Florida Securities Fraud Lawyer Blog
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Online Investment | West Palm Beach False Claims Act

In our technologically driven society, there is less and less that can’t be done through a mobile application or website.  Society is becoming accustomed to instant 24/7 access to everything from streaming movies to shopping to playing games to banking and everything in between. So the rising popularity of automated investment tools like online financial calculators and investment management programs comes as no surprise.

Many online financial calculators do little more than provide an objective answer to a mathematical question such as the future value of an amount of money invested now at a specific interest rate, or the final costs of different mortgage options.  These types of online tools provide the user with immediate access to the exact same answer the user would get from a live person performing the calculation.

Some online investment programs, however, go far beyond providing objective numerical information. Online investment management programs, often referred to as robo-advisors, seek to provide investment management services that were once only available from human financial advisors.  It is true that robo-advisors offer some benefits to investors over traditional live advisors such as lower cost, ease of use, and broad access, but it is important to understand the risks and limitations before using them.

What exactly is a robo-advisor? A robo-advisor is an automated investment management service that selects investments based upon a specific asset allocation algorithm.  Robo-advisors utilize demographic and financial information provided by the investor, such as age, employment status, liquid assets, and stated investment objectives, to create a portfolio of investments.  Typically, robo-advisors invest in a selection of stock and bond exchange traded funds (ETFs).   Once the portfolio is selected, the program monitors investment performance and will periodical re-balance the portfolio, things traditionally done by a live financial advisor.

What you should consider before using a robo-advisor?  Robo-advisors are only as accurate as the information provided by the investor.  The questions that the robo-advisor’s tool asks, and how they are worded, may influence the investor’s responses.  If the investor misinterprets a question, the resulting answer may not be an accurate reflection of the investor’s financial situation or goal, resulting in a skewed portfolio recommendation. In addition, a questionnaire may not ask enough questions to accurately assess an investor’s particular circumstance, such as a need to access cash from the account in a year to pay for a child’s wedding, or an unusual tax situation.

As with any investment product or service, investors should do their homework before they invest their hard earned money with anyone.  Information about specific investment advisory firms, including robo-advisors, may be found on the Security and Exchange Commission website.  Information about stockbrokers and brokerage firms may be found on FINRA’s Broker Check site.


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West Palm Beach False Claims Act | IRS Phone Fraud

FINRA recently released an Investor Alert, entitled Tools of the Fraud Trade: Phones and Emotions, warning seniors and other investors about a new IRS impersonation scam.

The basic scam involves a very aggressive and authoritative caller who tells the victim that he or she owes back taxes and proceeds to demand immediate payment of taxes by credit card or other electronic payment.  These demands may be accompanied by threats of prosecution if the victim doesn’t pay.  The fraudster may use a fake badge number, may use personal information about the victim found on the internet, and may have a fake caller ID number intended to link the call to the IRS in some way.  These lies are intended to build up the fraudster’s credibility, in order to get the victim to let his or her guard down.

These tactics work because people are understandably nervous about tax audits and owing back taxes.  If someone believes the IRS is calling, one may be more likely to drop his or her normal defenses in the heat of the moment and provide personal financial information.  Using these high pressure, emotion-based tactics has led to losses estimated at $23 million to taxpayers since October 2013.

The most important thing to know is that the IRS will always send a bill in the mail for past-due taxes, so if you haven’t received a letter in the mail, the call is more than likely a scam.  In addition, the IRS will never demand immediate payment over the phone, and the IRS will always grant you an opportunity to question or appeal the amount owed.  The IRS will also never ask for credit card or bank account numbers over the phone; you can always submit a check.

If you are a victim of this type of scheme, there are a few things you can do.  First, write down the number of the person calling you and any other details you get, such as the person’s name and badge number.  Then, call the Treasury Department’s Inspector General for Tax Administration at 800-336-4484 and either (a) confirm the authenticity of the call; or (b) report the incident.  You can also call FINRA’s Securities Helpline for Seniors at 844-574-3577, if the caller in any way references your investment accounts.

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West Palm Beach Arbitration Lawyers

If  you have a brokerage account with a major brokerage firm in the United States today, you have almost certainly agreed to resolve any dispute through mandatory arbitration.  This means you cannot take your case to a courthouse to be heard by a jury.  Instead, you must take your case to arbitration before the Financial Industry Regulatory Authority, also known as FINRA.   (By the way, the brokerage firm you are suing is also a member of FINRA.)

For decades, lawyers who represent investors in these arbitration proceedings have railed against the inherent unfairness of the proceedings.   Statistically, investors would be far better off taking their dispute to a regular court to be heard by a regular jury.

Wall Street counters that the arbitration system is fair.  This has led many to ask:  If the system is so fair, why must it be mandatory?  In other words, if the system is so great, why not let investors themselves decide whether or not to use it?

The answer, of course, is that investors would rarely, if ever, choose to use it.   Mandatory arbitration is a cost control mechanism put in place by Wall Street.  The brokerage firms know they will pay less money to investors in arbitration than they would pay before a jury.

A recent article in the New York Times titled “Arbitration Everywhere, Stacking the Deck of Justice,” makes the point.  The article,  Jessica Silver-Greenberg and Robert Gebeloff, Arbitration Everywhere, Stacking the Deck of Justice, N.Y. Times, October 31, 2015, reports that mandatory arbitration is now sweeping the nation and has become the darling, not only of Wall Street, but the rest of corporate America as well.

Among other highlights of the article:

  • Mandatory arbitration clauses are now buried within virtually every credit card, cell phone, cable, and Internet service application.
  • Even Ashley Madison, the controversial site for adulterers, required clients to agree to mandatory arbitration!
  • Even NFL cheerleaders agree to mandatory arbitration. When a group of them sued the Oakland Raiders they discovered their dispute would be resolved through mandatory arbitration, with Roger Goodell, the NFL Commissioner, deciding their case!
  • Mandatory arbitration clauses often bar class action lawsuits, which can be the only way to address large-scale corporate frauds committed against large numbers of individual consumers for relatively small amounts of money.
  • Some state judges have likened the class-action ban as a “get out of jail free card” for corporate America.
  • Most Americans remain completely unaware of seismic shift that has taken place regarding their rights. By burying mandatory arbitration clauses in contracts, Corporate America has essentially hijacked the Seventh Amendment right to a jury trial.
  • As one commentator noted: “Imagine the reaction if you took away people’s Second Amendment rights to own a gun.”  Where is the reaction to the loss of our Seventh Amendment right to jury trial?

Unfortunately, none of this is news to the securities arbitration lawyers who have been battling mandatory investor arbitration for years.  Statistically, about half of all investors who go to an arbitration hearing before FINRA get $0.  The other half get about 50% of what they ask for.

It’s a great system for Wall Street.  That’s why it’s mandatory.

Florida Arbitration Attorney

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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.

West Palm Beach Investment Law Firm

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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.


West Palm Beach Investment Law Firm

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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.

West Palm Beach Investment Law Firm

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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.

West Palm Beach Investment Law Firm


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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.