SEC Freezes Swiss Assets in H.J. Heinz Questionable Trades

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The SEC obtained an emergency court order to freeze assets in a Zurich, Switzerland trading account that was used to reap more than $1.7 million from trading in advance of last week’s public announcement about the acquisition of H.J. Heinz Company.

The SEC’s immediate action ensures that potentially illegal profits cannot be siphoned out of this account while the agency’s investigation of the suspicious trading continues.

In a complaint filed in federal court in Manhattan, the SEC alleges that prior to any public awareness that Berkshire Hathaway and 3G Capital had agreed to acquire H.J. Heinz Company in a deal valued at $28 billion, unknown traders took risky bets that Heinz’s stock price would increase.

The traders purchased call options the very day before the public announcement. After the announcement, Heinz’s stock rose nearly 20 percent and trading volume increased more than 1,700 percent from the prior day, placing these traders in a position to profit substantially.

“Irregular and highly suspicious options trading immediately in front of a merger or acquisition announcement is a serious red flag that traders may be improperly acting on confidential nonpublic information,” said Daniel M. Hawke, Chief of the Division of Enforcement’s Market Abuse Unit.

Sanjay Wadhwa, Senior Associate Director of the SEC’s New York Regional Office, added, “Despite the obvious logistical challenges of investigating trades involving offshore accounts, we moved swiftly to locate and freeze the assets of these suspicious traders, who now have to make an appearance in court to explain their trading if they want their assets unfrozen.”

The SEC alleges that the unknown traders were in possession of material nonpublic information about the impending acquisition when they purchased out-of-the-money Heinz call options the day before the announcement. The timing and size of the trades were highly suspicious because the account through which the traders purchased the options had no history of trading Heinz securities in the last six months. Overall trading activity in Heinz call options several days before the announcement had been minimal.

The emergency court order obtained by the SEC freezes the traders’ assets and prohibits them from destroying any evidence. The SEC’s complaint charges the unknown traders with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. In addition to the emergency relief, the SEC is seeking a final judgment ordering the traders to disgorge their ill-gotten gains with interest, pay financial penalties, and be permanently barred from future violations.

Fort Lauderdale Securities Litigation and Arbitration Attorney

Contact Fort Lauderdale securities litigation and arbitration attorney Howard N. Kahn, Esq. if you or someone you know has a securities or broker dispute. He is an experienced securities litigation and arbitration attorney, and is available to assist individual investors, brokers, and brokerage firms involved in securities matters. You can reach him at 954-321-0176 or online.

FINRA Warns Bond Investors on Price Fluctuation Risk

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Bonds with a low interest rate and high duration may experience significant price drops if interest rates rise, according to a new FINRA Investor Alert called Duration—What an Interest Rate Hike Could Do to Your Bond Portfolio.

FINRA issued the Alert to help investors understand the importance of duration risk. Although stated in years, duration is not simply a measure of time. The duration of a bond or a bond fund also signals how much the price of a bond investment is likely to fluctuate when interest rates move up or down.

As explained in FINRA’s Alert, a bond fund with a 10-year duration will decrease in value by 10 percent if interest rates rise 1 percent. In contrast, if a fund’s duration is two years, then a similar 1-percent rise in interest rates will result in only a 2-percent decline in the bond fund’s value.

To find your bond fund’s duration, investors should look on the fund’s fact sheet. Investors holding individual bonds should start by asking their investment professional or the bond’s issuer.

Investors should also keep in mind that just because a bond or bond fund’s duration is low, it does not mean the investment is risk-free. In addition to duration risks, bonds and bond funds are subject to inflation, call, default and other risk factors.

Fort Lauderdale Securities Litigation and Arbitration Attorney

Contact Fort Lauderdale securities litigation and arbitration attorney Howard N. Kahn, Esq. if you or someone you know has a securities or broker dispute. He is an experienced securities litigation and arbitration attorney, and is available to assist individual investors, brokers, and brokerage firms involved in securities matters. You can reach him at 954-321-0176 or online.

Breach of Contract Lawsuits Give Business Owners a Legal Remedy

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If you, or your business, have entered into a contract and believe the other side has breached that contract, you may be entitled to file a breach of contract lawsuit. Alternatively, if you are the party believed to have breached, you may have a business litigation lawsuit on your hands. It is important to note that enlisting the help of a litigation attorney for your business litigation needs is highly recommended.

Once you hire a litigation lawyer, the first thing he or she will need to do is determine if there was a valid contract in place. Generally, a contract is defined as simply an oral or written agreement, enforceable by law, to do or not do a certain thing in exchange for some sort of consideration. Moreover, a contract is valid if it is not illegal, does not restrain trade, and does not otherwise inhibit public policy.

Next, it must be proven that this contract was in effect at the time in question. Your business litigation attorney will be able to tell you exactly the steps to take to determine if you had a valid contract in place and whether that contract was in fact breached.

Once it is determined that a contract does exist, the next step the litigation lawyer will need to take is to determine whether the other side knew or should have known that the contract existed. If the other side had knowledge of certain facts and circumstances surrounding the formation of the contract which would lead a reasonable business person to know that a contract exists, that is enough to prove that the other side should have had knowledge of the contract.

Fort Lauderdale Business Litigation Attorney

Contact Fort Lauderdale business litigation attorney Howard N. Kahn, Esq. if you or someone you know has a breach of contract or business litigation dispute. He is an experienced business litigation attorney, and is available to assist business owners, board members, and corporate investors in business litigation matters. You can reach him at 954-321-0176 or online.

Merrill Lynch Fined by FINRA Over Retention Bonuses

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Merrill Lynch failed to arbitrate retention bonus disputes with employees, according to recent charges by the Financial Industry Regulatory Authority (FINRA) that resulted in a $1 million fine.

According to a January 25, 2012 release:

“Registered representatives who participated in the bonus program had to sign a promissory note that prevented them from arbitrating disagreements relating to the note, forcing the registered representatives to resolve disputes in New York state courts.

FINRA found that Merrill Lynch, after merging with Bank of America in January 2009, implemented a bonus program to retain certain high-producing registered representatives and purposely structured it to circumvent the requirement to institute arbitration proceedings with employees when it sought to collect unpaid amounts from any of the registered representatives who later left the firm. FINRA rules require that disputes between firms and associated persons be arbitrated if they arise out of the business activities of the firm or associated person.”

Over 5,000 Merrill Lynch registered reprentatives received retention bonuses as part of the Bank of America acquisition, according to the release.

Contact Fort Lauderdale securities attorney Howard N. Kahn, Esq., if you or someone you know was a Merrill Lynch registered rep who received a retention bonus. Mr. Kahn serves as a  FINRA arbitrator.

Read the full FINRA-Merrill Lynch press release.

South Florida Farnell Brothers Sentenced for Tax Evasion

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Michael Farnell and James Farnell, residents of Boca Raton, Fla., were sentenced to prison terms last week for income tax evasion following an April indictment, according to the Justice Department and Internal Revenue Service (IRS). Judge William P. Dimitrouleas sentenced Michael Farnell to a term of 18 months in prison. His brother James Farnell was sentenced to a term of 42 months.

Michael and James Farnell sold stock in a privately held Florida-based technology company between 2004 and 2006 and failed to report the capital gains or pay taxes on the capital gains from those stock sales. In 2004, the U.S. Securities and Exchange Commission (SEC) filed suit against the Farnell brothers for securities violations at another company that they operated the year 2000. A majority of the stock sales at issue in this case violated the injunction from the SEC’s lawsuit.

According to public documents and statements made in court, the Farnell brothers held their stock in this Florida-based technology company in the name of nominee trusts. The proceeds of the stock sales were deposited into bank accounts titled in the name of these nominee trusts. Neither brother filed tax returns in 2004 and 2005. James Farnell also failed to file a 2006 tax return. As part of the sentencing, Michael Farnell and James Farnell both agreed that they failed to report additional income paid to them by this Florida-based technology in 2001 through 2003.

Michael Farnell was ordered to pay restitution of $448,128 and James Farnell was ordered to pay restitution of $434,115, both to the IRS.

Farnell Brothers Subject of 2006 SEC Litigation

Details of earlier SEC actions are outlined in SEC Litigation Release No. 19604, dated March 9, 2006, involving Securities and Exchange Commission v. Vector Medical Technologies, Inc., Michael H. Salit, James P. Farnell, Michael J. Farnell, David A. Zimmerman, and Stanley Wasser, Case No. 03-80858-CIV-HURLEY/LYNCH (S.D. Fla.).

The Securities and Exchange Commission announced that on February 1, 2006, the Honorable Daniel T.K. Hurley, United States District Court for the Southern District of Florida, adopted the Magistrate’s Report and Recommendation in full and entered Final Judgment of disgorgement and civil penalties against Vector Medical Technologies, Inc., Michael Salit, James Farnell and Michael Farnell.

On December 20, 2005, Magistrate Judge Frank J. Lynch, Jr., conducted an evidentiary hearing, and thereafter filed his Report and Recommendation. By adopting the Magistrate’s Report and Recommendation in full, the District Court entered a Final Judgment that ordered Vector Medical to pay $14,208,718 in disgorgement and prejudgment interest; Salit to pay a $486,000 civil penalty; James Farnell to pay $1,127,796 in disgorgement and prejudgment interest and a $100,000 civil penalty; and Michael Farnell to pay $715,320 in disgorgement and prejudgment interest, and a $100,000 civil penalty.

Fort Lauderdale Securities Litigation and Arbitration Attorney

Contact Fort Lauderdale securities litigation and arbitration attorney Howard N. Kahn, Esq. if you or someone you know has a securities or broker dispute. He is an experienced securities litigation and arbitration attorney, and is available to assist individual investors, brokers, and brokerage firms involved in securities matters. You can reach him at 954-321-0176 or online.

SEC Charges First Resource Group with Stock Fraud

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The Securities and Exchange Commission (SEC) recently charged Fort Lauderdale-based First Resource Group LLC and its principal David H. Stern with conducting a fraudulent boiler room scheme. The company allegedly hyped stock in TrinityCare Senior Living Inc. and Cytta Corporation, both thinly-traded penny stock companies, while simultaneously selling the same stock themselves for illegal profits.

According to an SEC news release:
“The SEC alleges that First Resource Group LLC and its principal David H. Stern employed telemarketers who fraudulently solicited brokers to purchase stock in TrinityCare Senior Living Inc. and Cytta Corporation. While recommending the securities in these two microcap companies, Stern sold First Resource’s shares of TrinityCare and Cytta stock unbeknownst to investors who were purchasing them – a practice known as scalping. As Stern was selling the stocks, he also purchased small amounts in order to create the false appearance of legitimate trading activity and induce investors to purchase shares in both companies.”

Read the full SEC charges against First Resource Group LLC and its principal David H. Stern. Read the court complaint from the U.S. District Court in the Southern District of Florida.

If you bought stock from First Resource Group LLC of Fort Lauderdale, FL or David H. Stern, contact Fort Lauderdale securities attorney Howard Kahn to discuss your legal options.

Mortgage Foreclosure Settlement for Florida Homeowners

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The State of Florida today entered into a $25 billion joint federal-state agreement with the nation’s five largest mortgage servicers over foreclosure abuses and unacceptable nationwide mortgage servicing practices, according to a news release issued by Florida Attorney General Pam Bondi.

The  five banks covered in the agreement are Ally Financial Inc., Bank of America Corp., Citigroup Inc., J.P. Morgan Chase & Co. and Wells Fargo & Co. Together, the five firms handle payments on 55% of all home loans outstanding, or about 27 million mortgages, according to Inside Mortgage Finance.

Florida’s share of the total monetary benefits under the settlement is approximately $8.4 billion, according to Attorney General Bondi. Highlights include:

  • Florida borrowers will receive an estimated $7.6 billion in benefits from loan modifications, including principal reduction, and other direct relief.
  • Approximately $170 million will be available for cash payments to Florida borrowers who lost their home to foreclosure from January 1, 2008 through December 31, 2011 and suffered servicing abuse.
  • The value of refinanced loans to Florida’s underwater borrowers would be an estimated $ 309 million.
  • The state will receive a direct payment of $ 350 million.

In addition to the terms of the national settlement agreement, Attorney General Bondi separately negotiated an agreement with the nation’s three largest mortgage servicers to ensure that a guaranteed portion of the overall settlement funds goes to Florida borrowers.

The agreement does not prevent homeowners or investors from pursuing individual, institutional or class action civil cases against the five mortgage servicers.

Fort Lauderdale mortgage foreclosure defense attorneys Marcy Resnik and Howard Kahn are available to answer your questions about what this landmark agreement means to you. If your home is underwater or you are in foreclosure on your mortgage, call us at 954-321-0176 or Contact Us online.

Read the full release titled: Florida Enters $25 Billion Joint State-Federal Mortgage Servicing Settlement.

FINRA Charges Charles Schwab with Rule Violations

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The Financial Industry Regulatory Authority (FINRA) accused Charles Schwab Corporation of limiting customers legal rights in a complaint filed on February 1, 2012.

FINRA’s complaint alleges that Charles Schwab & Company violates FINRA rules by requiring its customers to waive their rights to bring class action lawsuits against the firm.

Schwab reportedly modified its customer account agreement in October, 2011, to include a provision requiring customers to waive their rights to bring or participate in class action lawsuits where Schwab is named as a defendant.

Almost 7 million Schwab customers received the amended agreements.

According to a FINRA news release:

“The agreement also included a provision requiring customers to agree that arbitrators in arbitration proceedings would not have the authority to consolidate more than one party’s claims. FINRA’s complaint charges that both provisions violate FINRA rules concerning language or conditions that firms may place in customer agreements.

FINRA’s complaint seeks an expedited hearing because Schwab’s conduct is ongoing, as the firm has continued to use account agreements containing these provisions in opening more than 50,000 new customer accounts since October 2011.”

If you are an active stock market investor and have a Schwab account, this provision may apply to you. Contact Fort Lauderdale securities attorney Howard Kahn, Esq. at 954-321-0176 or via email to discuss your case.

Click here to read a copy of FINRA’s complaint against Charles Schwab.

Investor Options in Resolving Securities-Related Disputes

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Investors have several dispute resolution options when facing security-related disputes. The Financial Industry Regulatory Authority (FINRA) recommends that investors consider the dispute resolution techniques outlined below.

First, the investor should contact their brokerage firm and report the discrepancy or dispute, in writing, to the appropriate department or manager.  Often, the brokerage firm will have authority or insight on how to rectify the problem quickly and easily.

Next, the investor may want to initiate arbitration against the broker or the brokerage firm.  Arbitration is an efficient and inexpensive method of resolving disputes between parties by neutral, qualified individuals who serve as decision makers after hearing all facts from all parties involved.  Arbitration awards are final, binding and subject to court review only in limited situations.  Thus, pursuing claims through arbitration usually precludes investors from pursuing the same claims through the courts.

An investor may file a Request for Mediation to FINRA, at any time.  Once FINRA receives the request, they will contact all parties to explain the mediation process and seek their agreement.  Mediation must be agreed upon by all parties.

Other resolution alternatives include filing a complaint with the SEC, the FINRA Investor Complaint Center, or with state securities regulators.  If there is evidence of illegal or unethical activity by a broker or brokerage firm, investors may file a tip with FINRA’s or SEC’s Office of the Whistleblower.

Finally, if an investor is seeking arbitration it is advised to choose an attorney.  If an investor cannot afford an attorney, some law schools provide legal representation through securities arbitration clinics.

Fort Lauderdale Securities Litigation and Arbitration Attorney

Contact Fort Lauderdale securities litigation and arbitration attorney Howard N. Kahn, Esq. if you or someone you know has a securities or broker dispute. He is an experienced securities litigation and arbitration attorney, and is available to assist individual investors, brokers, and brokerage firms involved in securities matters. You can reach him at 954-321-0176 or online.

$75 Million Florida Charity Scam at We the People is Target of SEC Charges

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Richard K. Olive and Susan L. Olive raised $75 million through the sale of fraudulent charitable gift annuity (CGA) investments, according to the SEC. More than 400 investors in Florida, Colorado, Texas, and other states thought they were making contributions to We The People Inc., a purported charitable organization in Tallahassee, Fla.

Most of the investor money actually went to the Olives and other third-party promoters and consultants. Only a small amount of the money raised was actually directed to charitable services. The Olives also received more than $1.1 million in salary and commissions, in addition to siphoning off funds for their personal use.

The SEC further alleges that the Olives lured elderly investors with limited investing experience into the scheme by making a number of false representations about the purported value and financial benefits of We The People’s CGAs. The Olives also lied about the safety and security of the investments.

“The Olives raised millions from senior citizens by claiming that We The People’s so-called CGAs provided attractive financial benefits and were re-insured and backed by assets held in trust,” said Julie Lutz, Associate Director of the SEC’s Denver Regional Office. “Investors were not given the full story about the true value and security of their investments.”

According to the SEC’s complaint against the Olives filed in U.S. District Court for the Southern District of Florida, investors were coaxed to transfer assets including stocks, annuities, real estate, and cash to We The People in exchange for a CGA. We The People claimed to operate as a non-profit organization while it was offering the CGAs from June 2008 to April 2012.

However, We The People was not operating as a charity but instead for the primary purpose of issuing CGAs and using the proceeds to pay substantial sums to the Olives, third-party promoters, and consultants. On rare occasions when We The People did actually direct money raised toward charitable services, it was insignificant. For instance, the organization made public statements that it donated $21.8 million in relief aid to AIDS orphans in Zambia, but in fact the supplies were donated by others and We The People merely made a small payment to the third party that was shipping the supplies.

We The People consented to a final judgment that will enable the appointment of a receiver to protect more than $60 million of investor assets still held by the company. The final judgment also provides for disgorgement of ill-gotten gains and provides injunctive relief under the antifraud and registration provisions of the federal securities laws.

Reeves entered into a cooperation agreement with the SEC, and the terms of his settlement reflect his assistance in the SEC’s investigation and anticipated cooperation in its pending action against the Olives. Reeves agreed to be suspended from appearing or practicing before the SEC for at least five years, and consented to a final judgment providing injunctive relief under the provisions of the federal securities laws that he violated. The court will determine at a later date whether a financial penalty should be imposed against Reeves.

History of Fraudulent Transactions

In March of 2010, Insurance & Financial Advisor reported that Richard and Susan Olive, owners of Franklin, Tenn.-based National Foundation of America (NFOA), were indicted for similar investor scams, according to the Tennessee Attorney General’s Office and Williamson County District Attorney’s Office. The assets of NFOA were seized and placed into receivership. The company had been involved in a separate civil receivership case dating back to May 2007.

Fort Lauderdale Securities Litigation and Arbitration Attorney

Contact Fort Lauderdale securities litigation and arbitration attorney Howard N. Kahn, Esq. if you or someone you know has a securities or broker dispute. He is an experienced securities litigation and arbitration attorney, and is available to assist individual investors, brokers, and brokerage firms involved in securities matters. You can reach him at 954-321-0176 or online.