Florida Securities Fraud Lawyer Blog
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Recent turmoil in the financial markets may have you considering whether to sell or ride things out.  If your portfolio contains individual bonds, you should factor in the liquidity of the bonds you hold when making that decision.

Liquidity describes the ease with which a security or other asset can be bought or sold in the market without a significant change in price.  “Liquid” assets can be easily bought or sold and converted to cash.  Some examples of liquid assets are foreign currencies, CD’s with maturities of 1 year or less, treasury bills, and money market accounts.  Illiquid assets include such things as cars, houses, non-traded REITs, and insurance policies.

Bonds are generally considered to be liquid assets.  The bond market, however, is not always instantly liquid.  In addition, some bonds are easier to sell than others depending on current market conditions and the characteristics of the particular bond in question.  You may face decreased liquidity and suffer investment losses if you sell a bond prior to its maturity while the financial markets are under stress.

In the case of stocks that trade on the NASDAQ, NYSE, or other exchange, your brokerage firm delivers the order to sell the stock to an exchange where a buy order is matched with the sell order.  With bonds, if you place an order to sell your bond with your brokerage firm, it will typically offer to buy the bond from you at a stated priced, place it in its own inventory, and then find a buyer at a later date.  Although, the financial crisis in 2007-2008 caused many bond dealers to reduce their exposure so they are not buying or holding as many bonds in their inventory as they did in the past.

Many bonds are purchased for the income they provide and are held to maturity.  If you choose to sell your bonds prior to maturity, factors that may affect the liquidity of your bonds are:

Interest rates: When interest rates rise, bond prices fall. This can make it more difficult to sell the bond at a profitable price.

Bond variety:  The large number of bonds – each with different characteristics – can make it difficult to match buyers with sellers.  Bonds may be issued by corporations, municipalities, the U.S. Treasury and others; they may be foreign or domestic issues; they can have different maturities; and they can offer different interest rates.

Market volatility:  During a period of economic stress in the financial markets, there are often more investors looking to sell, than there are looking to buy.  And those that are interested in purchasing during a market downturn are usually seeking bargains.  Most will not be willing to pay a price that the seller would be happy with.

Before you decide to sell a bond before it matures, you should discuss it with your investment professional.  In addition, it pays to do your homework in advance.  The Financial Industry Regulatory Authority (“FINRA”) provides pricing and other information about corporate and agency bonds, as well as, U.S. Treasury bonds through its TRACE Market Data Center. Information about municipal bonds (“munis”) can be accessed through the Municipal Securities Rulemaking Board (“MSRB’s”) EMMA website.

West Palm Beach Investment Law Firm

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The Securities and Exchange Commission (“SEC”) announced that Citigroup Global Markets, Inc. (“CGMI”) and Citigroup Alternative Investments LLC (“CAI”) have agreed to settle charges concerning two now-defunct hedge funds – the ASTA/MAT fund and the Falcon fund.  According to the Order Instituting Administrative and Cease-and-Desist Proceedings Pursuant to Section 8A of the Securities Act of 1933, Section 15(b)(4) of the Securities Exchange Act of 1934, and Sections 203(e) and 203(k) of the Investment Advisers Act of 1940, Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order (“Order”), CGMI and CAI will pay $180 million in disgorgement and prejudgment interest.

According to the Order, between 2002 and 2007, financial advisers at CGMI raised approximately $2.898 billion for the ASTA/MAT and Falcon funds from roughly 4,000 advisory clients. Both hedge funds were managed by CAI.

ASTA/MAT was a municipal arbitrage fund that purchased municipal bonds and used either a Treasury or LIBOR swap to hedge interest rate risk, according to the SEC. An arbitrage fund is a type of mutual fund that leverages the price differential in the cash and derivatives market to generate returns. The Order states that ASTA/MAT employed an 8-12 times leverage.

The Falcon fund was a multi-strategy fund that invested in fixed income strategies like CDOs, CLOs, and asset-backed securities, as well as, invested in the ASTA/MAT fund. The SEC claims that the Falcon fund employed 5-6 times leverage.

In the SEC proceeding, it was alleged that financial advisers orally misrepresented to investors that Falcon and ASTA/MAT were “safe”, “low-risk” investments, when in reality, the funds had a significant risk to principal exacerbated by the amount of leverage employed by the funds.

According to the Order, the funds began experiencing increased margin calls and liquidity problems in the fall of 2007 which continued until the funds collapsed in 2008.

The Order reflects that CGMI and CAI will pay disgorgement of $139.9 million and prejudgment interest of $39.6 million.  In addition, CGMI and CAI are responsible for the costs of distributing the settlement funds to harmed investors.  Both firms were also censured and ordered to cease-and-desist from future securities law violations.

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The Financial Industry Regulatory Authority (“FINRA”) announced that is has settled enforcement actions with Aegis Capital Corp. (“Aegis”), two of its chief compliance officers, and its CEO.  Aegis, based in New York City, has been a member of FINRA, or its predecessor  the National Association of Securities Dealers, since 1984.  It is a full service retail and institutional broker-dealer founded by its current CEO and Chairman, Robert Eide.  The settlements resolve actions against Aegis and its compliance officers for allegedly selling unregistered penny stocks, also known as pink sheet and OTC stocks, and related supervisory failures.  In addition, the CEO of Aegis, Robert Eide, settled a separate enforcement action for his alleged failure to disclose three tax liens on his U-4.

According to FINRA, between April 2009 and June 2011, Aegis effectuated the sale of almost 3.9 billion shares of five penny stocks on behalf of seven customers.  FINRA alleged that the shares were neither registered with the SEC, nor exempt from registration. The improper penny stock trades generated over $24.5 million in proceeds and more than $1.1 million in commissions.

The FINRA Order Accepting Offer of Settlement asserted that Aegis failed to detect and investigate red flags of suspicious transactions, to wit: multiple deposits of billions of shares of unregistered penny stocks in multiple accounts which were controlled and/or referred by a person who had previously been barred from the securities industry; the sale of the shares shortly after their deposit in the accounts; and the transfer out of the sale proceeds quickly following the liquidation of the shares.

FINRA alleged that Aegis violated FINRA Rule 2010 by selling shares of the unregistered penny stocks in transactions that were not exempt from registration.  In addition, FINRA claimed that Aegis and its compliance officers failed to establish, maintain, and enforce a supervisory system reasonably designed to achieve compliance with securities rules and laws.  Aegis agreed to pay $950,000 to settle the allegations.

With respect to the enforcement action against the founder and CEO of Aegis, Robert Eide, FINRA alleged that he knowingly failed to disclose three tax liens in effect between 2009 and 2011 totaling over $640,000.  Mr. Eide agreed to a 15-day suspension and $15,000 fine without admitting or denying the allegations.



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The Securities and Exchange Commission (“SEC”) announced that it has reached a settlement with Edward D. Jones & Co. (“Edward Jones”) and the former head of its municipal syndicate desk.  The allegations concern the pricing of municipal securities in the primary market.  Edward Jones is a retail-oriented broker dealer headquartered in St. Louis, Missouri.  It is also an underwriting co-managing syndicate member for new issue negotiated municipal securities. The SEC alleged that the firm failed to make bona fide public offerings of new issue municipal bonds at initial offering prices.  The SEC’s press release said it is the agency’s first case against an underwriter for fraud relating to the pricing of municipal bonds in the primary market.

In a primary market transaction, one or more municipal securities underwriters purchase newly issued securities from the issuing municipality and sell the securities to investors. The initial offering price is the price negotiated with the issuer of the bonds.  At the time of the original issuance of the bonds, municipal bond underwriters are required to offer new issue bonds to their customers at the initial offering price. This type of transaction may also be referred to as a new issue transaction.

In a secondary market transaction, municipal bond dealers provide quotes to other broker dealers on the bonds that they deal in. A municipal bond quote consists of a bid (the price at which the dealer is willing to purchase the securities) and an offer (the price at which the dealer is willing to sell the securities.) Secondary market purchasers of municipal bonds may pay a mark-up on the bonds.  It is the equivalent of the broker dealer buying the bonds at wholesale prices and selling them to their customers at retail prices. Securities rules do not require broker dealers to disclose the markups on municipal bond transactions.

According to the SEC, in 75 primary market offerings between 2009 and 2012, Edward Jones charged purchasers of new issue bonds higher prices than the initial offering prices resulting in an overpayment to Edward Jones of more than $4.6 million. Edward Jones has agreed to pay $20 million, including $5.2 million in restitution to the affected bond purchasers, to settle the SEC’s charges. The former head of Edward Jones’ municipal syndicate desk agreed to pay $15,000 and accepted a two-year bar from working in the securities industry.

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The TV is full of upbeat ads pitching reverse mortgages as an easy, cost–free way to generate income.  What many ads don’t say, is that reverse mortgages come with risk, including the risk of foreclosure.

A reverse mortgage is a type of home equity loan that is only available to elderly borrowers, typically age 62 and older.  The borrower must own their home free of any existing mortgage, or have a mortgage that is small enough to be paid off with the reverse mortgage proceeds.  Typically, there is no income requirement or need to have a certain minimum credit score to qualify for a reverse mortgage.  Homeowners remain responsible to pay all taxes, insurance, and maintenance on the property during the loan period.

Once the homeowner/borrower moves or dies, the reverse mortgage loan becomes due.  The property will mostly likely be sold, the lender will take its share, and any remaining balance of the sale proceeds is paid to the heirs.

Reverse mortgages definitely have an upside – they allow a homeowner to convert home equity into cash without having to make any payments on the loan as long as he or she lives in the house.  In addition, at the time the loan becomes due, if the house is worth less than the amount owed, the lender will incur the loss.  The homeowner or his or her heirs will owe nothing more.

However, reverse mortgages definitely have a downside too.  If the homeowner fails to pay the property insurance and property taxes, the reverse mortgage is deemed to be in default and the lender could foreclose on the property.  This sometimes happens because the homeowner either 1) outlives the amount of money borrowed or 2) loses the proceeds due to poor investment decisions, resulting in the inability to pay these expenses.

In addition, once the loan becomes due, when the homeowner dies or chooses to move, the lender will not only take the loan amount out of the sale proceeds, but also the fees and interest that have accrued over the years – which could be substantial.

Reverse mortgages may be appropriate for some people.  Before making any financial decisions, you should do your homework.  The Federal Trade Commission offers some helpful information on reverse mortgages that can be found by here.



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The Department of Justice announced that high-ranking officials of the governing body for soccer worldwide – referred to as “football” outside of the United States – the Fédération Internationale de Football Association (“FIFA”), and others have been charged with racketeering, wire fraud, money laundering, and bribery.  According to the Justice Department, the soccer officials allegedly conspired to solicit and receive in excess of $150 million in bribes and kickbacks from sports marketing executives and others in return for their official support.  The alleged kickbacks relate to the commercialization of the media and marketing rights for various soccer events including, FIFA World Cup qualifying matches, the CONCACAF Gold Cup, and the CONCACAF Champions League, as well as the sponsorship of the Brazilian national soccer federation by a major U.S. sportswear company.

FIFA is comprised of more than 200 member associations globally, each representing a particular nation or territory, including the United States and four U.S. territories overseas.  Six continental confederations assist FIFA in governing soccer in different regions of the world.  The U.S. Soccer Federation is a member of a group of 41 associations known as CONCACAF which stands for the Confederation of North, Central America and Caribbean Association Football and is headquartered in Miami, Florida.  Other CONCACAF member nations include Canada, Mexico, Jamaica, Cuba and the Bahamas.

The Justice Department alleges that 14 defendants, including two current FIFA vice-presidents and the current and former presidents of CONCACAF, have participated in a 24-year scheme of corruption and bribery.  Swiss authorities arrested seven of the defendants in Zurich at the request of the United States, Jeffrey Webb, Eduardo Li, Julio Rocha, Costas Takkas, Eugenio Figueredo, Rafael Esquivel, and Jose Maria Marin.  In addition, the Department of Justice announced that four individuals and two companies have already pleaded guilty they include Charles Blazer, the former general secretary of CONCACAF, and Jose Hawilla, the owner and founder of Traffic Group, a multinational sports marketing group based in Brazil.

The statement by the Justice Department indicates that the indicted and convicted defendants face maximum sentences of 20 years for the charges of RICO conspiracy, conspiracy to commit wire fraud, conspiracy to commit money laundering, and obstruction of justice.  In addition, the government also claims that Eugenio Figueredo could have his U.S. citizenship revoked if convicted of naturalization fraud.

The Acting U.S. Attorney for the Eastern District of New York, Kelly Currie, stated that the 47-count indictment is not the “final chapter” in the government’s investigation – insinuating that additional indictments may be coming.

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According to the Securities and Exchange Commission (“SEC”), it has filed suit against a Texas retirement planning firm and its principals in connection with their practices in the sales of life settlement investments.  The SEC’s Complaint filed in the United States District Court for the Northern District of Texas names as Defendants NFS Group, LLC d/b/a Novers Financial a/k/a Safe Retirement Experts and its owners Christopher A. Novinger and Brady J. Speers, both residents of Mansfield, Texas.

According to the Complaint, the Defendants made false and misleading statements to investors to induce them to purchase fractional interests in third-party life insurance policies known as life settlements. Investors in fractional life settlements receive a portion of the future benefits payable on the life insurance policy when the insured dies. Typically, life settlements can only be sold to “accredited” investors who meet specific income or net worth requirements (i.e. individual net worth of $1,000,000, not including primary residence, or income of $200,000 in each of the 2 most recent years.) According to the SEC, the Defendants improperly qualified some of the investors by including anticipated income that the investors had not yet received such as 20 years-worth of future Social Security and pension benefit payments.

The SEC alleges that, between February 2012 and January 2014, Novinger and Speers fraudulently misrepresented investments in life settlements as “safe, guaranteed investments” that were “risk free” and “federally insured.” The Complaint also alleges that Novinger and Speers held themselves out to the public on their radio show “Retirement Experts Radio Show” as licensed financial consultants and “experts”, when the SEC claims that they actually have little to no training or expertise in securities and financial products.  In addition, the pair has previously been sanctioned by securities regulators in Oklahoma, Texas, and California.

The SEC’s Complaint states that the life settlements at issue were issued by Conestoga International, LLC, a Puerto Rico company, and EDU Financial Strategies, LLC, an Indiana company.

In the SEC’s Complaint, it is seeking a permanent injunction against violations of federal securities laws, disgorgement of ill-gotten gains, pre-judgment interest, civil penalties, and other relief as the court deems appropriate.

Before making any investment, investors should research the potential investment and the broker. Some helpful sites offering free information for investors are FINRA.org, Investor.gov, and NASAA.org.

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According to the Financial Industry Regulatory Authority (“FINRA”), it has entered into a Letter of Acceptance, Waiver and Consent (“AWC”) with brokerage firm LPL Financial LLC for supervisory failures in a number of areas.  The AWC reflects that LPL neither admitted nor denied FINRA’s charges, but consented to the entry of FINRA’s findings.  According to the AWC, LPL will pay a fine of $10 million and approximately $1.7 million in restitution to the effected purchasers of non-traditional ETFs.

According to the AWC, from 2007 to 2013, the number of LPL’s registered representatives increased from around 8,300 to 17,500.  In that same time frame, LPL’s revenue nearly doubled from $2.28 billion to $4.05 billion.  FINRA claimed that LPL didn’t dedicate sufficient resources to meet its increased supervisory obligations resulting from this growth.

FINRA asserted that LPL failed to have adequate supervisory systems in place with respect to the sales of complex, synthetic exchange traded funds, such as leveraged, inverse, and inverse-leveraged ETFs (“non-traditional ETFs”); variable annuity contracts; non-traded real estate investment trusts (“REITs”); and Class C mutual fund shares.  In addition, FINRA found that LPL failed to send more than 14 million trade confirmations to its customers.

Some of the specific findings by FINRA:

Non-traditional ETFs:  LPL failed to monitor the length of time non-traditional ETFs were held in its customers’ accounts.  Most non-traditional ETFs are designed to meet their stated objections on a daily basis and are typically inappropriate for a buy-and-hold investment strategy.   FINRA’s review found that some LPL customers held these securities for more than a year.  LPL did not have a system in place to monitor compliance with its written procedures that required brokers to monitor non-traditional ETFs held in customer accounts on a daily basis.  In addition, the firm also failed to monitor compliance with its established allocation limits concerning the maximum allowable allocation of non-traditional ETFs per client which ranged from 0 percent (accounts with an investment objective of “income”) to 15 percent (accounts with investment objectives of “growth” or “trading”).   The firm also did not monitor compliance with its requirement that brokers complete an ETF training course before engaging in non-traditional ETF transactions.

Variable Annuities:     LPL brokers were required to disclose whether customers would incur fees or sacrifice benefits when switching annuity contracts.  According to FINRA, LPL failed to identify that some of its brokers did not disclosure that customers lost death benefits on surrendered annuities or did not disclose to customers the surrender fees they would incur for the annuity switch.

Non-traded REITs:     LPL failed to have adequate procedures to identify accounts that would be eligible for volume price discounts.

Class C Shares:           LPL’s thresholds for determining whether Class C shares were appropriate were set too high to be effective.


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According to the Financial Industry Regulatory Authority (“FINRA”), RBC Capital Markets, LLC (“RBC”) has agreed to a Letter of Acceptance, Waiver and Consent (“AWC”) concerning its sales of complex reverse exchangeable securities commonly called “reverse convertibles.”  RBC is a brokerage firm that is indirectly owned by the Royal Bank of Canada.

A reverse convertible is a structured investment product that typically consists of a high-yield, short-term note that is tied to the performance of some other asset, typically a stock or basket of stocks, an index, or some other instrument.  The underlying asset is usually unrelated to the issuer.  Most reverse convertibles have a $1,000 minimum investment, with maturity dates ranging from three months to one year.  Reverse convertibles carry considerable risk, because if the value of the underlying asset falls below a certain level, the investor could receive an amount that is less than the investor’s original investment upon maturity.  Because of the added risk, the coupon rate on the note component of a reverse convertible is usually higher than the yield on a conventional debt instrument of the issuer with a similar maturity, or of an issuer with a comparable debt rating.

According to the AWC, RBC consented to FINRA’s findings that RBC did not have an adequate surveillance system in place to ensure compliance with securities laws and its own internal guidelines concerning the suitability of transactions in which reverse convertibles were sold to RBC’s customers. According to FINRA, RBC had written supervisory procedures establishing the suitability guidelines for the sale of reverse convertibles.  Specifically, RBC’s guidelines restricted reverse convertible sales to investors with the following profile: $100,000 or more in annual income; at least $100,000 in liquid assets; a net worth of $250,000 or more; and at least two years of prior investment experience. The problem, according to FINRA, was that RBC’s electronic surveillance system did not flag the reverse convertible transactions where the customer did not meet RBC’s established criteria for purchasing reverse convertibles.  FINRA identified 364 unsuitable transactions of reverse convertibles in 218 customer accounts during the period between 2008 and 2012.  The customers incurred losses in those transactions of $1.1 million.

RBC did not admit or deny the findings in the AWC, but consented to the entry of FINRA’s findings and to payment of a $1,000,000 fine and $434,000 in restitution to its customers.


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The United States Court of Appeals for the Eleventh Circuit recently held that “clawback actions brought by court-appointed receivers are not categorically exempt from the Federal Arbitration Act.”  Wiand v. Schneiderman, 2015 WL 525694 (C.A. 11 (Fla.)).  The appellate court affirmed the district court’s decision to decline to vacate an arbitration award in a clawback action.

The lower court case was one of approximately 150 clawback actions brought by the court-appointed receiver of six hedge funds involved in a Ponzi scheme orchestrated by Arthur Nadel.  The receiver initiated the clawback suits to recover “profits” received by an investor in Nadel’s Ponzi scheme so they could be redistributed among all the investors who lost money in the scheme.  Nadel, a former Florida fund manager was dubbed a “mini-Madoff” after admitting to defrauding investors out of $168 million in February 2010.  In October 2010 he was sentenced to 14 years in prison.  In 2012, Nadel died in prison at the age of 80.

The clawback action at issue was initiated in January 2010 in the U.S. District Court for the Middle District of Florida against the estate of Herbert Schneiderman.  Schneiderman invested $100,000 with Victory Fund, Ltd., one of the hedge funds connected with Nadel’s scheme.  Schneiderman received total payments from the fund in the amount of $263,660.  The receiver filed suit against Schneiderman’s estate to recover the fake “profits” of $163,660.  The estate moved to compel arbitration based on an arbitration provision contained in the Subscription Agreement and Limited Partnership Agreement between Schneiderman and the Victory Fund.  The district court granted the motion to compel arbitration.  The parties agreed to arbitrate before the American Arbitration Association (“AAA”). Thereafter, the AAA arbitrator granted the summary judgment motion filed by Schneiderman’s estate and entered a Final Order and Award dismissing the receiver’s claims as barred by the Florida probate statutes.  In addition, the arbitrator denied the receiver’s motion declaring the agreement containing the arbitration provision void.   Subsequently, the receiver moved to vacate the Award which was also denied.

In his appeal of the denial of the motion to vacate, the receiver argued that: 1) the receivership statutes creating his position preclude the use of arbitration in clawback actions; 2) the contract containing the arbitration provision is void; 3) the district court erred in sending all of the claims to arbitration, even those with entities with which the investor had no agreement whatsoever; and 4) the arbitrator exceeded his powers.

The Court of Appeals found all of the receiver’s arguments to be flawed and affirmed the judgment of the district court.   The Court of Appeal’s full decision in Wiand may be read here.