New York Securities Lawyer BlogOn Wednesday, December 5, 2012, Citigroup announced that it would cut 11,000 jobs, of which 6,200 will occur in the global consumer banking group and 1,900 in the institutional client group, by the end of the year. These job eliminations were implemented in order to increase the cost efficiency of Citigroup as a result of its financial deterioration. This is the first wave of layoffs since Citigroup’s new Chief Executive Officer, Michael Corbat, replaced Vikram Pandit in mid-October 2012. In response to the announcement, Citigroup’s stock price rose approximately 7%. Corbat stated, “While we are committed to – and our strategy continues to leverage – out unparalleled global network and footprint, we have identified areas and products where our scale does not provide for meaningful returns.”
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FINRA Will Seek Comment On A Proposed Broker Compensation Disclosure Rule
During the December 6, 2012 FINRA Board of Directors meeting, the Board authorized FINRA to seek comment on a proposed rule that would require brokers switching firms to inform customers they are soliciting from their old firm of the recruiting bonus they receive from their new firm. The proposed rule would only apply to bonuses in excess of $50,000 and does not apply to customers that meet the definition of an institutional account pursuant to FINRA Rule 4512(c).
Offsets Awarded In Broker-Dealer Promissory Note Cases
Recently, the Securities Arbitration Commentator surveyed various FINRA cases and found that in a majority of cases between employees and their member firms in which the member-firm claimant asserted a promissory note or loan default claim, the member-firm usually recovered at least the amount of the unpaid balance of the promissory note or loan. There is a rising trend, however, for FIRNA arbitration panels to offset the unpaid loan balance and issue reduced awards when the former employee respondent raises viable counterclaims.
A Client of the Merrill Lynch Phil Scott Team Wins a $1.7 Million FINRA Arbitration Award Against Merrill Lynch and Phil Scott, including Costs and Attorneys’ Fees
This is the THIRD time where Lax & Neville LLP has won a significant FINRA arbitration award for the same purported sales practice abuses concerning the Merrill Lynch Phil Scott Team and the Merrill Lynch Phil Scott Team Income Portfolios and Blue Chip Portfolios. In the most recent arbitration, the Merrill Lynch Phil Scott Team recommended that Claimant invest 100% of his Merrill Lynch assets in the Merrill Lynch Phil Scott Team Income and Blue Chip Portfolios, which both consisted of 100% equities. This concentration of equities was patently unsuitable for the Claimant. During the arbitration process, Claimant focused on the Merrill Lynch Phil Scott Team’s blatant disregard of industry and regulatory obligations, and Claimant’s risk tolerances and investment objectives. Claimant also focused on Merrill Lynch’s lack of supervision of Phil Scott and his team members. In finding for the Claimant, the Arbitration Panel stated in the Award that it was “particularly concerned by the following actions of Respondents: (i) Misrepresentations and omissions were contained in the unrestricted marketing materials supplied by Respondents to Greg Porter, who in turn, having been cloaked with apparent authority by Respondents, presented the misleading materials to Claimant. This wrongdoing was caused by Respondent Merrill Lynch, Pierce, Fenner & Smith Incorporated’s inadequate supervision before the fact and aggravated by its failure to take corrective action after it received notice of the communications; (ii) Respondents’ manner of using the Personal Investment Advisory Questionnaire as a disclosure device was misleading and had the capacity to deceive. Respondent Merrill Lynch, Pierce, Fenner & Smith Incorporated’s continuing approval of this use constitutes inadequate supervision; and (iii) Respondent Merrill Lynch, Pierce, Fenner & Smith Incorporated’s failure to comply with its own ARMOR report procedures constitutes a breach of its duties toward Claimant and another example of inadequate supervision.” (See FINRA Arbitration Award). In the Award, the Arbitration Panel further stated, “[t]his list is not all-inclusive but is intended to give Respondents the benefit of some of the Panel’s conclusions so Respondents can modify their conduct accordingly.” (See FINRA Arbitration Award). The FINRA arbitration award against Merrill Lynch and Phil Scott consisted of $1,100,000 in compensatory damages, $540,144.00 in attorneys’ fees, along with costs in the amount of $74,341.00.
Recent District Court Decision Compels Arbitration Of The Lead Plaintiffs’ Individual Claims In A Putative Employment Class Action Against UBS
In April 2011, three (3) California residents, Eliot Cohen, Philip Ricasata and Charles Shoemaker, commenced a class and collective action on behalf of themselves and other members of a proposed California class and nationwide collective group (collectively referred to as “Plaintiffs”), against UBS Financial Services, Inc. and UBS AG (collectively referred to as “UBS”). Eliot Cohen, Phillip Ricasata and Charles Shoemaker, on behalf of themselves and all others similarly situated vs. UBS Financial Services, Inc. and UBS AG, Index No. 12-cv-02147 (BSJ)(LJC). The Honorable Barbara S. Jones, in the District Court for the Southern District of New York, presided over the matter. The Plaintiffs, all current or former financial advisors, asserted class and collective action claims against UBS including violations of the Fair Labor Standards Act (“FLSA”), the California Labor Code (“CLC”) and the California Unfair Competition Law (“CUCL”). In response to Plaintiffs’ Third Amended Complaint, UBS filed a Motion to Compel Arbitration and Stay the Action (“Motion to Compel”) pursuant to the Federal Arbitration Act (“FAA”), and alleged that Plaintiffs individually agreed to arbitrate the claims raised in Plaintiffs’ Third Amended Complaint. Specifically, UBS asserted that Plaintiffs all executed a Financial Advisor Compensation Plan which required Plaintiffs and UBS to bring any claims concerning compensation, benefits or other terms of their employment to arbitration and required that Plaintiffs waive the right to commence, or be a party or member of a class or collective action regarding their employment with UBS. Moreover, UBS asserted that Plaintiffs executed other agreements with UBS, including, but not limited to, Employee Forgivable Loans and Promissory Notes, Financial Advisor Account Reassignment Agreements, FA/PW Partnering Agreements and Account Reassignment Agreements which similarly contained an arbitration provision and waiver of class/collection action provision.
Commodities Futures Trading Commission Filed and Settled Charges Against Cantor Fitzgerald For Failure to Maintain Sufficient Funds In Customer Segregated Accounts
Recently, on November 21, 2012, the United States Commodities Futures Trading Commission (“CFTC”) announced that it simultaneously filed and settled charges with Cantor Fitzgerald (“Cantor”), a registered futures commission merchant (“FCM”) for failure to maintain sufficient funds in its customer segregated accounts from January 24 through 26, 2012 and for failure to timely notify the CFTC of its under-segregation. Pursuant to the Commodity Exchange Act (“Exchange Act”) and various CFTC regulations, Cantor, as a registered FCM, is required to compute the amount of customer funds required to be segregated on a daily basis and segregate that amount of customer funds from proprietary funds. Specifically, the CFTC found that from January 24 through 26, 2012, Cantor under-segregated its customer accounts by inadvertently transferring $3 million from its customer segregated fund accounts, when that $3 million should have been transferred from the Cantor proprietary accounts. Although Cantor ran its daily required computation of the amount required to be segregated in customer accounts, it did not realize that it was under-segregated until January 27th. Indeed, the various Cantor employees who are responsible for notifying the CFTC and Chicago Mercantile Exchange of compliance with the Exchange Act segregation requirements all failed to realize that the customer accounts were under-segregated. Upon recognizing its deficiency, Cantor immediately rectified the under-segregation. The CFTC also held that various supervisory failures regarding internal controls and policies added to Cantor’s failure to recognize that it was under-segregated for three (3) days. As a result, the CFTC imposed a $700,000 monetary penalty on Cantor, and ordered that Cantor undertake internal control improvements to prevent future segregation violations. If you have suffered losses from investments with Cantor or any other future commission merchant, investment adviser firm or brokerage firm, please contact Lax & Neville LLP for a consultation at (212) 696-1999.
Broker-Dealers Face Investor Lawsuits Regarding The Sale of Medical Capital Notes
Medical Capital Holdings, Inc. is a medical receivables financial company that operated through Medical Capital Corporation, to administer several Special Purpose Corporations, including Medical Provider Funding Corporation VI. Between 2003 and 2009, Medical Capital Holdings, Inc., Medical Capital Corporation, and Medical Provider Funding Corporation VI (collectively referred to as “Medical Capital”) sold approximately $2 billion in private notes to investors through independent broker-dealers, such as Securities America Inc. and Hantz Financial Services Inc. Reportedly, certain investors were told that the proceeds from the sale of the notes would be used to purchase accounts receivable, pay sales commissions, and provide general operating funds to Medical Capital. In July 2009, the Securities and Exchange Commission investigated and charged Medical Capital’s former chief executive, Sidney Field, and former president Joseph J. Lampariello, with fraud regarding the offering of notes, specifically with the notes in Medical Provider Funding Corp. VI. As a result of the SEC’s securities enforcement action, investors commenced lawsuits, including class actions, against their broker-dealers for their involvement in the fraudulent sale of these notes. Many of these independent broker-dealers have subsequently gone out of business due to the immense legal fees and costs associated with the investor lawsuits. One broker-dealer, however, Hantz Financial Services Inc., is still defending against a putative class action filed on behalf of investors who were sold the Medical Capital notes through Hantz Financial Services Inc. It is believed that Hantz Financial Services Inc. sold Medical Capital notes to over 300 clients which may have resulted in combined damages of over $20 million. The judge presiding over this putative class action will soon render an order regarding class certification. If you have suffered losses from investments with Hantz Financial Services Inc. and/or Medical Capital, or any other investment adviser firm or brokerage firm, and believe that you are a victim of sales practice abuses, please contact Lax & Neville LLP for a consultation at (212) 696-1999. Our firm has extensive experience and knowledge representing victims of investment fraud nationwide.
Second Circuit to Consider Proper Forum for Employer Based Discrimination Claims
The United States Court of Appeals for the Second Circuit (“Second Circuit”) is currently considering whether a gender based discrimination suit filed by former executives of Goldman, Sachs & Co. (“Goldman”) is required to be adjudicated before an arbitration panel or in federal court. See Chen-Oster v. Goldman, Sachs & Co., 785 F. Supp.2d 394 (S.D.N.Y. 2011), appeal docketed, No. 11-cv-5229 (2d Cir. Dec. 13, 2011). In September 2010, three (3) female Goldman employees, H. Cristina Chen-Oster, a former Vice President in Goldman’s Convertible Bonds Department, Lisa Parisi, a former Managing Director in Goldman’s Value Group and Shanna Orlich, a former Analyst in Goldman’s Capital Structure Franchise Trading Department (collectively referred to herein as “Plaintiffs”) commenced a class action suit against Goldman under Title VII of the Civil Rights Act of 1964 (“Title VII”), 42 U.S.C. §§ 2000e et seq., and the New York City Human Rights Law (“NYCHRL”), N.Y.C. Admin. Code §§ 8-107 et seq. Plaintiffs alleged that it is within Goldman’s corporate culture to discriminate against its female professional employees by: (1) paying its female professionals less than similarly situated males; (2) disproportionately promoting male employees over equally or more qualified female employees; and (3) offering better business opportunities and professional support to its male professionals. In addition to bringing this action on their own behalf, the Plaintiffs also sought to represent a class of current and former female Associates, Vice Presidents, and Managing Directors employed by Goldman in order to end Goldman’s discriminatory policies and practices entirely.
Madoff Trustee Files Eighth Interim Report With Bankruptcy Court
On November 5, 2012, Irving H. Picard (“Trustee”), the Trustee for the liquidation proceeding of Bernard L. Madoff Investment Securities LLC (“BLMIS”), filed an Eighth Interim Report (“Eighth Interim Report”) pursuant to Securities and Investor Protection Act and the Claims Procedures Order rendered by Judge Burton R. Lifland in the United States Bankruptcy Court for the Southern District of New York on December 23, 2008. The Eighth Interim Report apprised the Court of any and all updates to the various aspects of the overall bankruptcy of BLMIS, including, but not limited to the payments of Securities Investor Protection Corporation (“SIPC”) customer claims, as well as an update regarding the clawback adversary proceedings. See Eighth Interim Report here. Pursuant to the Eighth Interim Report, as of September 30, 2012, the cost of liquidating the BLMIS bankruptcy proceeding has climbed to nearly $682 million. The Trustee stated that of the $3.7 billion lost as result of Madoff’s Ponzi scheme, the Trustee has recovered $9.2 billion, which is over fifty percent (50%) of the currently estimated principal lost in the Ponzi scheme by BLMIS customers who filed customer claim forms with SIPC. SIPC has also paid out an additional $1.4 billion. Recently, the Trustee made a second interim distribution to BLMIS customer by distributing approximately $2.5 billion. One section of the interim report described the Trustee’s Ninth Application for Allowance of Interim Compensation for Services Rendered and Reimbursement of Actual and Necessary Expenses Incurred from October 1, 2011 through January 31, 2012. During that time period, Baker & Hostetler incurred legal fees in the amount of $48,107,863.80 and the Trustee was personally compensated in the amount of $536,583.00. Moreover, Baker & Hostetler sought reimbursement for expenses incurred in the amount of $6,149,828.34. Judge Lifland granted this Interim Fee Application on August 30, 2012. According to the Eighth Interim Report, from December 2008 through September 30, 2012, Baker & Hostetler LLP, including the Trustee, has incurred legal fees in the amount of $352,541,178.94 and expenses in the amount of $8,055,060.11. As of September 30, 2012, the cost of liquidating the BLMIS bankruptcy proceeding has climbed to nearly $682 million. Many victims and others believe that the immensely high legal fees and expenses incurred by the Trustee’s counsel present a blatant conflict of interest, and should raise the question of whether the Trustee’s efforts are truly in the best interest of the BLMIS estate, or whether his efforts are meant to prolong the process in an attempt to line his own pockets while potentially violating the due process rights of the Madoff victims. Lax & Neville LLP effectively assists investors, on both a regional and national level, that may have suffered losses as a result of their broker dealer’s breaches of fiduciary duties and/or disregard for their investment interests, including losses suffered in Ponzi Schemes. Please contact our team of securities fraud attorneys for a consultation at (212) 696-1999.
FINRA Arbitration Panel Ordered Merrill Lynch to Pay Investors $1.3M for its Misrepresentations Regarding the Recommendation to Purchase Fannie Mae Preferred Shares
A Financial Industry Regulatory Authority (“FINRA”) arbitration panel recently rendered an award ordering Merrill Lynch Pierce, Fenner & Smith Inc. (“Merrill Lynch”) to pay $1.3 million to Claimants Robert and Michele Billings (“Billings”) who claimed that the brokerage firm misrepresented the risks associated with the purchase of Fannie Mae preferred shares. According to the statement of claim filed with FINRA in May 2011, based upon their broker, Miles Pure’s, recommendation that the shares were “safe,” had an attractive yield and were back by the U.S. Government, the Billings invested approximately $2.3 million in Fannie Mae preferred shares. Forty-one (41) days after Mr. Pure made these recommendations to the Billings, the Federal Housing Finance Agency placed Fannie Mae in conservatorship. Further, Merrill Lynch’s own analyst team had downgraded the Fannie Mae common stock to “sell” five months earlier. The Billings’ entire investment was rendered “virtually worthless.” The Billings asserted the following causes of action: (1) breach of fiduciary duty; (2) negligence; (3) negligent supervision; (4) fraud; and (5) breach of contract. The Billings sought compensatory damages in excess of $1,000,000, as well as punitive damages and other relative costs. The arbitration panel ultimately found Merrill Lynch liable for breach of fiduciary duty and, although it denied the Billings’ request for punitive damages, it ordered Merrill Lynch to pay a total of $1.3 in compensatory damages. The arbitration panel denied Merrill Lynch’s request to expunge the Billings’ allegations from Mr. Pure’s publicly available broker record. See Broker CRD here. The full text of the arbitration panel’s award can be viewed here. If you have suffered losses from investments with Merrill Lynch or any other investment adviser firm or brokerage firm, and believe that you are a victim of sales practice abuses, please contact Lax & Neville LLP for a consultation at (212) 696-1999. Our firm has extensive experience and knowledge representing victims of investment fraud nationwide.