investment attorney

Published on: September 29, 2011

Causes, Concerns and Consequences of Market Volatility

The words “market volatility” seem to be used now more than ever. One recent report from The New York Times said, “Market Swings Are Becoming New Standard,” a scary sentiment for investors.

CAUSES, CONCERNS, AND CONSEQUENCES OF MARKET VOLATILITY

One possible explanation for the increased volatility is the use of computerized high frequency automated trading, which accounts for 60 percent of the volume of trades. In addition, it takes much less time today to send and receive information as it did in the past. As a result, information that affects the market spreads at an increased rate, increasing the volatility of the market. In addition, exchange-traded funds that utilize derivatives and leverage or track broad indices are likely contributors to increased volatility.

However, bad economic times can also account for some of the market volatility. With the bank failures of 2008, the Euro crisis anxiety and the general undermining of confidence in the market lately, it’s no wonder we’re experiencing so many ups and downs. Still, experts believe the volatility that results from these factors will eventually be remedied as economic standing improves.

Published on: September 28, 2011

Unsavvy Investors Aren’t the only Victims of Fraud

by InvestorLawyers

The investment world can be a scary place, especially for inexperienced investors. Meanwhile, many savvy investors fall into the dangerous trap of believing they are safe. However, the fact is that with volatile markets comes an increased opportunity for criminals to take advantage of even the savviest of investors.

UNSAVVY INVESTORS AREN’T THE ONLY VICTIMS OF FRAUD

One couple — we’ll call them Lloyd and Debra — maintains a diverse portfolio, researches each investment and communicates weekly with their broker. Even so, they were taken for $80,000 in what is now the Shire International Real Estate Investment case. In this case, Shire allegedly moved investors’ money from project to project and pitched properties despite the fact that the company did not have the title to said properties.

Mark Dickey of the Alberta Securities Commission, says that brokers claiming large returns with no risk are the first red flag. According to Dickey, times of market volatility are especially dangerous because criminals “tailor their approach to whatever that fear is at that time. They offer stability, guaranteed returns, ‘it’s safe, come with us.’ In essence, they sell back your dreams to you.”

Published on: September 16, 2011

When They Say “BARRED,” They Mean It

by InvestorLawyers

John A. “Jack” Grant, a former stockbroker, was barred from associating with investment advisers, brokers and dealers in 1988, following an action that accused him of selling unregistered securities and misappropriated funds totaling $5,500,000. Grant, however, did not withdrawal from the securities business and continued advising small business and individuals on their investments and management of their assets. Some of the individuals he advised were brokerage customers from before the SEC bar.

When they say barred they mean it

As a result of Grant’s violation of the bar, the Securities and Exchange Commission filed a civil injunctive action against him, along with Sage Advisory Group LLC and Benjamin Lee Grant. Lee Grant is Sage Advisory Group’s owner, as well as Jack Grant’s son. Grant allegedly has been using his son to implement his advice to investors.

According to the complaint filed by the SEC, Grant has advised clients, through his son, from at least 1998. Furthermore, Grant’s son, who is fully aware of the bar against him, allowed him to be associated with Sage Advisory Group and neither they, nor the firm, informed their clients that Grant had been, and remains, barred from association with investment advisors. This, according to the complaint, is in violation of Section 206 and 207 of the Investment Advisers Act of 1940.

Published on: September 14, 2011

Lusby Wants to “Make Things Right” But Hides in Panama

by InvestorLawyers

Complaints were filed with the U.S. Attorney’s Office and the FBI in connection to a group of 30 New Zealand investors who lost nearly $7 million. The investors claim to have lost $6.7 million investing with Tony Lusby. Lusby, a Hamilton, New Zealand, man who is now living in Panama, admits that the money is gone. He claims the money was lost due to a combination of “misappropriating funds” and bad decisions. He claims, however, that he wants to put things right.

Lusby wants to make things right but hides in panama

The complaint against Lusby was investigated, as confirmed by the Serious Fraud Office, but no further steps could be taken because Lusby’s actions did not occur in New Zealand. In addition to the U.S. Attorney’s Office, the FBI and the SFO, complaints were also filed with the Australian Securities & Investments Commission. Over 30 New Zealand investors are among a total of 67 investors from Australia, the U.S. and New Zealand who lost around $6.7 million. The 20 U.S. investors lost a total of around $1 million.

Investors were persuaded to partake in an investment scheme in Lusby’s Lifestyles Investment Group fund. According to Lusby, the scheme “would deliver returns of between 28 and 30-32 percent per annum by trading equities.” The scheme began in 2007 and didn’t cease until October of 2010. Over that period, at least 90 percent of the money was lost in the market.

Published on: September 9, 2011

KHAN, BLUECHIP SECURITIES FINED BY FINRA

by InvestorLawyers

According to the Financial Industry Regulatory Authority’s “Disciplinary and Other FINRA Actions” report for August 2011, Bluechip Securities Inc. and Muhammad Akram Khan were disciplined and fined. Bluechip was censured and fined the amount of $15,000, while Khan was suspended from association with FINRA members for 18 months and fined $385,000. Both Khan and the firm consented to FINRA’s ruling but did not admit nor deny the findings.

Khan, bluechip securities fined by finra

Khan’s transactions generated just over $380,000 in commissions. According to FINRA’s findings, just under $400,000 of money from customer accounts was lost. Two customer accounts showed extreme commission-equity ratios of 22,131 percent in one account and 450 percent in the other. In addition, Khan executed unsuitable transactions, transactions at unfair prices, and could not reasonably believe that his customers were knowledgeable or experienced enough to evaluate the risks of the transactions on their own. Furthermore, they were not financially able to bear the risks associated with the transactions, none of the customers gave him written authorization to exercise discretion and none of the accounts were accepted by the firm as discretionary accounts.

Khan, who was also AML Compliance Officer for the firm, neglected to conduct an independent test of the program, did not retain accurate records, did not maintain minimum net capital for a securities business-violating SEC Rule 15c3-1-and filed inaccurate Financial and Operational Combined Uniform Single Reports. In addition, through sending and receiving text messages, Khan violated Securities and Exchange Act Rule 17a-3 because of a failure to preserve the electronic communications properly.

Published on: September 7, 2011

FLORIDA FATHER JOINS CHILDREN IN PRISON AFTER FLEEING SENTENCING

by InvestorLawyers

Roy Fluker Jr. was finally sentenced to 15 years in federal prison in connection with an investment and mortgage fraud scheme, something that should have taken place last December. Fluker’s son, Roy Fluker III, and daughter, Ronnanita Fluker, are already serving eight-year prison terms for the scheme. Fluker Jr., who failed to appear for sentencing last December, later was arrested in Florida and sentenced on August 25, 2011. Father, son, and daughter were found guilty of multiple fraud counts following their May 2010 trial. Roy Fluker III was sentenced on August 16, 2010, and Ronnanita Fluker was sentenced in December, but Roy Fluker Jr., a resident of Highland Park, fled Illinois before his sentencing.

Florida father joins children in prison after fleeing sentencing

According to the U.S. Attorney’s office, about 2,000 victims lost a total of around $10.7 million. The fraud targeted African-Americans and many of the victims could be found at Chicago churches and hotels. The Fluker family fraud took place between 2005 and 2008, yielded a profit of around $18 million, and resulted in the acquisition of some of their victims’ homes. The Flukers’ “Housing Program” was supposed to reduce mortgage payments and result in total ownership in five years. Their “Spend and Redeem Program,” a financial and educational program, boasted a 200 percent profit in one year. The fraud was conducted through two companies, All Things in Common LLC (also known as More Than Enough) and Locust International LLC.

The trial that concluded in 2010 ordered $9 million preliminary forfeiture judgments and $7.34 million in restitution. After freezing the Flukers’ accounts, about $3.4 million was recovered by the Illinois Attorney General’s office. The recovered amount, combined with the restitution amount ordered, will go to replaying the targeted victims who had not yet been repaid.

Published on: August 16, 2011

SEC ADJUSTS RULE 205-3 FOR INFLATION: CHANGES EFFECTIVE SEPTEMBER 19

by InvestorLawyers

As is required by the Dodd-Frank Act, the SEC has adjusted rule 205-3’s performance fee eligibility thresholds for inflation. These adjustments were announced by the SEC on July 12. The order will be published in the Federal Register and will go into effect 60 days post-publication, or September 19, 2011. The revised dollar amounts take into account inflation from 1998, the year in which it last was adjusted, to the end of 2010. Furthermore, the amounts will be revised more frequently from this point forward — every five years.

Sec adjusts rule 205-3 for inflation: changes effective september 19

According to the SEC, rule 205-3 “permits investment advisers to charge certain clients performance or incentive fees.” However, in order for investors to charge these fees, clients must meet one of two criteria. The adviser must either have a minimum of $1 million of the client’s money under his or her management, or the client must have a minimum of $2 million net worth. When determining a qualified client based on their net worth, according to the SEC, “a qualified client means a natural person who or a company that the investment adviser entering into the contract (and any person acting on his behalf) reasonably believes, immediately prior to entering into the contract, has a net worth (together in the case of a natural person, with assets held jointly with a spouse) of more than $2,000,000 at the time the contract is entered into.”

Under the same rule, as it was set in 1998, the client needed to have a minimum of $750,000 managed by the adviser or a net worth of at least $1.5 million to qualify for the fees.

Published on: July 29, 2011

THREE INVESTORS WIN $5.5 MILLION FROM NEUBERGER BERMAN

by InvestorLawyers

Securities arbitration ended this month for a claim made by three clients against Neuberger Berman. The Financial Industry Regulatory Authority (FINRA) panel ruled on July 15^th that Neuberger Berman must pay $5 million in damages, $450,000 in (3 percent annual) interest and $7,500 in legal fees. Investment attorneys stated that the financial award covered the investments of all three clients.

Three Investors Win $5.5 Million from Neuberger Berman

In 2008, the claimants were persuaded by broker Brian Hahn to invest in Lehman Brothers Structured Notes, named comBATS and XLF, despite the customers’ previous insistence to avoid any Lehman investments. According to investment attorney Alan Block, “The way the notes were sold it wasn’t clear that Lehman was the underwriter.”

Nicholas P. Lavarone, who also represented the claimants in securities arbitration, said, “The customers were all told that the principal of the structured notes were either fully protected or partially protected.” It was clear, however, once Lehman Brothers filed for bankruptcy and the structured notes became practically worthless, that Lehman was, in fact, the underwriter and they were neither fully nor partially protected. In addition to the structured notes, one of the claimants invested a sum of $1 million in a private-equity hedge fund named Libertyview Credit Select. The assets of this fund were lent to Lehman Brothers.

Published on: July 27, 2011

EX-UBS EMPLOYEE KOBAYASHI CHARGED BY THE SEC

by InvestorLawyers

Steven T. Kobayashi, a former financial adviser for UBS, was charged by the SEC on March 3, 2011. He was charged with misappropriating investors’ funds totaling $3.3 million.

Ex-UBS Employee Kobayashi Charged by the SEC

Allegedly, Kobayashi established a pooled life insurance policy investment fund, Life Settlement Partners LLC, and then solicited funds from many of his UBS customers. The problem, however, arose when he began using the funds as his own personal financing for gambling debts, expensive cars and prostitutes. Starting in 2006, Kobayashi spent at least $1.4 million on these personal and frivolous expenditures.

In an effort to cover his tracks, Kobayashi then defrauded more of his UBS customers, asking them to liquidate securities and transfer the money to more of his accounts in the fall of 2008. This second theft, which amounted to $1.9 million, was committed in an effort to repay Life Settlement Partners LLC before his initial theft was discovered. Kobayashi’s wrongdoings came to light when he could not pay the life settlement policy premiums on LSP and later when clients demanded their investment returns. A complaint was issued to UBS in September 2009 in which a customer accused Kobayashi of stealing hundreds of thousands of dollars from multiple accounts, including her own. The customer’s complaint went on to claim that he had forged documents and lied directly to investors about his intentions for their money. Kobayashi has not worked for UBS since the morning after the complaint was filed, when he tendered his resignation.

Published on: July 26, 2011

STL BROKER SENTENCED FOR DEFRAUDING INVESTORS

by InvestorLawyers

While stock broker fraud is always a despicable crime to the victims of the fraud, the case of Joshua Gould's broker misconduct seems infinitely worse for the close relationship between victim and perpetrator, as well as the vulnerable nature of other investors. Gould, a former independent broker for Woodbury Financial Services in University City, defrauded friends, family, and investors, including the elderly, widows, and religious organizations.

Hedging and “Failure to Hedge” Claims

Not even Gould's own mother was safe, and she lost around $500,000 to her son, the bulk of her inheritance. All in all, more than 25 people were swindled out of more than $5 million. Gould spent some of the money on charitable donations to boost his reputation while at the same time spending it on strippers and entertaining them at St. Louis hotel parties. In addition, he paid the rent of at least one stripper. Gould also paid off personal debt, renovated his home, started several businesses, and facilitated a ponzi scheme.

Once the theft was discovered, Gould confessed and, according to his lawyer, has cooperated and attempted to remedy the losses of his victims. During his trial, he expressed remorse for his actions and disdain for himself.