SEC Category Archives — Page 10 of 13 — Investor Lawyers Blog Published by New York, New York Investor Attorneys

Published on: May 21, 2012

Inland American REIT Under SEC Investigation; Investors Could Recover Losses in Securities Arbitration

Securities arbitration lawyers are currently investigating possible claims on behalf of investors who suffered losses as a result of their purchases of Inland American Real Estate Trust Inc. through a full-service brokerage firm. Inland American is the largest non-traded REIT in the industry. Recently, it has been reported that Inland American is under investigation by the U.S. Securities and Exchange Commission (SEC). The SEC is investigating whether there were violations of federal securities laws regarding Inland American’s fees and administration.

Inland America REIT Under SEC Investigation, Investors Could Recover Losses in Securities Arbitration

Inland American’s quarterly report stated that the company “has learned that the SEC is conducting a nonpublic, formal fact-finding investigation to determine whether there have been violations of certain provisions of the federal securities laws.” The potential violations mentioned in the report pertain to “the business manager fees, property management fees, transactions with affiliates, timing and amount of distributions paid to investors, determination of property impairments, and any decision regarding whether the company might become a self-administered REIT.”

As a public non-traded REIT, sales of Inland American may have carried a high commission which motivates brokers to make the recommendation to investors despite the investment’s unsuitability. The commission on a non-traded REIT is often as high as 15 percent. Non-traded REITs, such as Inland American, carry a relatively high dividend or high interest, making them attractive to investors. However, non-traded REITs are inherently risky and illiquid, which limits access of funds to investors, according to stock fraud lawyers.

Published on: May 16, 2012

Investors Could Recover Losses from Inverse ETF, ETN Investments

by InvestorLawyers

ETFs (exchange traded funds) and ETNs (exchange traded notes) have recently gained a significant amount of attention in the securities industry. Securities fraud attorneys have been filing arbitration claims on behalf of investors who were unsuitably recommended ETFs or ETNs and suffered significant losses as a result. The Financial Industry Regulatory Authority (FINRA) has started to increase its efforts in regulating inverse ETFs and ETNs, hoping to ensure that unsophisticated investors are not being sold these complicated products.

Investors Could Recover Losses from their Inverse ETF and ETN Investments

In connection with FINRA’s efforts, UBS Financial Services, Morgan Stanley, Wells Fargo and Citigroup Global Markets Inc. have agreed to pay $7.3 million in fines and $1.8 million in restitution, totaling $9.1 million. This will settle allegations that they sold inverse and leveraged ETFs to clients for which the investment was unsuitable. According to FINRA, these four firms did not have a “reasonable basis” for the recommendation of the securities to certain clients and also failed to provide adequate supervision. For more than a year, from January 2008 through June 2009, $27 billion in inverse ETFs were bought and sold by the firms.

With ETFs and ETNs now being recognized as a significant problem, we are likely to see more sanctions leveled by FINRA. According to stock fraud lawyers, the SEC ceased approving applications for ETFs in March 2010, when those ETFs used derivatives. Furthermore, the SEC indicated that it wanted to determine if leveraged and inverse ETFs warranted additional investor protection. There is concern, from both FINRA and the SEC, that inverse and leveraged ETFs are being confused with traditional, less risky ETFs.

Published on: May 2, 2012

Investors Beware of Pre-IPO Fraud, Warns SEC

by InvestorLawyers

The Securities and Exchange Commission (SEC) recently posted an alert on its website which warns investors about scams that offer shares of popular tech companies, like Facebook and Twitter, that have not yet been released to the public. According to investment fraud lawyers, while some pre-IPO shares offerings are legitimate, and are not uncommon, they are typically limited only to sophisticated investors.

Investors Beware of pre-IPO fraud, Warns SEC

According to the SEC, the U.S. security regulator is “aware of a number of complaints and inquiries about these types of frauds, which may be promoted on social media and Internet sites, by telephone, email, in person or by other means.” In recent years, pre-IPO schemes have been a cause for concern, according to the SEC. According to securities arbitration lawyers, investors may be tempted by offerings that capitalize on the popularity of media sites like Facebook.

An order in a bid to stop allegedly fraudulent securities sales of an investment vehicle was issued by the U.S. District Court for the Southern District of Florida in Miami in early April 2012. The investment vehicle claimed to hold pre-IPO shares of Facebook.

Published on: April 27, 2012

FINRA Cracking Down on Leveraged and Inverse ETFs

by InvestorLawyers

According to investment fraud lawyers, the Financial Industry Regulatory Authority (FINRA) will bring enforcement cases related to the selling of exchange-traded funds (ETFs) that were not appropriate for customers, against certain brokerages. Bradley Bennett, FINRA’s enforcement chief, said this month that the cases will involve leveraged and inverse exchange-traded funds, and the unsuitable sales of said funds. Furthermore, allegations of inadequate or improper training for brokers who sell exchange-traded funds will be involved in the cases.

FINRA Cracking Down on Leveraged and Inverse ETFs

Securities fraud attorneys say that leveraged and inverse ETFs amplify short-term returns. They do so by using derivatives and debt. These investments are more suitable for professional traders and are usually unsuitable for long-term retail investors. These investments only make up $29.3 billion of the $1.15 trillion United States ETF market. FINRA has raised concerns that these products are being sold to long-term retail investors, despite the risk involved when holding leveraged and inverse ETFs for more than one day.

“We don’t have a qualm with the product,” Bennett says. “We just want to make sure that people who are selling them understand them.”

Published on: April 26, 2012

News: SEC Bars Penny Stock Promoter

by InvestorLawyers

On April 10, 2012, the United States Securities and Exchange Commission (SEC) announced its decision to enjoin Timothy Page of Malibu, Calif., Ryan Reynolds of Dallas, Phillip Offill Jr. of Dallas, Steven Fischer of Bonita Springs, Fla., Page Properties LP, RSMR Capital Group Inc. and ATN Enterprises LLC from violating Section 5 of the Securities Act of 1933. The decision was passed by the Honorable Sidney A. Fitzwater of the United States District Court for the Northern District of Texas.

News: SEC Bars Penny Stock Promoter

Stock fraud lawyers say that according to the SEC’s complaint, these individuals and entities allegedly violated securities laws. They did so by acting as underwriters in order to engage in a scheme that would allow them to evade securities registration requirements. This was accomplished by the selling and offering of securities to at least one of six companies where no registration statements were available to provide information to public investors.

Penny stocks are equity securities that are traded at a price that is less than five dollars per share. The six companies issued these stocks and, in the over-the-counter market, initiated public trading under the following: Ecogate Inc. (ECGT), American Television & Film Company (ATFT), Auction Mills Inc. (AUML), Vanquish Productions Inc. (VQPI), Media International Concepts Inc. (MEIC) and Custom Designed Compressor Systems Inc. (CUPY).

Published on: April 20, 2012

News: FINRA Fines Goldman Sachs Over ‘Trading Huddles’

by InvestorLawyers

According to an announcement on April 12, 2012, from the Financial Industry Regulatory Authority (FINRA), Goldman Sachs & Co. has been fined $22 million for “failing to supervise equity research analyst communications with traders and clients and for failing to adequately monitor trading in advance of published research changes to detect and prevent possible information breaches by its research analysts.” A related settlement with Goldman was announced by the Securities and Exchange Commission on the same day. Securities fraud attorneys say Goldman will pay $11 million each to the SEC and FINRA.

News: FINRA Fines Goldman, Sachs over “Trading Hurdles”

Goldman established “trading huddles” as a business process in 2006, according to FINRA’s statement. These “trading huddles” were designed to allow weekly meetings for research analysts, in which they would share trading ideas with traders for the firm. These traders worked with clients and, occasionally, equity salespersons. In addition, analysts apparently discussed specific securities while they were considering changing the conviction list status or published research rating of the security. Clients had access to the “trading huddle” information and were not restricted from direct participation through calls placed by analysts to high priority clients of the firm.

Unsurprising to investment fraud lawyers, a significant risk was created by trading huddles: material non-public information could be disclosed by analysts. Such information includes conviction list status and rating changes. Despite this risk, Goldman failed to have adequate controls to monitor communications before and after the trading huddles. Furthermore, an adequate monitoring system was not in place to detect possible trading in advance of conviction list and research rating changes in proprietary or employee training, institutional customer or client-facilitation and market-making accounts. Had these practices been allowed to continue, insider trading could have resulted, according to securities fraud attorneys.

Published on: March 29, 2012

Promissory Note Scams: What You Need to Know

by InvestorLawyers

With promissory note scams on the rise, investors need to know both how to spot them and when they need to contact a stock fraud lawyer if they suspect fraud has occurred. Promissory notes are a type of debt sometimes used by companies in order to raise money. Through the note, the company promises to return the investor’s principal and pay fixed interest amounts. They have set terms and repayment periods that should be stated specifically in the note.

Promissory Note Scams: What You Need to Know

According to securities arbitration lawyers, fraudulent promissory notes come in three main forms:

Some are fraudulent from the beginning and exist only to convince investors they are entering into a contractual arrangement when, in reality, they are not.

Published on: February 13, 2012

Broker Misconduct: Illegal Transfer of Funds Through Email Hacks

by InvestorLawyers

On January 27, 2012, the Financial Industry Regulatory Authority (FINRA) issued an Investor Alert warning investors of fraudsters compromising investor email accounts to send trading instructions as a way to commit fraud. According to FINRA, fraudsters will use the email account to gain access to information that they can then use to request wire transfers to overseas accounts. Because this form of fraud can be committed by stock brokers and traders, stock broker fraud attorneys are encouraging defrauded investors to come forward with potential claims.

Broker Misconduct: Illegal Transfer of Funds Through Email Hacks

In some cases, firms failed to verify the instructions via telephone but released the funds anyway. This violation in procedure may entitle defrauded investors to a recovery of losses through securities arbitration. According to the SEC, four brokerage firms have been charged for allowing traders to trade in the U.S. securities market, despite the fact that they were unregistered. In the same case, Igors Nagaicevs, a trader, was charged with making $874,896 through unauthorized purchases and sales. He also broke into accounts 159 times from 2009 to August 2010. According to the SEC, he cost investors possibly over $2 million.

“Nagaicevs engaged in a brazen and systematic securities fraud, repeatedly raiding brokerage accounts and causing massive damages to innocent investors,” says the director of the SEC’s San Francisco regional office, Marc J. Fagel.

Published on: January 25, 2012

Securities Arbitration May be Only Choice for Defrauded Carlyle Group Shareholders

by InvestorLawyers

Earlier this month, a registration statement was filed with the Securities and Exchange Commission stating that The Carlyle Group L.P. shareholder disputes must be settled in securities arbitration proceedings conducted in Delaware. On January 10, 2012, the amended registration statement was filed as part of the company’s plan to raise a public offering this spring amounting to roughly $1 billion.

Securities Arbitration may be Only Choice for Defrauded Carlyle Group Shareholders

In the landmark arbitration ruling by the Supreme Court in AT&T Mobility v. Conception, the decision was made that courts could not refuse to enforce mandatory arbitration provisions in a consumer agreement. This decision was made on the grounds that the Federal Arbitration Act preempts California law, which viewed these agreements as unconscionable. It is not clear how this ruling applies to shareholder litigation, but the Carlyle Group wants to find out.

The Carlyle IPO is a partnership offering limited partner interests for sale. Because of the partnership structure, common unitholders are more limited than normal shareholders. According to the registration document, unitholder disputes must be conducted by three arbitrators in Wilmington Delaware in individual arbitrations. In the event that the amount at issue is under $3 million, only one arbitrator is necessary.

Published on: January 20, 2012

Study Explores Connection Between “Overly Optimistic” Disclosures and Investor Claims

by InvestorLawyers

A recent study published in Accounting Review explored whether firms that use “overly optimistic” language in their disclosures are more likely to be sued by investors. While it is unreasonable to expect a firm to deliberately use language that will cost them business, disclosures should always be grounded in reality — and there is a significant difference between “optimistic” and “overly optimistic.” Overly optimistic disclosures that are not grounded in reality are often cited in securities arbitration claims.

Study Explores Connection Between “Overly Optimistic” Disclosures and Investor Claims

The final sample of the study included 165 lawsuits. All the lawsuits were filed between 2003 and 2008. Types of disclosures that could be viewed as “overly optimistic” included SEC filings, earnings announcements, press releases, presentations at conferences and media interviews. Once the researchers controlled for performance-related and other traits, they found that substantially more optimistic language in disclosures was used by firms that had been sued. According to the authors of the study, “These results indicate a strong link between disclosure tone and litigation. The difference in tone between sued and non-sued firms’ disclosures is consistent with plaintiff allegations that managers issued overly optimistic disclosures during the damage period.”

While a significant portion of securities litigation cases cite material misrepresentations as part of the firm or broker misconduct, “a victorious securities lawsuit requires plaintiffs not only to provide evidence of a material misrepresentation but also to prove intent to deceive,” the authors note.