because we’re Wall Street” defense.

Whether such a defense will resonate with members of the jury remains to be seen – as does the obvious question as to why Cioffi and Tannin chose not to testify in their own defense if, in fact, they had a plausible explanation for the explosive emails that are at the core of the government’s case.

We may never know that answer. But if we’ve learned one thing from the recent crisis on Wall Street, it’s this: When Wall Street tells us – either directly or through its hired guns – that we can and should trust it about anything, it’s a sure sign we need to button the pockets on the back of our pants and secure our wallets.  And fast.

Our affiliation of lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses.

Individual arbitration claims filed with the Financial Industry Regulatory Authority (FINRA) totaled 5,545 through Sept. 30 – up 60% from the same period last year. Linda Fienberg, who serves as president of dispute resolution for FINRA, told Barron’s last month that she expects to see 7,500 cases filed by the end of the year.

The record of cases filed was set in 2003, with 8,945 cases filed.

In other investor news, the proposed Investor Protection Act of 2009 is up for a vote on Nov. 4. The bill, among other things, would give the Securities and Exchange Commission (SEC) the ability to ban mandatory arbitration.

Separately, FINRA has expanded a pilot program that allows investors who are filing eligible claims the opportunity to select an arbitration panel composed of three public arbitrators instead of two public and one non-public.

In its second year, the program will expand from 11 to 14 broker/dealers, and the number of eligible cases will increase from 276 to 411, a rise of nearly 50%. Only the investor filing the claim can elect to participate in the program and the firms cannot choose which cases are eligible.

LPL Financial Corp. (LPL) will pay nearly $1.3 million in restitution to Montana investors plus a fine of $150,000 to the State of Montana under a settlement reached with the Montana Commissioner of Securities and Insurance. The restitution and fine are tied to alleged illegal activity on the part of a former LPL registered representative, Donald Chouinard, who is accused of operating a Ponzi scheme and the alleged failure of LPL to supervise him.

The settlement with LPL did not resolve any claims against Chouinard individually or his companies, which the Montana Department of Securities continues to pursue.

In September, the state of Montana issued a Temporary Cease and Desist Order against Chouinard and filed a Notice of Proposed Agency Action against him and his companies, DC Wealth Management and DC Associates. The action alleges that Chouinard and his companies committed securities fraud and conducted a Ponzi scheme involving Montana and Idaho investors who invested in what they thought was a “day-trading” program. In reality, however, the investors received proceeds taken from money contributed by newer investors.

Specifically, the Department’s action alleges Chouinard convinced one investor to obtain a $100,000 loan and invest with him because he could guarantee a high return in 30 days. Instead of investing the $100,000 in the “day-trading” program, Chouinard used $50,000 to pay off a previous investor, deposited $25,000 into his personal joint-checking account, and gave the other $25,000 to his attorney.

The Department also alleges that Chouinard traded investors’ accounts without their authorization, forged investors’ signatures to authorize certain trades, and failed to provide investors with statements or tax documents for their “day-trading” investments. Chouinard routinely informed the investors about the values of their investments orally or via email. The investors allege Chouinard misrepresented the values of their investments – in one case by as much as 10,000%.

The excessive trades resulted in thousands of dollars in commissions for Chouinard.

If you have suffered losses in LPL Financial and wish to discuss your situation, please leaving a message in the Comment Box below or via the Contact Us form. We want to counsel you on your legal options.