Earlier this week, Investment News reported that FINRA has barred California broker John Thornes and his firm, Thornes & Associates, Inc. Thornes is accused of unauthorized transfers from trust accounts to accounts held by Thornes' friends. FINRA alleged that Thornes misappropriated approximately $4.2 million from two clients, one of whom was an elderly and suffering from Alzheimer's disease. None of the misappropriate funds were repaid to these clients. It was not disclosed if Thornes will face criminal charges.
According to an Investment News report, three officers and founders of Provident Royalties Inc. received prison time for participating in a fraudulent Ponzi scheme involving the offer and sale of private placement securities. Brendan Coughlin and Henry Harrison received sentences of twenty-one months and Joseph Blimline was sentenced to twelve years in federal prison. The CFO, W. Mark Miller, received a sentence of six months in prison and six months under home confinement. The four men were also ordered to pay $2.3 million in restitution.
Bloomberg reports that Steven A. Cohen, a billionaire hedge fund manager, has been accused by the Securities and Exchange Commission (SEC) of failing to supervise two of his employees who were engaged in an insider trading scheme. Cohen is the hedge fund manager and founder of SAC Capital Advisors. The SEC claims that there were obvious signs Cohen's employees were involved in an insider trading scheme and that he should have been well aware of the situation. According to the SEC, Cohen ignored obvious signs of the insider trading scheme which allowed his firm to avoid hundreds of millions of dollars in losses. The two SAC employees accused of insider trading are facing criminal charges and the trial is expected to take place later this year.
Last month, former baseball all-star, Mike Sweeney sued UBS and Ralph Jackson, his former financial advisor. Sweeney is hoping to recover $7.6 million in lost savings. Sweeney claims that his UBS financial advisor mislead him into believing that the private equity investments were both safe and suitable. Sweeney alleges that he is an unsophisticated investor who trusted in the advice he had received from UBS.
On July 9, 2013, U.S. District Judge David Carter ruled that the United States Government may proceed with its lawsuit against Standard and Poor (S&P). The court determined that the complained contained sufficient allegations to support the fraud claims. The U.S. Government filed the complaint in February claiming that S&P intentionally misrepresented credit ratings. The United States is seeking damages of five billion dollars. Not only is the U.S. Government launched a lawsuit against S&P, so have fourteen other states and the District of Columbia. S&P has continually maintained that the claims made by the U.S. Government are without merit.
According to an Investment News' report, the heirs of James Gandolfini's estate could be faced with a $30 million tax bill. Gandolfini's estate is estimated to be worth approximately $70 million most of which was left to his two sisters. Gandolfini's will reportedly left 30% to each of two sisters, 20% to his infant daughter, Liliana, and 20% to his wife, Deborah Lin, and his clothing and jewelry to his 13 year old son. If this report is accurate, approximately $51 million of his estate is subject to both New York and Federal estate taxes which could result in a $30 million tax bill.
Investment News reported that, Wendy Worcester, the former CFO of a Thompson National Properties REIT has been suspended for lack of adequate and independent due diligence when conducting real estate deals promoted by a Thompson controlled broker- dealer named TNP Securities LLC. Ms. Worcester was not only suspended but also ordered to pay $15,000 in fines by FINRA. FINRA alleged that Ms. Worcester did not sufficiently fulfill her duty of due diligence with regard to three separate offerings.
Jonathan Feldman, a former Maryland banker, has been accused by the SEC of misleading investors through an investment strategy known as "naked short selling." The Wall Street Journal provides the following explanation of a naked short sale:
Alternative mutual funds have become increasingly popular and have caught FINRA's attention. FINRA recently issued a warning to investors to take caution when investing in alternative mutual funds because they are risky. An investor first needs to educate him or herself before investing in alternative mutual funds because the rewards do not always outweigh the risk. According to FINRA, alternative mutual funds have the most beneficial return when the overall market is doing poorly, but when the market is doing well the benefits barely outweigh the risk. U.S. News advises, "... use three criteria to judge alternative funds: size (the bigger, the better, so lack of liquidity isn't a concern), fees and track record." Conducting appropriate due diligence may help minimize the risks of investing in alternative mutual funds.
Mary Jo White, Chairman of the Securities and Exchange Commission (SEC), plans to require some investment firms and/or financial advisors to admit fault in their settlement of SEC enforcement actions. This new tactic will reverse a long-standing custom with regard to SEC enforcement actions where settling parties were permitted to deny fault or liability for their actions. Ms. White wants an admission of wrongdoing because she believes it will deter firms from engaging in future wrongdoing. Ms. White also believes that this new tactic will help better protect investors. The SEC will not require an admission of wrongdoing in the settlement of every enforcement action, but reserve the admission requirement for the most harmful and deliberate acts of misconduct.
According to a report from The New York Times, the frequency with which brokers are getting complaints expunged from their disciplinary record is increasing. The growing number of expungements could correlate to the growing number of reported complaints, since 2009 when FINRA began requiring all complaints to be reported on a broker's record, even if he or she was not named as a respondent. With the application known as "BrokerCheck" on FINRA's website, investors can review a broker's employment history and disciplinary record. BrokerCheck is a resource to help investors when choosing to do business with a particular firm or individual. However, BrokerCheck does not always provide a complete disciplinary history because many arbitration panels have been expunging disputes from brokers' records. For an example, a broker for Wells Fargo, Michele Kief had nine disputes on her record, all of which were expunged from her record by a FINRA arbitration panel. The expunged disputes included a claim by a client which settled for $125,000.
FINRA is starting to monitor advisors' and brokerage firms' use of social media. According to an article on thestreet.com, FINRA has asked select broker-dealers to provide the following:
A FINRA arbitration panel has ordered WFP Securities to pay investors close to $19 million. This money will be put into a trust for investors victimized by the scheme. According to a Wall Street Journal article, WFP brokers recklessly advised clients to invest their savings in the scheme without conducting adequate due diligence. The trust was awarded $6.5 million in compensatory damages, $7.5 million in punitive damages and $4.5 million in attorneys' fees.