In a settlement announced Wednesday, Citigroup Global Markets has agreed to pay a $30 million fine to Massachusetts regulators to settle charges that a former Citi analyst in Taiwan improperly shared research with four major clients one day before making that information available to all of the firm’s clients.

Massachusetts Secretary of State William Galvin said in a statement that by giving the information to a select large U.S. hedge fund and institutional clients in advance, it allowed them to profit from weaker sales of Apple iPhones.

The $30 million fine is one of the biggest that state securities regulators have collected to date and more than 15 times the $2 million fined to Citi one year ago for improperly disclosing research on Facebook’s initial public offering.

As reported by Reuters, former Citigroup analyst Kevin Chang emailed the unpublished research about Hon Hai Precision Industry Co., a major supplier of Apple Inc. iPhones, to SAC Capital Advisors (a group of hedge funds founded by Steven A. Cohen in 1992), T. Rowe Price, Citadel and GLG Partners.

Among other things, Chang’s research included lower order forecasts for Apple’s iPhones in the first quarter of 2013, which would have had a detrimental effect on Apple, Massachusetts Secretary of State William Galvin said.

After receiving the information from Chang, SAC, Citadel and T. Rowe Price all sold Apple stock, the complaint alleges.

Chang, who worked for Citigroup in Taiwan, was terminated last month, the complaint noted.

Swiss banking giant UBS has had its share of spotlight moments in recent years – and many have been anything but positive. Last year, the firm agreed to pay $1.5 billion to settle claims that UBS traders and managers had manipulated global benchmark interest rates. The bank also paid nearly $27 million in 2013 to settle accusations by the Securities and Exchange Commission (SEC) that it and two of its executives in Puerto Rico had made misleading statements to investors that the SEC said concealed a liquidity crisis in UBS funds.

Another blight on UBS’ record concerned former UBS trader Kweku M. Adoboli, who was sentenced in 2013 to seven years in jail after having been found guilty of fraud that subsequently led to a multibillion-dollar trading loss at UBS.

Now there appears to be more trouble brewing for UBS. This time it has to do with the bank’s business in Puerto Rico. Puerto Rico has long been a haven for the wealthy because residents do not pay federal income taxes. A number of big investment banks do business in Puerto Rico, but UBS is one of only a handful with a substantial team of brokers on the island. As reported in a recent story by Susanne Craig in the New York Times, UBS maintains five branches in Puerto Rico, with 132 brokers who manage money – roughly $10 billion – for the island’s wealthy investors.

In many instances, UBS put this money into mutual funds that the bank itself managed. Such a practice can be lucrative business as both the broker and the bank receive a commission on each sale, with the bank taking in a fee for managing the fund.

Because of recent economic woes in Puerto Rico, UBS customers have seen the value of their holdings fall dramatically. Many of these investors had bought heavily into highly leveraged bond funds run by UBS and were encouraged by its brokers to borrow even more money to invest in those funds, according to the New York Times story. In some cases, “money was lent improperly, exacerbating current losses, according to UBS employees in the region close to the situation, who spoke on the condition that they not be named because of a company policy against speaking to the news media.”

Now, a number of UBS clients have been forced to liquidate hundreds of millions of dollars in holdings in these funds in order to meet margin calls. UBS, meanwhile, says it has launched an internal investigation regarding the lending practices of some of its brokers in Puerto Rico.

One UBS broker reportedly already has been placed on administrative leave after recent claims came to light he had encouraged his clients to buy securities on lines of credit, which is in violation of the bank’s policy.

As reported in the New York Times story, UBS’ funds had once enjoyed strong returns for years and paid healthy dividends. The Tax Free Puerto Rico Fund II (total assets: $357 million) has a five-year return of 6.8 percent, according to UBS documents.

But in the face of Puerto Rico’s continuing economic downturn, UBS customers have seen the value of their holdings fall. The fund’s shares don’t trade on an exchange, but UBS documents show it had a per-share value of $6.16 in early September, down from $7.75 a share at the end of June. Brokers in the region say the fund’s value has fallen even further in recent weeks, according to the New York Times.

The funds that UBS manages are highly leveraged. According to the New York Times, the Tax Free Puerto Rico Fund II has a leverage ratio of 53%. That means for every dollar of a customer’s assets it holds, it has roughly another dollar of assets bought with borrowed money. UBS’s other Puerto Rico funds are similarly leveraged, according to firm documents.

By comparison, the average leverage ratio on funds similar to UBS’ in the United States is roughly 22%, according to Morningstar.

The New York Times story points out that UBS’ troubles on the island have been exacerbated by the fact that many clients took out margin loans to buy into the funds. (UBS brokers who encouraged the use of credit lines had good reason to do so; they receive commissions for securities bought on the credit lines and make additional money if the customer uses the credit line.)

The New York Times story goes on to report that according to local brokers and a lawyer representing some UBS clients who may sue UBS, some investors were encouraged by their brokers to borrow on credit lines.

You can read the entire New York Times story here.

The Financial Industry Regulatory Authority (FINRA) has issued a new investor alert that cautions investors about investing in private placements.  A private placement is an offering of a company’s securities that is not registered with the Securities and Exchange Commission (SEC) and is not offered to the public at large.

“Investors should understand that many private placement securities are issued by companies that are not required to file financial reports, and investors may have problems finding out how the company is doing. Given the risks and liquidity issues, investors should carefully assess how private placements fit in with other investments they hold before investing,” said Gerri Walsh, FINRA’s Senior Vice President for Investor Education, in the alert titled Private Placements—Evaluate the Risks before Placing Them in Your Portfolio.

Among other things, FINRA advises investors to do the following before investing their money in a private placement investment:

*Carefully review the private placement memorandum or other offering document.

*Find out as much as you can about the company’s business and understand how and when you might liquidate your private placement securities.

*Ask your broker what information he or she was able to review about the issuing company and this private placement.

*Be extremely wary if you receive paperwork to sign about a private placement without having a personalized discussion with your broker about why such an investment is right for you.

*Be extremely wary of private placements you hear about through spam emails or cold calling. They are very often fraudulent.

Eighty percent of Americans have found themselves targeted by investment scammers, according to a new report from the Financial Industry Regulatory Authority (FINRA) Investor Education Foundation. Findings in the study also showed that 40 percent of respondents were unable to identify even the most classic red flags of financial fraud.

For example, many of those surveyed lacked an understanding of reasonable returns on investments, leaving them vulnerable to fraudulent pitches that promised unrealistic or guaranteed returns, the study said.  In fact, more than 4 in 10 respondents found an annual return of 110% for an investment appealing and 43 percent found “fully guaranteed” investments to be appealing. In reality,  no investment is without risk and 100% annual returns are highly improbable. Such promises are common pitches of fraudsters.

Con artists are adept at using a variety of tactics to get their hands on consumers’ money. The FINRA Foundation’s survey found that 64 percent of those surveyed had been invited to an “educational” investment meeting that was likely a sales pitch. Additionally, 67 percent of respondents said they had received an email from another country offering a large amount of money in exchange for an initial deposit or fee.

Older Americans are particularly vulnerable to fraud scams. The FINRA study found that Americans age 65 and older were more likely to be targeted by fraudsters and more likely to lose money once they were targeted. Upon being solicited for fraud, older respondents were 34% more likely to lose money than respondents in their forties, the study said.

This quiz from ABC News lets you test your awareness about financial fraud.

An Indiana-based company called E-Biofuels has been accused by federal officials of allegedly operating the largest tax and securities fraud scheme in the state’s history. U.S. Attorney Joe Hogsett says the scam cost the government and investors more than $100 million.

According to the charging documents, instead of actually manufacturing biofuel, E-Biofuels bought cheaper fuel and sold it to customers as its own product for a profit. In doing so, E-Biofuels was able to fraudulently collect about $35 million in federal tax breaks that are supposed to be reserved for pure biofuel producers.

Read the indictment here.

Two New Jersey-based companies, Caravan Trading Co. and CIMA Green, are named in the charging documents for allegedly conspiring with E-Biofuels to pretend that the lower-grade biofuel was a high-quality product from the E-Biofuels Middletown facility. Also named in the lawsuit is Jeffrey Wilson, former president and CEO of Imperial Petroleum, an Evansville-based publicly traded company that bought E-Biofuels in May 2010.

In total, six people, including Wilson, three E-Biofuels employees and two employees from the New Jersey companies, could face up to 20 years in federal prison on some counts, as well as significant fines, the U.S. attorney’s office said.

As reported Sept. 18 by the Indianapolis Business Journal, the Securities and Exchange Commission (SEC) launched an investigation last year into E-Biofuels LLC in Middletown, Indiana. The company filed for bankruptcy in April 2012.  At the time, the company said it was about $17 million in debt. E-Biofuels’ parent company, Evansville-based Imperial Petroleum Inc., received subpoenas from the SEC and a grand jury that May, according to a regulatory filing.

Charging documents cite 88 counts against seven people and three corporations. Among the charges are allegations of conspiracy, wire fraud, false tax claims, false statements under the Clean Air Act, obstruction of justice, money laundering and securities fraud.

Brokers/dealers could soon be forced to reveal recruiting incentives to their clients if the Financial Industry Regulatory Authority (FINRA) has anything to say about it.

As reported Sept. 15 by Investment News, the proposed regulation will be a topic of discussion on FINRA’s agenda this week. Under the original proposal that was developed in January and then postponed for action by FINRA’s board in July, brokers would be required by FINRA to disclose any enhanced recruitment compensation to clients that they had solicited for one year following their transfer to a new firm. The compensation outlined in the proposal included signing bonuses, upfront or back-end bonuses, loans, accelerated payouts and transition assistance, among other arrangements.

According to the Investment News article, FINRA CEO Richard G. Ketchum said the proposed rule is designed to make potential conflicts of interest more transparent to consumers.

Indeed, in a speech given March 14, Ketchum stated that investors have a right to be informed of conflicts involving recruitment packages when deciding to move their account, especially if that decision translates into having to sell off proprietary products and incurring a possible tax hit.

“When a broker moves to a new firm and calls a customer and says, ‘You should move your account with me because it will be good for you,’ the customer needs to know all of the broker’s motivations for moving,” Ketchum said.

The initial proposal generated 65 comment letters, with many independent broker/dealers voicing opposition. If FINRA’s board now gives its approval to the proposal, FINRA staff can then file rules with the Securities and Exchange Commission (SEC).

Investment scams targeting the elderly are a thriving business for some unscrupulous individuals and so-called companies posing as legitimate financial firms. From  Bernie Madoff, to Medical Capital Holdings, to Tim Durham and, more recently, Indiana investment adviser Lynn Simon.

Simon of Evansville, Indiana, was arrested this spring on charges that he swindled more than $1 million from at least a dozen investors. He now faces three counts of securities fraud, Class B felonies, and a charge of unlawful sale of a security, a Class C felony.

Last week, Simon surrendered at the Vanderburgh County Jail.

According to court documents, several investors who lost money in Simon’s “investments” were elderly. One of the investors included a couple who lost $50,000 that they had planned to use for their retirement years.

The investigation into Simon came to a head in May after an Evansville resident filed a complaint with the Indiana Secretary of State’s office stating that he had stopped receiving interest payments on his investment with Simon. Court records show that Simon’s wife told this investor that Simon had been missing for two weeks.

Simon was a registered investment adviser with CFD Securities in Kokomo, Ind., and operated an office in Evansville under the name Financial Security Planning. Court records show that he was the sole owner of Financial Security Planning, as well as The Insurance Shoppe.

As reported by the Evansville Courier & Press, Simon’s arrest affidavit details an investment scheme involving investments for a private fund allegedly operated by Simon. Investors who invested in the fund were reportedly promised higher rates of returns on their investments. In some instances, the return rates were as high as 11%.

Investigators say that as part of the scheme, Simon issued typewritten promissory notes showing a rate of return at a specified maturity date. Simon did not register any of the investments that were sold under the Financial Security Planning name with the state of Indiana.

In addition, bank records did not show any money going to investments or insurance companies as purported by Simon, the Evansville Courier & Press story said. Instead, according to the affidavit, the records showed investor money going in and then either going to other investors or being withdrawn by Simon.

Investigators also say that Simon was the only person who was authorized to use the account. In addition, the records showed more than $42,000 had been withdrawn on the day before Simon’s wife first reported him missing.

Simon’s arrest serves as a cautionary reminder on the importance of thoroughly researching any investment opportunity, as well as the person or company presenting that investment. In the end, the extra homework can go a long way in preventing financial devastation.

The designations used by financial advisers can confuse even the most sophisticated investor, let alone individuals with little knowledge about financial products or investing. This confusion has led the Securities and Exchange Commission (SEC) and the North American Securities Administrators Association to issue an investor notice about the myriad of financial titles circulating today.

The joint bulletin, which was released yesterday, stressed that financial professional designations and licenses are not the same and that investors should never rely solely on a title to determine whether a financial professional has the expertise they need.

Indeed, some financial titles can simply be purchased or even made up by financial professionals who hope to imply that they have certain expertise or qualifications, says NASAA. In most cases, such titles are generally marketing tools and not granted by a regulator.

Earlier this year, the Consumer Financial Protection Bureau released a report focusing on the proliferation of “senior designations.” The report stated that some financial professionals had taken advantage of elderly consumers by using senior qualifications and selling “inappropriate and sometimes fraudulent financial products and services.”

The SEC/NASAA bulletin offers a number of questions that investors can ask to determine whether a financial adviser has the expertise he or she is touting. Among the questions and recommendations:

What is the name of the organization that awards the financial professional title?

What training, ethical, and other requirements were performed to receive the financial professional title?

Did you have to take a course and a test?

Does the financial professional title require a certain level of work or educational experience?

To maintain the financial professional title, are you required to attend periodic continuing education courses?

The notice also suggests that investors confirm any information provided by the financial professional about his or her financial professional title.  This information may be available on the Web site of the organization that awards the financial professional title. Investors also can check the Web site of the Financial Industry Regulatory Authority (FINRA) and the “Understanding Investment Professional Designations” section.

Finally, the notice encourages investors to contact the organization issuing the financial title to confirm that the financial professional is currently authorized to use the title and to determine if they have any disciplinary history.

 

Five years ago on Sept. 15, 2008, the unthinkable happened: Lehman Brothers filed for bankruptcy and the worst financial crisis since the Great Depression was set in motion. As the excesses of Wall Street came to light, countless investors lost their life savings. The question now is what have we learned and could history repeat itself?

To be sure, several reforms –  including the Dodd-Frank Wall Street Reform and Consumer Act and the Troubled Asset Relief Program – have been created to improve regulatory oversight  of Wall Street and prevent a repeat performance of the 2008 financial meltdown. But are they enough? Many financial experts say “no.”

One view comes from former Treasury Secretary Henry Paulson, who recently told a group of bankers and economists that many of the factors that led to the financial crisis of 2008 remain today.  As reported Sept. 9 by Bloomberg Businessweek, when asked whether another crisis could, in fact, occur, Paulson responded with: “The answer, I’m afraid, is yes.”

A recent article by USA Today also addresses the effectiveness of the steps that have been taken since 2008 to restore financial stability to the nation’s financial markets. In the story, Sheila Blair, who served as chairperson of the FDIC in 2008, “warned that the U.S. stock and bond markets have grown overvalued in response to low interest rates and the Federal Reserve Board’s policy of quantitative easing – buying Treasury bonds and other government securities from financial markets in a bid to promote more lending and liquidity. The Fed has signaled it could start tapering the program as early as this month.”

Adding to the gloomy forecast of whether another financial meltdown could occur is the fact that the financial instruments – i.e. collateral debt obligations – largely responsible for bringing down Lehman Brothers appear to be staging a comeback on Wall Street. CDOs are the riskiest, most complex of asset-backed securities. Collateralized debt obligations pool bonds and offer investors a slice of the pool. The higher the risk, the more a CDO pays. To date, $44 billion worth of CDOs have been sold, putting this part of the structured finance business on course for its biggest year since 2007, said the industry group SIFMA in a recent USA Today article.

With Grandparents Day approaching this Sunday, the Better Business Bureau is warning seniors to be on the lookout for a fraud scheme commonly referred to as the “Grandparent Scam.”

The scam typically works as follows: A grandparent receives a phone call late at night from the scam artist who claims to be one of his or her grandchildren. The phony grandchild is in a panic, saying that it’s an emergency situation and he/she needs money immediately. The sense of urgency that the scam artist creates makes the concerned grandparents act quickly – and all too often without verifying who is actually calling.

Recent research from the Consumer Sentinel Network shows a steady increase in impostor scam reports over the past several years, from just above 60,000 in 2010 to close to 83,000 in 2012.  The Grandparent Scam is one of the most common types of impostor scams targeting senior citizens.

And while the Grandparent Scam has been around for years, it has become more sophisticated thanks to the advent of social media. Now, scam artists have the Internet and other Web tools and programs at their disposal not only to more easily uncover personal information about their targets but also to make their impersonations that more believable.

Another common fake scenario associated with the Grandparent Scam includes the scam artist getting the grandparent to wire or send money on the pretext that the victim’s child or another relative is in the hospital and needs the money. Sometimes the scam artist might call and pretend to be an arresting police officer, a lawyer, or a doctor at a hospital. The phony grandchild may talk first and then hand the phone over to an accomplice of the impersonator to add further “credibility” to the scam.

The BBB offers the following tips to avoid becoming a victim of the Grandparent Scam:

Be skeptical. Without revealing too much personal information yourself, ask questions that only the grandchild could know the answer to. Examples include the name of a favorite pet, a favorite dish or what school they attended. Your loved one should not get angry about you being too cautious.

Verify information. Check with the parents to see if their child is really travelling as they say they are.

Don’t wire money. Never use a transfer service to send money to someone you haven’t met in person or for an emergency you haven’t verified is real.

If you or a loved one becomes a victim to an imposter scam, report the incident immediately to local police and your state Attorney General’s office.