New York Securities Lawyer Blog

Published on: March 9, 2007

Stockbroker Fraud in Trusts Can Be Caught By Trustees By Investigating

By justia.admin

Trustees have fiduciary duties to trusts. When stockbroker fraud has potentially been committed in a trust, what should the trustee do? Investigate.

A trustee has the duty to investigate red flags of fraud or wrongdoing by stockbrokers and to pursue any legitimate claims for the trust’s benefit. Failure to investigate may make the trustee liable to the trust’s beneficiaries.

Trustees should review the brokerage statements and new account documents of the trust’s brokerage account immediately. If the trustee does not have the expertise to decipher potential fraud, he should speak to an attorney who represents investors in securities fraud cases. If there’s a claim, the trustee should commence an arbitration.

Published on: March 7, 2007

Stockbroker Fraud of Seniors Can Be Caught By Reviewing Their Monthly Statements

By justia.admin

I received two very similar telephone calls this week from baby boomers who were worried that their elderly parents may have been the victim of stockbroker fraud by major Wall Street brokerage firms. Both of them had just learned of the issue.

Ordinarily, we would analyze the brokerage statements and the facts and decide whether the seniors had viable claims. However, there was a problem. The potential stockbroker fraud activity occurred as early as 1999. The children did not know about the issues because the elderly parents never shared their financial information with their grown children.

Huge mistake. There are various statutes of limitations or eligibility rules which can bar investors from bringing claims against brokerage firms. In these two matters, the seniors may have had potential claims but we decided not to take either case because the facts took place many, many years ago.

Published on: March 3, 2007

Securities Fraud Charges Lodged By SEC Against UBS, Morgan Stanley and Bear Stearns Employees for Insider Trading

By justia.admin

We thought huge, brazen insider trading cases went out with Gordon Gekko and Ivan Boesky in the eighties. Apparently not. The SEC charged 14 defendants with securities fraud in one of the boldest insider trading rings in recent years. A total of $15 million was misappropriated.

UBS, Morgan Stanley and a few hedge funds were front and center. Mitchel Guttenberg, an executive director of research at UBS, allegedly provided inside information about UBS research analysts changing opinions on stocks to a hedge fund manager named Erik Franklin. Not only did Franklin trade on the inside information since 2001, his broker buddies at Bear Stearns did too.

Meanwhile, at Morgan Stanley, a lawyer in the compliance department allegedly tipped off her attorney husband and a high school friend about impending mergers. They traded on the inside information and also tipped the same broker buddies at Bear Stearns. The SEC figured out the overlapping schemes because of unusual trading in Adobe, one of the stocks involved in a merger handled by Morgan.

Published on: March 2, 2007

Hedge Fund Fraud Ruling Against Bear Stearns Costs Firm $125 Million

By justia.admin

Bear Stearns was ordered to pay at least $125 million by a New York bankruptcy judge for failing to disclose to investors that Manhattan Investment Fund was committing hedge fund fraud and the firm was instead accepting Manhattan’s funds to cover Bear’s margin exposure. This is a huge decision.

For many years, clearing firms and prime brokers have enjoyed significant protection from the courts when one of their clients have committed securities fraud. The firms have always argued: “all we were doing was clearing trades and providing margin.” The firms forgot to add “and minting money.”

Wall Street firms earn up to $10 billion in prime brokerage revenue each year. A big portion of this is from hedge funds. All the while, firms have been primarily shielded from potential liability when a fund blows up due to hedge fund fraud. The Manhattan decision may change that. Now, when a prime broker sees red flags of potential fraud by a hedge fund it does business with, it better start doing some due diligence.