SEC Charges Another Attorney in Insider Trading Scheme

Yesterday the SEC charged another attorney from Ropes & Gray LLP in the agency's ongoing investigation into a $20 million insider trading ring involving Wall Street traders, lawyers, and hedge fund managers. Last month the Commission charged two Ropes & Gray attorneys for tipping information, and charged 6 others in a scheme that allegedly involved $20 million dollars. More>>>

More Private Placements Under Fire

FINRA has announced that it fined Pacific Cornerstone Capital Inc. and its former chief executive, Terry Roussel, a total of $750,000 for making misleading statements and, in some cases, omitting facts in connection with the sale of two private placements.

Private Placements are coming under increased scrutiny. These offerings, with limited registration and regulatory oversight have been the cornerstone of private capital raising for decades. In the past year or so the SEC and FINRA have been investigating numerous private placements  and bringing enforcement actions.

According to press reports Pacific Cornerstone sold two deals, Cornerstone Industrial Properties LLC and CIP Leveraged Fund Advisors LLC, from January 2004 to May 2009. FINRA also says that both offerings were affiliated businesses of Pacific Cornerstone and raised close to $50 million from about 950 investors.

Those investors are undoubtedly looking for securities attorneys to represent them in litigation over these deals, and other broker-dealers should be reminded that due diligence in Reg D offerings is not simply part of the deal, it is the part of the deal that may keep your firm out of the firing line when the business model does not work out as expected.

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House scraps amendment to place B-D advisers under Finra - Investment News

Hopes for a more streamlined regulatory system for dual registered investment advisers and brokers at brokerage firms were dashed today as the House of Representatives has killed the proposal to have FINRA regulate investment advisers who are also registered representatives as a brokerage firm. Congress is exploring other alternatives, and there is no word as to whether yet another regulatory agency will be created, or the current SEC/State system will remain in place for investment advisers. Either way, investment advisers at brokerage firms will continue to have to separate, and duplicative, oversight entities. >>>More

UBS To Reward Reps for Loyalty and Growth

Competition for brokers - or rather their assets - has intensified over the past two years as firms consolidate. My firm has seen a significant increase in the number of broker transition cases we are handling, both in brokers who are being forced out of their positions, and in those who are voluntarily changing firms.

UBS was one of the firms that was aggressively luring brokers from the competition, at one point in time offering over two times their trailing 12 months gross commissions to join UBS. Of course, those checks came with significant handcuffs - promissory notes with up to 9 years of forgiveness.

UBS is apparently trying to insure that they don't lose those reps. Registered Representative is reporting that the firm has unveiled a new compensation program that will reward the firm's biggest financial advisors for loyalty and growth.

The program applies to advisors who have at least $500,000 in revenue in 2010, which apparently applies to approximately 3,000 of UBS’s network of 7,000 advisors. Those brokers would receive 65% of their gross production for 2010, structured as a seven-year forgivable loan.

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SEC Blocks Early-Stage Ponzi Scheme

Sometimes good things come from a massive failure. Ever since the mis-steps of the SEC have come to light, the SEC has been pouncing on various frauds and schemes and taking swift action. It was typical for the SEC to be the last one on the scene, franticly trying to close the barn door after all of the horses had left and were scattered to parts unknown.

In the last few months we have seen at least four cases where the SEC shut down a scheme as it was getting started. Today the SEC announced that it has halted a Ponzi scheme involving a New York firm that solicited investments involving personal injury lawsuit settlements but instead shipped the money overseas. The SEC obtained a court order freezing the assets of the firm, its president, and several companies holding money from the scam that began several months ago.

Kudos to the Commission for taking swift action. Let's just hope that this swiftness is the result of increased market survelliance, retention of experienced and motivated staff and an renewed vigor, and not the result of a rush to judgment and press releases without evidence or foundation. Time will tell.  More>>>

Lehman Note Investor Obtains 1/2 an Award

A FINRA arbitration panel has awarded damages against UBS in favor of an investor who purchased Lehman principal protected notes.

While the WSJ is presenting the award as a significant win for the investor, and an indicator of the outcome of other cases relating to the Lehman notes, I am not so sure this is that big a win. According to the details contained in the article, the investor obtained 1/2 of the claimed damages, plus interest, costs and an undetermined amount for attorneys fees.

Some would say that any recovery is a good recovery, but is this really a win for the investor? The Lehman notes are worthless.

As in most arbitration awards, the three-person arbitration panel didn't give reasons for its findings. According to the WSJ, the investor argued  that the notes were "speculative derivative securities" and were "unsuitable" for unsophisticated investors. Investors, and brokers, need to be careful in these cases.

I addressed these issues in my column, Lehman Principal Protected Note Arbitrations. While 1/2 the loss is better than a total loss for the customer, it is not necessarily a win for the customer, nor should it be the standard for the other Lehman Note cases that have been filed.

I do not know the details of the case, but if the investment was unsuitable, then it was unsuitable, and the investor should receive compensation for the loss. In addition, suitability cases are fact specific and investor specific. You simply can't attribute the parameters of an award in one case to other cases.

I will continue to update the blog as new awards become available.

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[Edited and updated 12/8/09]

FINRA Execs Pockets Millions

I knew about the issue of FINRA executive compensation, as it came out in a case that I am marginally involved in, but did not have the time, or resources to verify the information that I was given. However, the story of the multimillion dollar salaries for FINRA executives is starting to gain momentum.

InvestmentNews.com ran the story on Thursday, and it is being picked up by other outlets.

FINRA paid its top executives tens of millions of dollars last year, and is spending untold millions on advertising campaigns to promote it's newly minted image as an investor advocate. Isn't it a self regulatory organization? There is a difference, and those millions of dollars would be better spent hiring staff and investigators so that exams and enforcement actions don't take years and years to complete.

Black Box Options Backdating Case Settled

The SEC's options backdating cases are not over yet. The Securities Law Professor Blog's recent post, Black Box and Two Former Officers Settle Back Date Charges with the SEC, and notes that the Commission announced that it filed a civil action in the United States District Court for the Western District of Pennsylvania against Black Box Corporation ("Black Box"), a Lawrence, PA technical services provider, its former Chief Executive Officer Frederick C. Young, 53, of Silver Point, Tennessee, and its former Chief Financial Officer Anna M. Baird, 52, of Bridgeville, PA, alleging violations related to stock-options backdating.

Without admitting or denying the Commission's allegations, all three defendants agreed to settle the matter. More>>>