ABOUT BROKER FRAUD BLOG

SEC Freeze Assets in Alleged Diamond-Themed Ponzi Scheme

The SEC alleges that Richard Dalton and Universal Consulting Resources LLC (UCR) raised approximately $17 million from investors for two fraudulent offerings. The programs were generally referred to as the “Trading Program” and the “Diamond Program.” See the SEC press release here.

Investors in the allegedly fraudulent programs received monthly payment from UCR bank accounts that were said to be profits from successful trading; however, there is no evidence to substantiate $10 million profit claimed by the two programs.

The SEC claims that that most of the money that came into the UCR bank accounts were actually funds received from new investors. It is believed that the Daulton and UCR used these newly acquired funds to make the monthly payments to existing investors, while continuing to recruit new investors in order to keep the scheme running.

The SEC claims that during this time Daulton used investor funds to purchase a home, a vehicle, and pay for his daughter’s wedding reception.

According to the SEC’s complaint Daulton told investors that their money would be held in an escrow account in a U.S. bank, and that the funds would be used to obtain leveraged to purchase and sell bank notes, but that the funds themselves would never be used.

Daulton promised 4-5 percent monthly returns for investors in the “Trading Program” and 10 percent monthly returns for investors in the “Diamond Program.” That basically 50-60 percent annual return for “Trading Program” investors and 120 percent returns for “Diamond Program” investors.

Earlier this week the SEC was granted a request to freeze UCR’s assets. In addition to emergency relief for investors the SEC is seeking permanent injunctions, disgorgement plus pre-judgment interest, and financial penalties against all of the defendants.

These types of returns, with very low to no risk should always raise a red flag for investors. High returns typically come with high risks, and in turn low risk investments typically see lower returns. As with anything else, investment opportunities that seem too good to be true often are.

If you have been the victim of investment fraud it is not your fault. The investment fraud attorneys at The Hayes Law Firm have been helping fraud victims for years and can help you too. Please contact us for a free consultation with an investment fraud lawyer.

Arbitrators Award Ten Times Amount of Investment in Auction Rate Securities Case

Last month an arbitration panel ordered the investment firm USB financial to pay over $80 million in consequential investments to Kajeet, Inc., a company who markets cellphones for kids. Kajeet’s award fell short of the $110 million requested but was more than ten times the company’s the initial $8 million investment.

"This case sends a shot across the bow for Wall Street firms that if they violate securities laws, they can be held liable for consequential damages," said investors' lawyer Jacob Zamansky.

According to a recent WSJ article, Kajeet was forced to cut their 60 employee staff by more than half and cost the company a key distribution deal with a well known retail chain when the action rate securities market froze in February of 2008.

Auction rate securities were sold to investors as safe investments that were similar to cash or money market funds that offered higher return rates than long term debt investments, but when the market froze investors no longer had access to their funds causing a liquidity crisis for many investors.

It is great to see Wall Street being held accountable for their actions. Rulings like this one are necessary to safeguard investors from many of the devious tactics employed by many Wall Street investment firms.

Raymond James Must Buy Back Auction Rate Securities

A Texas couple got some great news last week from the FINRA arbitration panel that ruled on their claim.

The panel ruled that the Raymond James Financial Inc. and broker Larry Milton must buy back some $925,000 worth of auction rate securities from a the couple.

Rex and Sherese Glendenning alleged breach of fiduciary duty, misrepresentation and civil fraud, among other allegations. According to their attorney the couple opened a Raymond James account to consolidate fund that were held in numerous CODs in an effort to make their finances easier to manage. That is not what they ended up getting.

The suit claimed that the Glendenning's broker, Mr. Milton, purchased auction rate securities on behalf of the couple although they had never discussed these purchases and expressed their desire to invest in CDs.

The couple found themselves at the heart of the auction rate securities debacle when the market froze in February of 2008 leaving them with no way to access their investments.

It has been a rough couple of months for Raymond James. This is the second time in as many months that the company has been ordered to buy back auction rate securities from investors. In July they were ordered to buy back $2.5 million from a client who was acting as a trustee for a revocable trust.

Texas Billionaire Brothers Respond to SEC

Last month two billion brothers from Texas were hit with a securities fraud lawsuit by the SEC alleging that the brothers attempted to hide $550 million in trading profits.

The Wylys brothers were accused by the SEC of using sham trusts and subsidiaries in the Isle of Man and the Cayman Islands to conceal sales of stocks of public companies they were directors of. The SEC has been investigating the inner workings of the alleged fraud for some six years and recently decided that they had enough evidence to file suit.

 The brothers have always vehemently denied the charges through their lawyer, but have never publicly addressed the issue themselves, until now that is.

Months of settlement talks between the Wylys brothers and the SEC have made little progress toward a resolution and now the brothers are speaking out about the suit in this New York Times article.

“They gonna lose,” said Sam Wyly. They gonna get nothing.”

The brothers claim the goal of the trusts was estate planning and tax deferral. They claim that if there were mistakes in establishing the trusts or disclosing revenue it was the fault of experts hired by the brothers to manage the trusts.

The SEC looks at the accusations a little differently, saying that the Wylys brothers knew or should have known, that they were violating the law.

It will be very interesting to see how this one unfolds in the coming months.

BP Securities Lawsuits Heading to Houston

By now I am sure that everyone knows about the thousands of claims BP is facing over property damage and loss of income resulting from the massive oil spill that released millions of gallons oil into the Gulf of Mexico, but my guess is that far fewer are aware of another large group of lawsuits BP is facing over losses suffered by investors and employees who took big hits their portfolios as BP stock prices plummeted following the spill.

The lawsuits allege that BP knew the rig was unsafe and made attempts to downplay the spill so that shares would be purchased at an inflated price.

This host of suits has been consolidated to Houston under U.S. district Judge Keith P. Ellison. Ellison will heart civil securities fraud claims, shareholder derivative actions, and claims from BP employees who have taken loses to their retirement plans. All cases falling outside of the securities realm will be transferred to New Orleans.

Some experts believe securities lawsuits may actually end costing BP more than economic loss claims when all is said and done.

BP has reportedly aside $32.2 billion to for spill costs and to pay legal claims, in addition to the $20 billion in the claim fund, but many believe cost will easily exceed this $52.2 billion threshold.

Barclay’s Agrees to Pay $298 Million for Evading U.S. Sanctions

The London-based Barclays Bank has agreed to pay $298 million to settle criminal charges for helping banks in Iran, Cuba, Libya, Mayanmar, and Sudan evade U.S. economic sanctions. See the WSJ article here.

According to prosecutors, bank employees deleted and changed payment messages referencing the banned countries, routed some payments through an internal account so they would look like they were coming from England, and sent others back to the senders with a fax coversheet reading, “Payments to U.S.A. must NOT contain the word listed below.”

Prosecutors say that Barclay’s even developed internal instruction manuals to process payments from foreign banks into the U.S. and avoid detection by authorities.

An internal Barclay’s review found $500 million in payments were processed from countries that had been sanction by the U.S.

If Barclay’s fulfills all of its obligations in the deal the charges will be dismissed.

6 Ways to Avoid Mortgage and Insurance Broker Fraud

You can’t start and finish the home-buying process overnight. Rushing through the steps isn’t recommended either, since buying a home is one of the biggest investments of your life. One of the keys to buying a home is financing it. You also don’t want to rush through buying insurance, since good insurance can make or break it for you in a tight spot. But to get the mortgage or insurance you want, you’ll need a trustworthy broker. To avoid getting scammed or employing the services of an unethical broker, take a few precautions.

• Make sure your broker is properly bonded. To legally operate, mortgage and insurance brokers must buy a bond. Brokers who purchase surety bonds guarantee that you cannot lose money in case they mismanage your money or fail to do their job. Confirm that the broker is licensed in your state. If your broker is in New York, they should hold a surety bond in New York.
• Search thoroughly for a reputable broker. The general Internet search isn’t always enough. Though if you limit your search with specifics such as “mortgage broker surety bond New York,” then you might yield better results. Contact organizations (National Association of Mortgage Brokers, Mortgage Bankers Association, National Association of Professional Insurance Agents) for help. Family, friends and future neighbors can usually suggest an honest broker.
• Do a background check. If the broker refuses to give you references or gives you phony ones, that’s a deal breaker. It takes one phone call to your local Better Business Bureau to find out if customers have filed complaints against the broker. However, to be a part of the BBB a company simply pays the bureau. So contact your state insurance department to investigate the conspicuous broker.
• Look out for false claims. If a broker offers coverage with huge discounts (30 to 50 percent), think twice before signing anything. Find out what the real range is on coverage. Beware of super-low interest rates and insurance premiums. Some brokers dangle these as part of a bait and switch. Other brokers can identify bait-and-switch offers for you.
• Pay wisely. Checks and money orders are the reliable ways to pay your premiums—never cash. Make copies of your payments, insist on getting a receipt and pay the insurance company instead of the broker.
• Read before you sign. It might be tedious, but reading everything before you buy coverage could save you. Don’t sign blank forms and photocopy all of the forms you do sign. Once your broker willingly covers the details and all forms are signed, then buy your coverage.

Guest Post by Matthew Bruns

Goldman Reaches Deal with SEC, but Who is the Big Winner?

The deal the between Goldman and the SEC is done. And as with any settlement the question we want answered is, “who came out on top?”

And the winner is … everybody and nobody. The general consensus is that neither Goldman nor the SEC comes away from the deal with dominating victory, but then neither leaves after a staggering defeat either.

Both parties can come away from the settlement with their heads held high and can be happy with the result. The deal consists of a payout of a very manageable $550 million by Goldman, but the over half a billion dollar payout is still very large in terms of SEC standards.

The SEC comes out looking pretty good by recovering over half of the losses on the ABACUS deal, while Goldman saves face by admitting to negligence but steering clear of an admission of fraud. This was probably the biggest victory for Goldman in the deal as a fraud admission would have dealt a much larger blow in the civil lawsuit arena.

It really is a rather good deal for both sides and will serve as template for the SEC dealing with similar matters in the future.

Victory at Last for Non-Profit in Securities Lawsuit

Last July the Financial Industry Regulatory Authority (FINRA) awarded the non-profit religious book distributor United Prison Ministries $220,000 plus interest for losses suffered after investing in Morgan Keegan bond funds.

Finally, they will getting the funds they deserve after an Alabama judge ruled in their favor by denying Morgan Keegan's request to overturn the award.

Morgan Keegan argued that one of the arbitrators that had decided the case was biased toward the plaintiff; however, Alabama state court Judge Nicole Gordon Still disagreed and confirmed the ruling after deducting $20,000 that had been awarded for double expert fees.

United Prison Ministries was represented in the lawsuit by securities attorney, Debra Hayes of the Hayes Law Firm in Houston. 

Hayes is happy with court's ruling and glad that she will finally be able to return the lost funds back to her client "despite Morgan Keegan’s every attempt to delay payment to this worthwhile charity."

The Hayes Law Firm focuses their practice on helping individuals and business that have lost investment funds due to investment fraud and other shady dealings of investment firms and brokers.

Former Mortgage Exec Accused of Multi-Billion Dollar Scam

Yesterday federal officials announced that the former chairman of one of the nation’s largest mortgage firms, Taylor, Bean, & Whitaker had been indicted for his alleged role in a multi-billion dollar fraud scheme.

Federal officials claim that Lee Bentley Farkas committed $1.9 billion fraud against investors and the federal government. The scam allegedly directly led to the demise of not only Farkas’ firm but Colonial Bank of Alabama as well.

According to the Washington Post federal officials described an even larger scheme that caused such collateral damage to government agencies that it has only begun to be tallied.

Taylor Bean allegedly hid the true nature of the turmoil and allowed the firm to be fraudulently meet conditions that lead to them becoming one of the largest business partners of the Federal Housing Administration and Ginnie Mae.

Court documents allege that Farkas tried to cover up the scheme and used over $20 million in investor funds for personal expenses, including private jets and properties in Florida.

Farkas is also accused of trying to defraud the Treasury Department of $553 million in a scheme he and other conspirators called “Project Squirrel.”

If convicted Farkas will likely face a life sentence.

Federal authorities said the investigation will continue, which probably means that future arrest will probably be made in the coming months.

An attorney for Farkas, Anthony Cochran, said his client will plead not guilty and will "vigorously defend against the charges. He looks forward to having his day in court to clear his name."