Glass Morgan Stanley building against a blue sky.

SEC Morgan Stanley Fee Overcharge to be $13M

A Morgan Stanley subsidiary has agreed to pay $13 million to settle allegations brought by the Securities & Exchange Commission (SEC) that it inadvertently overcharged roughly 150,000 clients due to billing and administrative errors. The subsidiary overcharged clients by a total of more than $16 million over a 15-year period because it lacked procedures to validate when clients were being properly billed. It also lacked systems to confirm if clients’ agreed-upon fees were being correctly entered into the billing system.

Additionally, the SEC claimed that Morgan Stanley failed to validate billing rates in the system against client contracts, billing history, and any other documentation available. After Morgan Stanley and Citi Smith Barney joined forces in 2009, the two managed approximately 1.3 million investment advisory accounts. Over a two-year period beginning in May 2011, the two combined their accounts into a single billing system. The information was entered into their new system without regard to client Morgan Stanley fee amounts, which led to various billing errors.

More than 5,000 accounts were defaulted to the maximum account fee available, even if clients had lower agreed-upon rates. Negotiated rates were not entered into the system immediately, affecting an additional 9,000 accounts, and some clients were not reimbursed after canceling their accounts.

After the error was discovered, Morgan Stanley failed to hire a contractor to review the information and properly classify accounts. The company also failed to provide accountants with a ledger to determine which accounts were subject to examination.

According to the SEC, Morgan Stanley Smith Barney should have had written policies in place to handle these types of violations, and should have kept client contracts in an easily accessible place – instead, when asked to locate certain documents, the company had trouble providing either electronic or paper documentation.

All clients have since been reimbursed, and Morgan Stanley will spend an additional three years researching the impact of their billing errors and correcting any further violations related a Morgan Stanley fee that might arise within six months.

Contact a Securities Attorney Today

Even big banks are not above making mistakes. No matter how small the violation, when the mistake affects thousands of investors, the differences can add up to substantial amounts of money. If you suspect your broker or brokerage firm of overcharging, you may have certain legal rights that require your immediate attention.

Contact a securities fraud attorney today to schedule an appointment or consultation.

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Paperwork stack concept showing how the referral scheme was hid from the client.

Attorney & Investment Adviser Charged in Referral Scheme

An attorney and investment adviser have settled SEC charges over a referral scheme they created to disguise illicit fees. The referral scheme was created to disguise payments from an elderly widow’s account to the attorney for “legal services”, which were actually illicit fees for referring her accounts valued at more than $100 million to the investment adviser.

Attorney Peter Hershman of Connecticut and adviser John Rafal, who was once president and CEO of Essex Financial Services Inc., agreed to pay $90,000 and $575,000, respectively, for failing to disclose the lawyer’s improper fees, which was a violation of securities laws. Essex Financial Services also agreed to pay more than $180,000 in disgorgement to end claims against the brokerage firm related to Rafal’s actions. Hershman and Rafal had known each other for 25 years. In 2011, they agreed that Hershman would get an annual fee of $50,000 from the client’s advisory fees, though Hershman was not registered as an investment adviser.

Instead of telling their client about the referral fees, they disguised the payments through fake legal invoices to avoid detection. Essex employees discovered the scheme, after which Rafal was let go from the company and Hershman was asked to return the money paid to him. Instead, Rafal transferred an additional $24,570 from another account under his control.

Hershman told the SEC that he returned all the fees gained from the referral scheme back to Essex Financial, which was untrue, causing an investigation with the Massachusetts U.S. attorney’s office. Criminal charges against Hershman. When concerned Essex clients caught wind of rumors regarding Rafal’s actions, Rafal sent emails telling them he had been investigated and fully exonerated. Senior officials ordered him to retract the statements.

Call a Los Angeles Securities Fraud Attorney Today

Even though referral fees can be legal in certain circumstances, that is not always the case. If you believe you have been charged for services that cannot be explained or do not make sense to you, you may have certain legal rights that require your immediate attention.

Contact an experienced Los Angeles securities fraud attorneytoday for a consultation to discuss your rights and options.

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Goldman Sachs bank.

Goldman Sachs Settles in ISDAfix Fraud Case

Goldman Sachs just reached an agreement to settle class action charges that it, along with several other banks, rigged the ISDAfix benchmark rate, which is used to set terms for swaps transactions. ISDAfix determines valuations for interest-rate derivative products, and swaps are derivatives in which two counterparties exchange cash flows of one party’s financial instrument for those of the other’s.

The agreement marks the largest individual settlement reached over ISDAfix rigging litigation, although settlements arising from this suit have yielded hundreds of millions from several deals already reached.

According to the plaintiffs in the ISDAfix fraud case, the banks worked with interdealer broker ICAP PLC, which was tasked with managing the daily setting of the U.S. dollar-rate version of ISDAfix. The banks submitted rate quotes but worked with each other to make sure they set the rate at a point that was most profitable to them. The banks were accused of buying and selling derivative products before the fix was closed in order to obtain the price they wanted.

Goldman Sachs joins several other financial institutions that have agreed to settle the allegations against them in the ISDAfix fraud case for a total of $324 million. These include JPMorgan Chase ($52 million), Bank of America Corporation, Credit Suisse AG, Deutsche Bank AG and The Royal Bank of Scotland ($50 million each). Citigroup Inc. agreed to pay $42 million and Barclays PLC agreed to pay $30 million.

Call a Los Angeles Stock Fraud Attorney Today

Investments of any type involve some sort of risk. If you have questions about the legality of an investment, or have suffered a loss because of the negligent or fraudulent actions of your broker or brokerage firm, you may have certain legal rights that require your immediate attention.

Contact an experienced Los Angeles stock fraud attorney today for a consultation to discuss your rights and options.

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Man does his accounting using calculator and computer.

SEC Studies Disclosures for Revenue Recognition Changes

The Securities & Exchange Commission (SEC) plans to look closely at disclosures next year to see how companies are adapting to new revenue recognition changes set to take effect next December. The changes are new rules that are part of wider changes being made to the generally accepted accounting principles, better known as GAAP.

The new rules will affect all public companies and will change revenue recognition from its current format. Revenue recognition refers to the conditions by which a company considers revenue measurable. The new rules attempt to improve the quality of financial reporting and comparability of different companies’ revenues. The SEC will look for increased disclosures from companies to ensure compliance with the new rules.

The new rules were set to take effect this month but were pushed back a year after a survey concluded that 75 percent of companies were still assessing how to comply, 8 percent had not started their initial assessment and only 17 percent had already begun implementing changes.

The SEC is encouraging companies to work with audit committees to improve compliance with non-GAAP reporting rules, which are sometimes implemented when a company believes traditional accounting methods will not provide an accurate picture of their financial condition.

Companies that use non-GAAP methods, which include adjusted earnings before interest, taxes, depreciation and amortization must explain why they are doing so and reconcile their numbers with comparable GAAP methods.

The SEC also stated that they will be sticking with GAAP for now, after considering a switch to the International Financial Reporting Standards, which still remain important for U.S. companies with global operations.

Call a Los Angeles Securities Attorney Today

Although companies have another year to implement these changes, it is never too early to start complying.

If you have compliance-related questions or have questions about how the rules might affect you or your company, contact an experienced Los Angeles securities fraud attorney today for a consultation to discuss your rights and options.

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JP Morgan Chase buildings in the skyline

JP Morgan Chase Hiring Program Fined $264 Million

JP Morgan Chase has agreed to pay $264 million to settle regulatory matters brought by the U.S. Department of Justice, the Securities & Exchange Commission (SEC), and the Federal Reserve over allegations that the firm violated the Foreign Corrupt Practices Act with a hiring program giving jobs to friends and relatives of government officials in Asia.

The bank will pay $130 million to the SEC after allegations surfaced that investment bankers at its Asia-Pacific subsidiary created a JP Morgan Chase hiring program called the “Sons and Daughters Program,” aimed specifically at hiring candidates referred by client executives and government officials.

An additional $72 million will be paid by JPMorgan Securities Ltd as a criminal penalty to the DOJ, and another $61.9 million will be paid to the Federal Reserve. According to the SEC, the “misconduct was so blatant that JPMorgan investment bankers created spreadsheets to track the money flow from clients whose referrals were rewarded with jobs.” Apparently, not a single referral hire request was ever denied.

The “Sons and Daughters Program” was created in 2006 to accommodate frequent requests from clients and government officials to provide internships and entry-level employment to relatives and friends. The goal was to boost business by extending favors to those doing the referring. The program was revamped in 2009 to prioritize hires linked to upcoming client transactions.

Although bankers were required to complete a questionnaire designed by the legal and compliance teams to screen potential hires for conflicts and violations of the FCPA, employees allegedly modified the questionnaires and falsified answers to hide their true purpose in hiring candidates. By structuring contracts to begin and end before the end of the year so the employees would not be counted in JPMorgan’s internal headcount, hiding candidates from scrutiny.

Over a period of seven years, JPMorgan hired 100 interns and full-time employees, helping the firm win or retain business in excess of $100 million. JPMorgan will also undertake a remediation of its FCPA and anti-corruption compliance programs in addition to the fine.

Do You Suspect Your Firm of Violating the Foreign Corrupt Practices Act?

Large banks and brokerage firms are not exempt from investigation and wrongdoing. If you suspect that your firm may have violated the FCPA, contact an experienced Los Angeles securities fraud attorney today to discuss your rights and options.

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Finance sheets and coins related to Mutual Funds in IRAs

Merrill Lynch Halts Sales of Mutual Funds in IRAs

With new Department of Labor fiduciary rules set to take effect next April, at least one brokerage giant is telling its advisers to watch out: Merrill Lynch has informed its brokers to stop sales of mutual funds in brokerage-based individual retirement accounts immediately – well in advance of the impending rule change.

According to Frank McDonnell, head of Merrill Lynch’s Global Mutual Funds, mutual funds may still be purchased in investment advisory program accounts and non-retirement brokerage accounts. By changing its internal guidelines in advance of the fiduciary rule change, the brokerage firm apparently is hoping to avoid any potential conflicts of interest that might arise between now and next April when the new Department of Labor rule takes effect.

The new Department of Labor fiduciary rule will require brokers to put their clients’ interests first for retirement accounts, which places a higher burden on brokers than currently exists. Merrill Lynch has become one of the first brokerage firms to make their compliance strategy public, stating that they would no longer be offering commission-based IRAs in 2017.

Investors who purchase mutual funds between now and next April for their retirement accounts would be charged commissions on the purchases, and then an additional fee for enrolling in the firm’s investment advisory program. Merrill Lynch has decided to do this to preemptively guard against any future issues and eliminate potential conflicts.

Are you invested in Mutual Funds in IRAs with Merrill Lynch? 

The SEC, DOL, FINRA and many other governing bodies dealing with securities are constantly implementing new rules. It is incumbent upon your broker and brokerage firm to be aware of these new rules.

If you lost money in your brokerage account and you suspect your broker or brokerage firm may have misled you or recommended unsuitable investments, you may have certain legal rights that require your immediate attention.

Contact an experienced Los Angeles securities fraud attorney today to discuss your rights and options.

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Emblem of the SEC in Washiington, D.C.

SEC Suspends California Attorney Over Prime Bank Scheme

The U.S. Securities & Exchange Commission (SEC) suspended an attorney from practicing before the SEC after settling claims that he and a client bilked investors of $6 million in a prime bank scheme.

The attorney, Jilbert Tahmazian, agreed to be suspended after he was accused of taking part in a scamming investors. Investors were told that they would make between 15-30% in interest on fictitious investment contracts. In addition to being suspended, Tahmazian also agreed to pay back nearly $200,000 in disgorgement and interest and civil penalties.

According to the SEC’s complaint, Tahmazian and co-conspirator Vahak Dino Awadisian worked together beginning in 2009 to lure potential investors into “management agreement contracts” that didn’t exist.

Awadisian was part of a similar prime bank scheme in Alabama. He was arrested there in 2014 on similar charges and now is believed to be living abroad as a fugitive.

Call a Los Angeles Investment Fraud Attorney Today

If you invested with Jilbert Tahmazian or Vahak Dino Awadisian in their prime bank scheme, you may have certain legal rights that require your immediate attention.

Contact an experienced Los Angeles investment fraud attorney today for a consultation to discuss your rights and options.

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Lawsuit papers

SEC Files Fraud Suit Against California’s Enviro Board

The Securities & Exchange Commission (SEC) has filed a lawsuit against a California company, alleging that it raised $6 million from investors over several years by lying about the prospects of the company. The complaint charges Enviro Board along with individuals Glenn Camp, William Peiffer, and Joshua Mosshart for soliciting investors despite the fact that the 20+-year-old company has generated little to no revenue since its inception.

Despite not having any customers, the company’s offering materials claimed that the company had installed a viable production line and offered environmentally friendly building panels. The company also claimed it had secured more than $161 million in “vendor financing.”

According to the SEC, Enviro Board “appealed to investors’ desires to benefit the environment by creating the false impression that it was on the cusp of lucrative operations.” Between 2011 and 2014, the company raised $6 million from investors: $3 million came from common stock in the company, $2 million in bonds purportedly secured by the company’s interest in state tax credits, $1 million in unsecured bonds and a further $50,000 in promissory notes.

Camp, Peiffer, and Mosshart paid themselves approximately $2.6 million from investor funds.

Call a Los Angeles Stock Fraud Attorney Today

If you purchased or invested with Enviro Board, you may have certain legal rights that require your immediate attention.

Contact an experienced Los Angeles stock fraud attorney today for a consultation to discuss your rights and options.

 

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Image showing pharmaceuticals

California Pharma Co. CytRx Sued in Potential Class Action Case

California-based biopharmaceutical company CytRx Corp. found themselves facing a proposed securities class action lawsuit in California federal court over allegations that the company concealed “bad news” affecting business after the FDA put a hold on its cancer trial drug Aldoxorubicin.

The suit alleges that CytRx stock was trading at inflated prices because the company did not disclose material information related to the FDA’s hold on their trial drug. When the company revealed the information, the stock price plummeted, causing significant losses for investors.

According to the complaint, “These material misstatements and/or omissions had the cause and effect of creating in the market an unrealistically positive assessment of the company and its financial well-being and prospects, thus causing the company’s securities to be overvalued and artificially inflated.”

The proposed class action could include thousands of individuals who purchased CytRx stock.

In a separate matter, CytRx was sued over Aldoxorubicin in a derivative action in Delaware, where board members were accused of giving themselves “spring-loaded stock options” before positive results for clinical trials were released. Those claims were settled in June of last year, with the company repricing roughly 2 million stock options that were awarded to board members and other executives.

CytRx CEO Steven Kriegsman and CFO John Kaloz were named individually in the suit.

Call a Los Angeles Stock Fraud Attorney Today

If you suffered significant losses in CytRx stock, you may have certain legal rights that require your immediate attention.

Contact an experienced Los Angeles securities fraud attorney today for a consultation to discuss your rights and options.

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California Man Caught in $18 Million Bond Scheme

A California resident has agreed to hand over almost $18 million to settle allegations in a Delaware federal court that he bilked approximately 200 investors in a bond scheme between 2007 and 2011, according to the Securities & Exchange Commission (SEC).

Andrew Proctor, acting through his company Atlas JG, is alleged to have raised $22 million by offering investors a return of between 8-9% on their investment. Most of the targeted investors came from Taiwan.

Proctor told investors that their returns would come from purchasing receivables from home-building contractors at a discount, then turning a profit when the builders eventually paid the invoices. Instead, less than 10% of the funds raised were used as promised, with the last legitimate purchase taking place in 2008. According to the SEC, the money was moved through a myriad of shell companies and accounts that made following the trail difficult.

Of the gains Andrew Proctor made, $3 million went to personal use, including mortgage payments, credit cards, and his children’s tuition. Another $7 million was sent to an associate in Hong Kong, and $3.1 million was invested in risky stock and options trades. About $11 million was used to make interest and principal payments to investors.

As part of his settlement, Proctor agreed to pay more than $5 million in fines plus disgorgement of $11 million plus interest.

Call a Los Angeles Securities Fraud Lawyer Today

If you invested with Andrew Proctor or Atlas JG, you may have certain legal rights that require your immediate attention. Contact an experienced Los Angeles securities fraud lawyer today for a consultation to discuss your rights and options.

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