investment attorney

Published on: December 8, 2011

Western Pacific Facing Charges of Hedge Fund Fraud

The Securities and Exchange Commission (SEC) has charged Western Pacific Capital Management LLC and its president, James O’Rourke, with securities fraud. The California-based firm allegedly materially represented the liquidity of a hedge fund and failed to disclose to clients a conflict of interest related to the fund. Stock fraud lawyers are watching this and other hedge fund fraud cases in which investors may be seeking to reclaim their losses.

Western Pacific Facing Charges of Hedge Fund Fraud

The conflict of interest occurred when O’Rourke and the firm urged their clients to invest in a security on which they would earn a 10 percent commission. In addition, they did not register as a broker, did not provide written disclosure, did not properly redeem the interest of one hedge fund investor before another, and omitted and misstated aspects of the hedge fund’s liquidity. The security in question was stock offered by Ameranth Inc. and sales took place in 2005 and 2006. Investments made by Western Pacific clients earned the firm $450,495 in “success fees.” In addition, from 2005 to 2008, O’Rourke and Western Pacific stated that their hedge fund, The Lighthouse Fund LP, consisted of only 25 percent illiquid assets when, in truth, it consisted of 90 percent illiquid securities.

One investor, who did not want the $800,000 of Ameranth stock he currently owned, was given his interest in cash by O’Rourke after Western Pacific used the Lighthouse Fund to resolve the dispute. This took place ahead of a different client that had requested a full redemption previously, thus the redemption of interest did not take place in the proper order.

Published on: December 7, 2011

Fake State Securities Commission Website Dupes Investors

by InvestorLawyers

It is crucial that investors who believe they have been the victim of securities fraud contact a legitimate investment attorney. Many investors learned this lesson the hard way recently when they were duped by a “State Securities Commission” website copycat. In November 2011, the North American Securities Administrators Association (NASAA) announced that the “State Securities Commission” website operator must cease operations because it misappropriated NASAA content. Furthermore, it appeared that the website was created as a way to dupe investors.

Fake “State Securities Commission” Website Dupes Investors

According to NASAA President and Assistant Director of the Nebraska Department of Banking and Finance Bureau of Securities, Jack Herstein, “Several fake regulator websites have been brought to the attention of state and federal securities regulators in recent years. Many of these sites purport to offer relief to investors. In reality, they are fronts for con artists posing as regulators.”

Because the site contains NASAA investor alerts and news releases that have been slightly modified, Herstein says that the NASAA is concerned its reputation for investor protection is being used by con artists to lure investors into a scheme. Furthermore, the site makes claims of reputable associations that are misleading at best, such as the statement made by the site that it was charted by Congress. According to Herstein, “This information is patently false. Cons will go to great lengths to make themselves appear legitimate.”

Published on: December 5, 2011

FINRA Ruling: Ten Individuals, Eight Firms Sanctioned

by InvestorLawyers

Investment attorneys have been on the lookout for investors who have been wronged and suffered losses as the result of brokers or firms misrepresenting and/or recommending private placements without a reasonable basis. On November 29, the Financial Industry Regulatory Authority (FINRA) announced that it would sanction ten individuals and eight firms for doing just that. In addition, FINRA ordered a total of more than $3.2 million in restitution.

According to FINRA’s press release, “the broker-dealers did not have adequate supervisory systems in place to identify and understand the inherent risks of these offerings and, as a result, many of the firms failed to conduct adequate due diligence of these offerings. In addition, some of the firms did not have reasonable grounds to believe that the private placements were suitable for any of their customers.”

This is not the first time that firms have been punished for this type of securities fraud — and it won’t be the last. FINRA sanctioned seven individuals and two firms in April 2011 and, as was seen in the earlier blog post, “A Notice to LaeRoc Income Funds Investors,” future securities arbitration against LaeRoc may involve similar misconduct.

Published on: December 2, 2011

Have You Been the Victim of Trading Seminar Investment Fraud?

by InvestorLawyers

Investment seminars have grown in popularity as a result of the rocky market and concern investors are feeling. While investment seminars can be a place to receive sound investment advice, some of them have only one purpose: to make you the victim of securities fraud. For this reason, a growing number of investors end up seeking the help of an investment attorney after losing money as a result of trading seminar investment fraud.

Have you been the Victim of Trading Seminar Investment Fraud?

The concern over these seminars is so great that an Investor Alert was recently issued by the SEC’s Office of Investor Education and Advocacy on the subject. If you made investments as a result of an investment seminar you attended and incurred losses as a result, the following warning signs may indicate that you were the victim of trading seminar investment fraud:

1. Did they claim that the trading strategies being presented were “simple” or “easy?” If so, there is a problem. The environment for securities transactions is a complex one and therefore transactions are not easy or simple.

Published on: December 1, 2011

Investment Fraud: Selling Away

by InvestorLawyers

There are many types of selling away schemes, and these schemes can result in significant — and sometimes complete —investor losses. However, with the help of an investment attorney, investor losses can be recovered through securities arbitration.

Investment Fraud: Selling Away

Selling away occurs when a broker or investment adviser sells an investment to a client that is not included in the client’s account or in the investment products that are offered by the firm. These private securities often include investments in private placements, private non-traded REITs, privately-held companies, limited partnerships, real estate and promissory notes. While all of these private securities can be real investments, they are sometimes used as a means for defrauding clients.

If a broker wants to complete a private securities transaction, he or she must provide the firm with written notice that details the transaction, and the transaction must be approved by the firm. If the transaction is not approved by the firm, the broker cannot participate in any way with the transaction. If the broker does not comply with the firm’s order, or does not attempt to gain approval, “selling away” has occurred.

Published on: November 30, 2011

Investment Fraud: Unauthorized Trading

by InvestorLawyers

Unauthorized trading, a form of broker misconduct that occurs when a broker makes a trade without the investor’s consent, can be a valid claim for securities arbitration. However, there is more than one way for unauthorized trading to be committed. In one way, the broker may believe that the transaction is suitable for their client but can’t or doesn’t contact the investor before making the trade. However, in other circumstances, the broker may make the trade and then try to convince the investor to consent to the trade — even though it’s after the fact, which the broker does not disclose. This second scenario is especially tricky because if the client then consents to the trade, the unauthorized trading may go unnoticed unless the client is careful to check the dates of transactions on their monthly statements.

Investment Fraud: Unauthorized Trading

The following suggestions will help you prevent unauthorized trading and determine if you have been a victim of unauthorized trading:

1. Take notes! This can be especially helpful in determining if you have been a victim of the second method of unauthorized trading described above. It is important to keep careful notes of all conversations between you and your broker. Notes should include dates, times, what was discussed and what your instructions were to your broker. These notes can be compared with monthly statements to determine if your broker conducted trades that were either unapproved or conducted before your approval was given. Remember, unauthorized trading is still fraud, even if you later consented to the trade, and should not go unchecked.

Published on: November 28, 2011

Wells Investment Securities Fined for Misleading Marketing

by InvestorLawyers

On November 22, the Financial Industry Regulatory Authority (FINRA) announced its securities arbitration decision to fine Wells Investment Securities Inc. for using misleading marketing materials. The materials were used in the sale of Wells Timberland REIT Inc., for which Wells was the wholesaler and dealer-manager, and the fine imposed by FINRA was $300,000.

Wells Timberland REIT is a non-traded Real Estate Investment Trust that invested in timber-producing land. Because it was the wholesaler, Wells was responsible for the review, approval and distribution of the marketing materials. According to FINRA’s investigation, Wells distributed 116 sales materials and advertising that contained exaggerated, unwarranted and misleading statements concerning the REIT from May 2007 through September 2009.

One of the misleading statements contained in the offering prospectus was that Wells Timberland intended to qualify as a Real Estate Investment Trust for the Dec. 31, 2006 tax year when, in fact, it did not qualify until the Dec. 31, 2009 tax year. Furthermore, most of the sales literature and advertisements either did not adequately express the significance of the investment’s non-REIT status or suggested that the investment was a REIT when it had not yet qualified. In addition, the FINRA investigation found that the supervisory procedures of the firm did not adequately monitor whether sensitive customer information that was stored on laptops was adequately safeguarded through the use of encryption technology.

Published on: November 25, 2011

Mutual Fund Fraud

by InvestorLawyers

Mutual funds are popular with investors because they consist of multiple stocks, meaning if one stock does poorly in the market, it doesn’t necessarily lower the entire mutual fund portfolio. Even so, mutual fund portfolios can be designed to be either very conservative or very risky. Mutual funds can include a variety of stock types or can be organized into specific industries like technology, healthcare, etc.

Mutual Fund Fraud

Two ways investors can be victims of fraud through mutual funds are churning and break point fraud:

Churning: As market condition change, a stockbroker may suggest switching to a different mutual fund. If the new fund is within the same company as the old one, the investor usually doesn’t have to pay a commission. However, if the new fund comes from a different company, the investor must pay commissions and fees on the transaction. If the stockbroker encourages switching to a different company despite suitable options within the same company or attempts to generate commissions by encouraging the investor to switch multiple times to different companies, they may be “churning.”

Published on: November 24, 2011

Merrill Lynch Pass-through Certificates

by InvestorLawyers

A class action lawsuit has been filed against Merrill Lynch and came from the sale of around $16.5 billion in certificates that were derived from pools of securitized home mortgages. Investment attorneys and investors nationwide will be watching Case No. 08-CV-10841, filed against Merrill Lynch. This case obtained class certification in June of this year.

Merrill Lynch Pass-Through Certificates

Securities like asset-backed pass-through certificates entitle the holder to income payments that come from mortgage-backed or asset-backed securities and/or pools of loans. The problem with the Merrill Lynch certificates was that the Offering Documents contained statements that were untrue; in addition, some information about the quality of the loans and the collateral’s adequacy within the loan pools was omitted. As a result, investors purchased riskier and lower-quality Certificates than other investments with equal credit ratings. In fact, almost all of the Certificates have now been downgraded by the Rating Agencies to below investment-grade instruments and, as a result, the Certificates are not marketable at the prices paid by investors.

Untrue statements in the Offering Documents had to do with the underwriting standards, maximum loan-to-value ratios, property appraisals, debt-to-income ratios and the Certificate’s ratings. Facts that were omitted included the fact that the loan originators did not follow their stated standards of underwriting, that the Merrill sponsor did not follow its guidelines for loan purchasing for many of the loans, the fact that the value of the underlying properties were overstated and the fact that the Prospectus Supplements ratings were based on relaxed ratings criteria, inaccurate loan information and outdated assumptions.

Published on: November 23, 2011

Notice to MF Global Noteholders

by InvestorLawyers

Investors who purchased MF Global Notes should consider securities arbitration against the underwriter broker-dealer from whom they purchased the Notes as a way of possibly recovering their losses.

Notice to MF Global Noteholders

Though it is unsure when and how much MF Global noteholders will receive from the firm’s bankruptcy, Fitch Ratings stated in early November that the amount received by owners of MF Global’s senior unsecured debt could be as low as 10 percent of their investment. Fitch Ratings estimates the maximum investors will receive at only 30 percent. Investors who purchased MF Global 1.875 percent Convertible Senior Notes due in 2016, MF Global 3.375 percent Convertible Senior Notes due in 2018 and Global 6.250 percent Senior Notes due in 2016 may have a valid claim against the underwriters of these Notes. Jefferies, Bank of America, Merrill Lynch, Lebenthal & Col, Sandler O’Neill + Panthers, BMO Capital Markets, US Bancorp, Commerzbank and Natixis are some of the underwriters of MF Global Notes.

It is possible that the underwriters of MF Global Notes knew or should have known more about MF Global’s financial problems and may not have adequately disclosed material information in the Notes’ prospectuses. Reports that the prospectuses may have been misleading have led to an investigation.