New York Securities Fraud Lawyers Blog

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EMPLOYEE RECOVERY $2M FOR A WHISTLEBLOWING TRADER

INVESTOR RECOVERY $7.2+M FOR PONZI SCHEME VICTIMS

INVESTOR RECOVERY $3.9M FOR TAX SHELTER FRAUD VICTIMS

BROKER PONZI SCHEME $7.4 MILLION

FAILURE TO SUPERVISE $4+ MILLION

BROKERAGE THEFT $3.8 MILLION

PONZI AT MAJOR FIRM $4+ MILLION

FAILED PRODUCT 28 EXPUNGEMENTS

WHISTLEBLOWER AWARD MAX 30% BOUNTY

NO ACTION INSIDER TRADING CASE

NO ACTION EMBEZZLEMENT CASE

NO ACTION MARKET MANIPULATION

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New York Securities Fraud Lawyers Blog

I Just Got An SEC Subpoena: Now What Happens?

February 7, 2014 | Malecki Law Team

The recent string of cases brought by the Securities and Exchange Commission in connection with the US Attorney’s Office against members of SAC Capital for insider trading has shone a bright light on the world of SEC investigations. Though all financial professionals surely hope that they will never be involved in an SEC investigation, the truth of the matter is that many unfortunately will.

Receiving a subpoena from any government agency can be a worrisome event in anyone’s life, but for a financial professional, receiving a subpoena from the Securities and Exchange Commission can be especially intimidating. More often than not, the recipient may be confused as to, “Why is the SEC contacting me?”

Individuals are typically contacted by the SEC for two reasons: 1) You are the subject of its investigation; or 2) The SEC believes you may have valuable information related to its investigation of an entity or someone else.

Steep Market Selloffs May Uncover Risks in Accounts Such as Adverse Consequences of Margin

January 27, 2014 | Malecki Law Team

It was reported by Bloomberg News on Friday January 24, 2014 that there was a “massive selloff” in emerging markets that led to a decline of approximately 2% to the Dow Jones Industrial Average and S&P 500. It is during such fast and sudden selloffs that underlying problems in public investors’ brokerage accounts are typically uncovered.

At Malecki Law, we have seen an increase in claims arising from margin in investors’ accounts. Overwhelmingly, investors were not informed about the risks of buying securities on margin and were only told that they could make more money by leveraging their accounts to buy more securities. However, without fully understanding the risks of products and services such as margin, public investors cannot make a fully informed decision about whether it is suitable for them.

Margin is essentially a loan from the brokerage firm to the investor. The effect of margin is not similar to that of a typical home mortgage, because the securities or cash in the investor’s brokerage account serves as collateral for the loan and large market drops can cause margin calls, request for more money or collateral or a sell-off of positions. Investors may use margin to increase their purchasing power or “buying power,” as some brokers like to say. However, it is very important that the investor is fully informed of all risks associated with the use of margin, including that they can lose more than they borrow.

Leveraged and Inverse ETFs Can Spell Trouble for Investors Who Buy Them and Brokerage Firms Who Sell Them

January 15, 2014 | Malecki Law Team

Just this past week, two brokerages units of Stifel Financial were ordered by the Financial Industry Regulatory Authority (“FINRA”) to pay more than $1 million related to the sale of leveraged and inverse exchange-traded funds (“ETFs”). Of the more than $1 million to be paid, $550,000 comes in the form of a fine to be split by Stifel, Nicolaus & Co., Inc. and Century Securities Associates Inc. The firms were also ordered to pay more than $475,000 in restitution to 65 customers to compensate them for losses incurred on ETF purchases.

According to the Wall Street Journal, FINRA said that some of the brokers who were selling the ETFs did not have a full understanding of the products they were selling, including the risks associated with them.

Brokerage firms can be fined and/or sued when they allow their brokers to sell unsuitable, or inappropriate, investments to customers, especially when the brokers have not been properly trained. Industry regulations require that a broker understand both the product they are selling and the customer to whom they are selling the product. Most importantly a broker must understand the risks of the products being sold and appreciate the customer’s ability (or inability) to tolerate risk. Brokerage firms are also required to train their brokers properly, including what qualifies as a suitable, or appropriate, recommendation to a customer.

Jenice Malecki to Appear on Fox Business News with Dennis Kneale

November 19, 2013 | Malecki Law Team

Jenice Malecki of Malecki Law will be appearing on Fox Business News at 12pm today, speaking with Dennis Kneale to revisit the $13 billion settlement announced by JP Morgan today.

The focus of the discussion will be the aftermath of the settlement, and what it means for JP Morgan moving forward. The settlement was for conduct that occurred from 2005 to 2008, largely predating the financial crisis and acquisitions of Bear Stearns and Washington Mutual. In fact, according to the Department of Justice, as reported by Fox Business News, JP Morgan regularly represented that the loans it bundled and sold to investors complied with underwriting guidelines, when they actually did not.

It remains to be seen whether this will impact other litigation that JP Morgan continues to defend against private litigation, or in future criminal proceedings arising from the conduct of JP Morgan’s employees. It also remains to be seen whether JP Morgan will provide liquidity for a fire sale, as it did with Bear Stearns during the financial crisis.

Jenice Malecki to Appear on Fox Business Channel

October 21, 2013 | Malecki Law Team

Jenice Malecki of Malecki Law will be appearing at 10:45 am on Varney & Co. on Fox Business on Tuesday, October 22, to discuss the proposed $13 billion J.P. Morgan Chase settlement.

Ms. Malecki will be discussing whether J.P. Morgan and others should be surprised that the firm is being subjected to penalties relating to conduct that occurred at Bear Stearns and Washington Mutual, which J.P. Morgan acquired during the recent financial crisis.

Ms. Malecki will speak on central issues at the heart of the present debate such as the role of the government in these two acquisitions, including what promises, if any, were made to J.P. Morgan by government officials, as well as the overall price paid for the two companies relative to their actual value.

Jenice Malecki to Appear on Fox Business News with Dennis Kneale

October 14, 2013 | Malecki Law Team

Jenice Malecki of Malecki Law will be appearing on Fox Business News at 12pm today, speaking with Dennis Kneale about whether or not banks, such as JP Morgan, should be getting amnesty from regulators.

In the fallout from the financial crisis, banks, such as JP Morgan have seen their legal fees related to defending complaints from both customers and the SEC, along with other regulators, rise substantially. JP Morgan shocked many in the marketplace when it recently revealed that its “litigation reserve” was $23 billion, and that it had paid out roughly $8 billion in recent settlements and judgments.

In light of this revelation, some have called for amnesty to be provided to large banks, in an effort to relieve them of these substantial legal burdens and jumpstart the markets by freeing up large reserves of capital.

SEC Awards Whistleblower $14 million in Largest Award to Date

October 2, 2013 | Malecki Law Team

The SEC announced on October 1, 2013 that it awarded a whistleblower over $14 million for original information that led to the recovery of “substantial investor funds.” The whistleblower program was established after the enactment of the Dodd-Frank Act, which rewards individuals who provide original information that leads to sanctions exceeding $1 million. The SEC has the authority to award from 10 to 30 percent of the money collected in a case.

One of the most important things about information provided by a whistleblower is that such information is “original.” This means that the information must be derived from the whistleblower’s original knowledge or analysis, that it is not known by the SEC from some other source, and that it is not derived solely from a publicly available source, including allegations made in a different judicial setting.

The size of the current award appears to indicate two things: first, the quality of information and extent of cooperation provided by the whistleblower to the SEC, whose identity remains confidential; and second, the SEC’s eagerness to grow and benefit from the whistleblower program. Without disclosing the size of the award, in its Order, the SEC noted that the size of the award was based on the significance of the information provided by the whistleblower and the assistance the whistleblower provided to the SEC in the action, in part. The SEC, under its new Chairperson Mary Jo White, has shown a desire to become more aggressive in pursuing individuals and to get companies to admit to wrongdoing. It is no surprise then, that the SEC appears to be providing increasingly larger awards to whistleblowers, to provide individuals the incentive to waive red flags about wrongdoing at a time when the SEC may be able to recover and/or safeguard investor funds.

REIT Investment on the Rise – But Is That a Good Thing?

October 1, 2013 | Malecki Law Team

As reported recently by the Wall Street Journal, investment in non-traded Real Estate Investment Trusts (“REITs”) is at an all-time high and poised to continue to rise. Some estimates anticipate more than $18 billion to be invested in non-traded REITs by the end of this year.

Solicited with the prospect of annual yields of more than 6%, income-seeking investors have had their hard-earned savings steered into non-traded REITs, oftentimes without a complete disclosure of the risks involved. Many brokers and financial advisors pitch REIT investments to their retirement and near-retirement aged customers, emphasizing the perceived “safety” of real estate investment coupled with the higher than normal annual yield, but do not fully explain the associated risks and bloated commissions (as high as 15% in some cases).

What many investors are not told is that because these investments are not publically traded, while the REIT itself may report to them a specific value for their shares, the actual value of their investment may not be readily available – and could even be 10-20% lower if sold on secondary markets. This discount is often caused by the illiquidity of the investment. In other words, sellers are forced to sell for less than what they paid in order to get out of the investment (also called liquidating the investment).

Criminal Charges Filed Against SAC Capital Adisors

August 2, 2013 | Malecki Law Team

As has been widely reported, Criminal charges were filed against SAC Capital Advisors LP, with accusations that the hedge-fund firm is guilty of a decade long “scheme” of insider trading. In total, prosecutors charged SAC Capital and its business units with a total of four counts of securities fraud and one count of wire fraud. The charges come after a multiyear investigation by the FBI, prosecutors, and the SEC. The government is also accusing former SAC portfolio manager, Richard Lee, of conspiracy to commit securities fraud. The indictment comes only a short time after SAC agreed to a $616 million settlement of insider-trading charges.

Civilly, prosecutors are looking to have SAC and any of its affiliated corporate entities surrender all of their assets. SAC manages some $14 billion in assets, a majority of which does not come from outside investors.

In a separate civil action, the SEC is seeking a lifetime ban for Steven A. Cohen, who started SAC twenty-one years ago with roughly $20 million of personal funds, from managing client money. Mr. Cohen has not been charged criminally but denies any allegation of wrongdoing. Before the financial crisis of 2008, SAC held over $16 billion in assets and reportedly charged some of the highest fees in the business – 3% annually on the total investment, plus as much as 50% of whatever profits the firm generates.

Maxwell B. Smith Sentenced for Running a New Jersey Ponzi Scheme: Investors Should Look to His Brokerage Firm for Relief

June 12, 2013 | Malecki Law Team

Maxwell B. Smith was sentenced to serve the next seven years in federal prison for operating a $9 million Ponzi scheme. Maxwell sold investments as a fund that made loans to nursing homes. Smith had previously plead guilty to several counts of mail fraud as well as money laundering.

It is believed that Smith was employed as a financial professional at several financial firms in New Jersey, where he provided financial advice to his clients, many of whom may have lost money to his Ponzi scheme, Health Care Financial Partners (“HCFP”), purportedly a fund with hundreds of millions of dollars in assets. Investors even received a prospectus guaranteeing 7.5% to 9% per year, tax free. Investors could buy bonds in amounts ranging from $25,000 to $300,000.

Investors may not know that broker-dealers, like the ones that it is believed registered Mr. Smith, have a duty to supervise their employees. As a result, in situations like these, investors may be entitled to recover against the financial firms that employed the financial advisor for failing to supervise their employee.