Florida Securities Fraud Lawyer Blog

On September 15, Americans awoke to news that a rogue 31-year-old UBS trader, Kweku Adoboli, had sustained losses of over $2 billion for UBS's investment banking arm through "unauthorized trades." The bank immediately informed the press that no client money had been lost in the transactions.

Adoboli worked on UBS's "Delta One" desk, where clients invest or hedge on a basket of securities. The Delta One desk also uses UBS's own funds for trades. Adoboli speculated in S&P 500, DAX, and EuroStoxx index futures over a three-month period, leading to the loss. According to UBS, the risk from the trades was covered up by fictitious positions and hedging trades. Once he realized the scope of his loss, Adoboli reported his actions, and UBS turned him over to London police.

British officials have charged Adoboli with fraud and false accounting going back to 2008. The two false accounting charges stem from his alleged falsification of "exchange traded funds" records between October 2008 and December 2009 and between January 2010 and September 2011. Likewise, one fraud charge involves conduct from October 2008 to December 2010, while the other involves conduct in 2011 while Adoboli traded global synthetic equities. UBS has not identified any particular wrongdoing dating to 2008, but prosecutors intended the charges to cover the entire period of Adoboli's employment at the Delta One desk. Adoboli has since issued a statement that he was "sorry beyond words" for his "disastrous miscalculations."

UBS chief executive Oswald Grübel has resigned in the wake of the $2.3 billion loss the bank posted as a result of the rogue trader. Grübel accepted responsibility for the loss and resigned against the advice of UBS's board of directors, according to board chairman Kaspar Villiger. Sergio Ermotti has been appointed interim chief executive. Meanwhile, Carsten Kengeter, the head of UBS's investment banking arm, has received praise with minimizing the impact of the trader's malfeasance. UBS plans to keep Kengeter in his position.

In the wake of the disastrous loss, UBS has rejected calls to abandon its investment banking arm. The bank has indicated that its investment bank will be "less complex" and "carry less risk."

On Aug. 29, 2011, the SEC charged two Florida men for running a Ponzi scheme set up as an alleged private equity fund that fraudulently raised over $22 million from more than 100 investors, including many Florida teachers or retirees.

The SEC's complaint alleges that James Davis Risher of Sanibel handled the fund's trading operations, and Daniel Joseph Sebastian of Lakeland marketed the fund, including distributing offering materials and soliciting investors. Risher falsely informed investors that he had years of experience in trading equities and providing wealth and asset management services. Instead, Risher had no such experience but rather a vast criminal history, spending 11 of the last 21 years in prison.

The SEC claims that Risher and Sebastian falsely told investors that the "fund" generated annual returns between 14% and 124% percent by purchasing public equity securities. They sent investors fabricated account statements showing these inflated returns to support their misrepresentations. Indeed, only a small portion of the raised capital was actually invested, as Risher instead spent investor funds on personal, lavish gifts, such as jewelry, and property in North Carolina and Florida. Moreover, Risher and Sebastian also paid themselves millions of dollars in fake management and performance fees.

Based on the SEC's complaint, Risher and Sebastian solicited the "fund" using the names Safe Harbor Private Equity Fund, Managed Capital Fund, and Preservation of Principal Fund. They described themselves in offering documents as "two unique individuals" who had the necessary expertise to "create an investment vehicle that would allow investors to capitalize from both bull and bear markets."

The SEC recently charged a Texas man, Jody Dunn, with securities fraud for soliciting more than $3.45 million from thousands of deaf investors. Dunn claimed he would invest the funds in Imperia Invest IBC, a company that allegedly raised more than $7 million from investors while promising guaranteed returns of 1.2 percent a day. Last year, the SEC charged Imperia with absconding with investor's funds by depositing the money into foreign bank accounts and froze the company's assets.

Dunn used the money he received from investors to pay his mortgage, car payments, car insurance, and a variety of other personal expenses. The remaining funds he sent to Imperia's offshore bank accounts. Even after the SEC froze Imperia's assets, Dunn continued to reassure investors that Imperia was a legitimate investment and that investors would be repaid.

According to the SEC, Imperia claimed to invest in foreign viatical settlements. Investors were required to invest at least $50, after which customers could obtain an $80,000 loan from an unspecified foreign bank that would be used to purchase one of the viatical settlements. Imperia purportedly traded the viaticals and paid a guaranteed return of 1.2 percent per day. Imperia also required investors to purchase Visa debit cards to access their investment proceeds and charged fees ranging from $145 to $450 for the cards. Visa, however, never authorized investors to use its name and trademarks on Imperia's products.

Dunn told investors he would help them invest with Imperia, but no investor funds were used to purchase any viaticals. In fact, Dunn never met anyone affiliated with Imperia. He would ask investors to send money orders, which he would then cash and deposit into his own accounts. Then, he would electronically transfer the money to foreign accounts in places like Costa Rica, Cyprus, and New Zealand, with no apparent link to Imperia. Dunn made no effort to verify whether Imperia made the promised investments or any effort to verify Imperia's licensure or registration with any federal or state agency.

On September 7, FINRA fined five broker-dealers for assessing improper handling fees against customers. The firms, including Boca Raton-based Pointe Capital, Inc. (now known as JHS Capital Advisors, Inc.), were fined for charging excessive handling fees that greatly exceeded the cost of the handling services provided by the firms. FINRA concluded that the fees were a way to charge customers additional commissions without reflecting those charges on trade confirmations and fee schedules.

As part of a targeted review of fees charged by broker-dealers, FINRA found that certain firms charged customers roughly $100 per transaction. Pointe Capital, for instance, charged up to $95 per trade on top its standard commission. FINRA determined that these firms earned a substantial percentage of their revenue from these fees.

The other firms sanctioned include John Thomas Financial of New York; First Midwest Securities, Inc., of Bloomington, Illinois; A&F Financial Securities, Inc., of Syosset, New York; and Salomon Whitney LLC of Babylon Village, New York. The fines ranged from $60,000 to $300,000. In addition, each firm agreed to disclose the specific services performed and all related fees on transaction confirmations and fee schedules. The firms also agreed to revise their supervisory and training procedures regarding commissions, reasonable fees, and the appropriate disclosures to make to customers.

The firms denied any wrongdoing but consented to the entry of FINRA's findings.

On August 31, 2011, the SEC announced it froze the assets of a Chicago-based money manager and his hedge fund advisory firm for lying to prospective investors in their startup hedge fund.

The SEC claims that Belal K. Faruki and his firm, Neural Markets LLC, solicited highly sophisticated individuals to invest in the "Evolution Quantitative 1X Fund," a hedge fund they managed that allegedly employed a proprietary algorithm to conduct an arbitrage strategy involving trading in liquid exchange-traded funds (ETFs). Faruki and Neural Markets misrepresented the amount of investor capital and that trading was creating returns when, in reality, it incurred losses. They defrauded at least one investor out of $1 million before admitting the losses, and were still seeking other wealthy investors prior to the SEC obtaining a court order to stop the scheme.

According to Bruce Karpati, the Co-Chief of the SEC's Asset Management Unit, "Faruki and Neural Markets lied throughout this elaborate scheme in order to attract capital from sophisticated investors. Even sophisticated institutional investors should be wary of unscrupulous hedge fund managers who cloak their misrepresentations in lofty pitches about a complex investment strategy."

The SEC's complaint filed in federal court in Chicago alleges that Faruki and Neural Markets informed investors that the hedge fund started trading in 2009. From January 2010 until approximately October 2010, Faruki and Neural Markets misrepresented the hedge fund's performance results, falsely claimed that wealthy investors invested $5 million into the fund, and misstated that it employed a top-notch auditor to help prepare the fund's financial statements. Faruki also misrepresented to investors that he invested his own funds into the hedge fund so that his own interests were the same as other investors.