New York Securities Lawyer BlogOn Friday August 29, 2014, the Securities and Exchange Commission (“SEC”) awarded a corporate audit and compliance employee $300,000 for ‘whistleblowing,’ the first such award to be handed out by the SEC. The award represents 20 percent of the $1,500,000 fine against the employer, which was the result of an enforcement action brought by the SEC against the employer.
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SEC Tightens Regulations of Asset Backed Securities
On August 27th, 2014, the Securities and Exchange Commission (“SEC”) unanimously decided to revise the rules that govern the disclosure, reporting, and offering of asset-backed securities (“ABS”) which would enhance transparency, better protect investors and facilitate capital formation in the market. ABS are financial securities backed by loans, leases or receivables against assets other than real estate and mortgage-backed securities. For investors, ABS are an alternative to investing in corporate debt.
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FINRA Arbitration Panel Awards Customer $4,500,000 against Morgan Stanley for Negligent Handling of Trust Account
On August 15, 2014, a three (3) member Financial Industry Regulatory Authority (“FINRA”) arbitration panel found Morgan Stanley & Co., Inc. (“Morgan Stanley”) liable for negligence and negligent supervision. Banco Nacional de Mexico SA, known as Banamex Financial Group (a subsidiary of Citigroup, Inc.), as Trustee of the Trust Agreement Numbered 15437-5 (“Banamex”), originally filed a Statement of Claim against Morgan Stanley on March 16, 2012 alleging breach of fiduciary duty, negligence, negligent supervision, conversion, fraud, and tortious interference with a contract. The case related to whether Banamex agreed to pledge the assets held in the Canassi Family Trust sub-accounts (a high net worth client) against a third party debtor (known as a cross-pledge). The trust was established in 2007 by a group of siblings and their mother, who used proceeds from the sale of inherited property. The trust was managed by Morgan Stanley’s banking unit.
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On July 24, 2014, James Tagliaferri Was Found Guilty By A Jury In Manhattan Federal Court In Connection With His Fraudulent Scheme
On July 24, 2014, a jury in Manhattan federal court found James Tagliaferri (“Tagliaferri”), a 75 year old former investment advisor and former president of TAG Virgin Islands (“TAG”), guilty on twelve (12) of fourteen (14) counts including investment adviser fraud, securities fraud, multiple counts of wire fraud, and multiple counts of violating the Travel Act in connection with his scheme to defraud his investment advisory clients. Prior to opening TAG in 2007, Tagliaferri offered investment advisory services through another company he owned called Taurus Advisory Group, which was based in Connecticut. According to the Superseding Indictment and evidence presented at trial, beginning in 2007, when Tagliaferri opened TAG, Tagliaferri executed a multi-faceted scheme in order to defraud TAG investment advisory clients.
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The Securities And Exchange Commission Charges Investor Relations Executive With Insider Trading
On July 22, 2014, the Securities and Exchange Commission (“SEC”) charged Kevin McGrath (“McGrath”), a partner and account executive at Cameron Associates (“Cameron”), an investor relations firm in New York City, with insider trading on confidential nonpublic information he learned about two Cameron clients for whom McGrath was performing work. The two companies McGrath allegedly traded on nonpublic information regarding were Misonix, Inc. (“Misonix”) and Clean Diesel Technologies, Inc. (“Clean Diesel”).
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Dudley Franklin Stephens Suspended And Fined For Taking Confidential And Proprietary Client Information When Resigning From HSBC
On June 16, 2014, the Financial Industry Regulatory Authority, Inc. (“FINRA”) Department of Enforcement issued a Letter of Acceptance, Waiver and Consent (“AWC”) regarding Dudley Franklin Stephens, a registered representative. Pursuant to the AWC, Stephens began working in January 2000 as a General Securities Representative and Principal through association with multiple FINRA member firms. From January 11, 2011 through May 3, 2013, Stephens was associated with HSBC Securities (USA) Inc. (“HSBC”). The AWC concerned Stephen’s removal and use of confidential and proprietary HSBC customer information without authorization. The AWC states, “Stephens took the information with him when he left his employment at HSBC to assist him in opening customer accounts at his new employing broker-dealer. Stephens failed to observe high standards of commercial honor and just and equitable principles of trade in violation of FINRA Rule 2010.” Specifically, Stephens was accused of printing a spreadsheet which contained customer names, account numbers, social security numbers, addresses and other information for approximately 308 customers. Interesting the FINRA AWC states that pursuant to Regulation S-P of the Securities Exchange Act of 1934, that information constituted nonpublic personal information; however the AWC makes no distinction between the client list and the taking of the list with account numbers and social security numbers. FINRA has not taken the position that Protocol compliant lists are Confidential Information under Reg. S-P so this case demonstrates that departing from the strict limitations of the Protocol can result in not only litigation by the firm a registered representatives departs, but also serious regulatory actions. This FINRA action highlights the need for registered representatives to hire experienced counsel prior to making any move between firms.
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Steven Burrill of Burrill & Co. Removed from Control as the General Partner of Capital Venture Fund for Making Unauthorized Payments
According to state court documents recently filed in California, G. Steven Burrill, the CEO and founder of Burrill & Co., a San Francisco based financial firm specializing in biotechnology and life sciences, was removed from control as general partner of Burrill Life Sciences Capital Fund III (the “Fund”), a venture capital fund, by 13 large institutional investors that asserted willful or reckless misconduct related to unauthorized payments.
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FINRA Panel Orders Former Wells Fargo Broker To Repay Firm Principal Balance Of Promissory Notes
On June 10, 2014, a FINRA arbitration panel rendered a decision in a case in which Wells Fargo Advisors, LLC (“Wells Fargo”) brought a claim against Philip Anthony Duamarell (“Duamarell”), one of its former brokers, for breach of four promissory notes dated November 30, 2007, December 1, 2008, February 1, 2009 and September 1, 2009. (See FINRA Arbitration Case No. 10-04257). Duamarell denied the allegations in the Statement of Claim filed by Wells Fargo and he asserted various counterclaims against Wells Fargo, including, but not limited to, inequitable misconduct, constructive termination, and breach of the written employment contract. Duamarell claimed that during the recruitment process, Wells Fargo oversold its ability to service corporate stock plans. He further claimed that he left Wells Fargo when it became clear that Wells Fargo was unable to do business with clients in the same way as his former employer, Smith Barney. In one of the largest promissory note decisions this year, the FINRA arbitration panel found that Duamarell was liable for the principal balance due on all four promissory notes, totaling $1,282,024.77, and denied his counterclaims in their entirety. The arbitration panel did not hold Duamarell liable for Wells Fargo’s legal fees and interest.
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SEC Charges Paradigm Capital Management and Candace Weir with Conducting Conflicted Transactions and Retaliating against Whistleblower
The Securities and Exchange Commission (“SEC”) filed an Order instituting Cease and Desist Proceedings against Paradigm Capital Management (“Paradigm”), an investment adviser firm, and Candace Weir, the founder, Director, President, Chief Investment Officer, and Portfolio Manager of Paradigm. Weir is also the founder, Director, Chief Executive Officer, and President of C.L. King & Associates, Inc. (“C.L. King”), a broker-dealer based in Albany, New York. The SEC charged Paradigm and Weir with engaging in prohibited and conflicted transactions and then retaliating against the employee who reported the unlawful trading activity to the SEC. In anticipation of the institution of the SEC proceedings, Paradigm and Weir submitted an Offer of Settlement and agreed to pay $2.2 million to settle the SEC’s civil charges.
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The Securities And Exchange Commission Charges Investment Advisor With Defrauding Clients
On June 3, 2014, the Securities and Exchange Commission (“SEC”) filed an emergency enforcement action against Scott Valente (“Valente”) and The Eliv Group, LLC (“The Eliv Group”), his one-man advisory firm based out of Albany, New York, in order to stop their alleged ongoing fraud. In its Complaint, the SEC alleges that since at least November 2010 through the present, Valente and The Eliv Group fraudulently lured approximately eighty (80) individual and unsophisticated investors who mainly reside in the Albany and Warwick, New York area to become advisory clients and invest more than $8.8 million. Valente and The Eliv allegedly made various misrepresentations to potential customers, including that they have achieved consistent and outsized, positive returns and that clients’ principal was “guaranteed” by a large money market fund. Instead, Valente and The Eliv Group sustained investment losses for each of the full three years The Eliv Group had been in existence, and customers’ funds were not “guaranteed” or backed by money market funds. According to the SEC Complaint, on The Eliv Group website, Valente claimed that he had a 30-year record of investment experience “dedicated to the highest standards of service” when in fact he had filed for bankruptcy twice and was permanently expelled from the broker-dealer industry in 2009 based on the Financial Industry Regulatory Authority’s findings that he had engaged in serial misconduct against numerous customers.