Investor Fraud Watch

Morgan Keegan Settles Fraud Charges and Agrees to Pay $200 Million

Charles C. Mihalek, P.S.C. — Wed, 22 Jun 2011 20:23:22 +0000

Morgan Keegan & Co. and its affiliate, Morgan Asset Management, Inc. (“MAM”) have agreed to pay $200 million to settle fraud charges brought by the U.S. Securities and Exchange Commission and five states, including Kentucky. The Kentucky Department of Financial Institutions stated that more than 2,000 Kentucky investors sustained about $50 million in losses. $11 million in restitution will be paid to Kentucky investors.

This action is a direct result of intensive investigations led by regulators in Kentucky, Alabama, Mississippi, South Carolina and Tennessee in cooperation with several other states, along with the Securities and Exchange Commission (SEC) and Financial Industry Regulatory Authority (FINRA).

The investigation centered around seven proprietary mutual funds sold by Morgan Keegan broker dealers to more than 30,000 account holders. Those seven mutual funds lost approximately $1.5 billion dollars from March 31, 2007, to March 31, 2008. The states’ joint administrative actions against Morgan Keegan, Morgan Asset Management, and certain employees, alleged that the firms:

Made material omissions and misrepresentations in marketing materials,
Made material omissions and misrepresentations in regulatory filings,
Withheld information from and misrepresented information concerning the funds to the Morgan Keegan sales force,
Provided preferential treatment to certain customers,
Failed to make suitable recommendations concerning purchases and concentration of the funds in customer accounts,
Failed to adequately supervise their employees, and
Obstructed the due diligence process.

State securities regulators are continuing the cases and charges against Brian B. Sullivan, Gary S. Stringer and Michele F. Wood, who have not entered into the consent orders. James Kelsoe settled charges with the states and SEC and was ordered to pay $500,000, split equally between the states and SEC. To dismiss further charges, Kelsoe agreed to the revocation of all his existing registrations/licenses and an order of permanent bar from involvement in the securities industry. None of those four employees operated in Kentucky.

Read the full Press Release from the Kentucky Department of Financial Institutions here, and investors can find more information here.

Charles C. Mihalek, P.S.C. is currently investigating auction rate securities sold by Morgan Keegan and other brokerage firms. If you believe you have been defrauded as a result of an investment in an auction rate security, please call us for a free consultation and case evaluation at (800) 294-9198 or contact us at mihaleklaw@mis.net. For more information, go to mihaleklaw.com.

SEC Charges Three Firms and Four Individuals in Los Angeles-Based Boiler Room Operation

Charles C. Mihalek, P.S.C. — Thu, 21 Apr 2011 18:31:54 +0000

On March 21, 2011, the SEC charged three firms and four individuals involved in a boiler room scheme operating out of Los Angeles that defrauded investors who they persuaded to buy purportedly profitable trading systems.

The SEC alleges that representatives of Spyglass Equity Systems Inc. cold-called investors and made false and misleading statements to help raise more than $2.15 million from nearly 200 investors nationwide for two related investment companies – Flatiron Capital Partners LLC (FCP) and Flatiron Systems LLC (FS). However, only a little more than half of that money was actually used for the advertised trading purposes, and much of the trading that did occur failed to use the purported trading systems. FCP and FS wound up losing about $1 million in investor funds. The managing member of the two firms – David E. Howard II – misused almost $500,000 of investor money for unauthorized business expenses as well as personal expenses including travel, entertainment, and gifts for his girlfriend.

Complaint: http://www.sec.gov/litigation/complaints/2011/comp-pr2011-70.pdf

SEC Press Release: http://www.sec.gov/news/press/2011/2011-70.htm

Helping Professional Athletes Avoid Investment Fraud

Charles C. Mihalek, P.S.C. — Thu, 10 Feb 2011 19:19:36 +0000

In January 2011, the Financial Industry Regulatory Authority (FINRA) announced that its Investor Education Foundation and the National Football League (NFL) are working together to help NFL players spot and avoid investment fraud and begin their playing careers by making informed financial decisions. Players will learn how to choose the right financial professional and how to do a background check. Players also will learn about the risks of taking on debt.

NFL Player Development and NFL Security are working together to tackle the problems posed by a lack of knowledge about how to manage the financial advisor selection process. The NFL’s work with the FINRA Foundation will bring needed resources and tools to players and their families so that they can protect themselves from fraudulent and deceptive practices.

To read the full press release, click here.

TD Ameritrade Charged with Failure to Supervise

Charles C. Mihalek, P.S.C. — Thu, 10 Feb 2011 17:05:45 +0000

Earlier this month, the Securities and Exchange Commission charged TD Ameritrade Inc. with failure to supervise its registered representatives, some of whom misled customers when selling shares of the Reserve Yield Plus Fund in September 2008.

According to the SEC’s Order, TD Ameritrade’s representatives violated the securities laws when they mischaracterized the fund as a money market fund, as safe as cash, or as an investment with guaranteed liquidity. They also failed to disclose the nature or risks of the fund when offering the investment to customers. TD Ameritrade failed to prevent the misconduct by its representatives because it did not establish adequate supervisory policies and procedures or a system to implement them with respect to the offers and sales of the fund.

To read to read the SEC’s Press Release and Order, click here.

SEC Approves FINRA All Public Arbitration Panels

Charles C. Mihalek, P.S.C. — Thu, 10 Feb 2011 16:54:46 +0000

The Financial Industry Regulatory Authority (FINRA) announced on February 1, 2011 that the Securities and Exchange Commission (SEC) approved its proposed rule change to provide customers in all FINRA arbitrations the option of having an all public panel. Historically, in cases with three arbitrators, the panels have been comprised of two public arbitrators and one arbitrator with a nexus to the securities industry. The amended rules will apply to all customer cases in which a list of potential arbitrators has not yet been sent to the parties.

To read the FINRA Press Release, click here.