Pre-IPO Facebook Fraud Halted in Miami

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Allen Weintraub, charged with an ongoing fraudulent scheme of selling securities of an investment vehicle that he falsely represented owned pre-IPO shares of Facebook, Inc., was the subject of an April 4, 2012 Order to Show Cause and Other Emergency Relief (“Order”) by the U.S. District Court for the Southern District of Florida in Miami.

The Court’s Order temporarily freezes the assets of Weintraub and certain shell companies through which he apparently operates. The order also directed Weintraub to demonstrate, among other things, why he should not be held in contempt for violating the Court’s Final Judgment in SEC v. Allen E. Weintraub and AWMS Acquisition, Inc., d/b/a Sterling Global Holdings, Case No. 11-21549-CIV-HUCK/BANDSTRA (S.D.Fla.), which was entered on January 10, 2012 (Final Judgment). The Final Judgment enjoined Weintraub from violating, among other things, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.

The Commission’s motion for an order to show cause alleges that in February 2012, Weintraub, acting through an alias, William Lewis, and through entities named Private Stock Transfer, Inc., PST Investments III, Inc. (PST Investments), and World Financial Solutions, defrauded investors by selling them worthless shares in PST Investments. Weintraub had falsely represented that he would sell the investors pre-IPO shares of Facebook, Inc., and that PST Investments had an ownership interest in Facebook stock. The Commission’s motion also alleges that Weintraub was utilizing the website privatestocktransfer.com to perpetrate his scheme. The Court’s Order directed that this website be deactivated. The Division of Enforcement urges anyone who believes that Allen Weintraub may have recently defrauded them to contact John Rossetti, Senior Counsel, at 202-551-4819.

On December 30, 2011, the Court entered an order granting the Commission’s motion for summary judgment against Weintraub and his shell company, Sterling Global. In its Order, the Court found that Weintraub deceived the public by making false and misleading statements regarding Sterling Global’s ability to purchase and operate Eastman Kodak Company and AMR Corporation. The Court’s January 2012 Final Judgment permanently enjoined Weintraub and Sterling Global from future violations of Sections 10(b) and 14(e) of the Exchange Act and Rules 10b-5 and 14e-8 thereunder, and ordered them to each pay a civil money penalty in the amount of $200,000. See Litigation Release 22225 (January 11, 2012). [SEC v. Allen E. Weintraub and AWMS Acquisition, Inc., d/b/a Sterling Global Holdings, Case No. 11-21549-CIV-HUCK/BANDSTRA (S.D.Fla.)] (LR-22343)

Securities Litigation and FINRA Arbitration

Contact Fort Lauderdale securities litigation attorney Howard N. Kahn, Esq. if you or someone you know has a securities dispute. In addition to being an experienced securities litigation attorney, Mr. Kahn also serves as a FINRA arbitrator for individual investors, brokers, and brokerage firms. You can reach him at 954-321-0176 or online.

Pay Disclosures May Await Brokers Switching Firms

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Industry observers expect FINRA may soon begin requiring that highly-paid brokers who are lured from one financial services firm to a competitor must disclose any “enhanced compensation” that sweetened the employment offer. The Wall Street Journal reported on the expected move recently in an article titled “Brokers Face Pay Disclosures.”

FINRA closed comments in March on a proposed rule to require disclosure of conflicts of interest relating to recruitment compensation practices (Regulatory Notice 13-02).

At issue is what brokers must disclose when clients naturally follow them to a new firm on the basis of personal relationships, or when the broker attempts to encourage a client to move their account to the broker’s new place of employment.

The term “enhanced compensation” means compensation paid in connection with the transfer of securities employment to the recruiting firm, other than the compensation normally paid by the recruiting firm to its established registered persons. Enhanced compensation includes but is not limited to:

  • Signing bonuses
  • Upfront or back-end bonuses
  • Loans
  • Accelerated payouts
  • Transition assistance
  • Other similar payments

Investor protection is behind FINRA’s initiative. Many member firms offer significant financial incentives to recruit registered representatives to join their firms, according to FINRA, yet these compensation arrangements are not disclosed to customers when they are asked to transfer their accounts to a representative’s new firm.

Morgan Stanley, with 17,000 financial advisors, “fully supports the uniform disclosure of firms’ recruiting compensation arrangements as outlined in the Rule Proposal,” according to a firm comment letter submitted to FINRA. The University of Miami School of Law Investor Rights Clinic “supports the aims of transparency and disclosure … but would suggest certain modifications.” Click on the link to read all FINRA comment letters.

The proposed FINRA rules are intended to apply to financial services companies regulated by the Securities and Exchange Commission (SEC), Commodity Futures Trading Commission (CFTC), state securities authorities, and related firms.

Exemptions are provided for compensation under $50,000 or institutional customer accounts.

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.

Fort Lauderdale Reverse Mortgage Scam Draws HUD Debarment

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Three South Florida mortgage loan officers and a Pittsburgh title agent are subject to an indefinite debarment by the U.S. Department of Housing and Urban Development (HUD) following their criminal convictions on charges they defrauded elderly borrowers, mortgage lenders and the Federal Housing Administration (FHA).

Marcos Echevarria, Louis Gendason, John Incandela and Kimberly Mackey pled guilty to charges of conspiracy to commit wire fraud for their part in a $2.5 million nation-wide reverse mortgage scam. All four individuals are currently serving prison terms.

HUD’s debarment action effectively bans these individuals from conducting business with the federal government in the future. The Court has also ordered them to make restitution.

“HUD will not tolerate those who abuse the mortgage system and target elderly borrowers for their personal gain,” said HUD Secretary Shaun Donovan. “Reverse mortgages can help senior citizens on fixed incomes plan for the future, but it is shameful to bilk the elderly out of their life savings.”

Echevarria, Gendason and Incandela worked for 1st Continental Mortgage, which maintains offices in Fort Lauderdale and Boca Raton, Florida. According to the government’s complaint, the three used their positions to identify financially vulnerable elderly borrowers and pressured them to refinance their existing mortgages into an FHA-insured reverse mortgage or Home Equity Conversion Mortgage (HECM). A reverse mortgage allows borrowers, who are at least 62 years of age, to convert the equity in their homes into a monthly stream of income, or a line of credit.

The complaint also notes that Kimberly Mackey, a licensed title agent and proprietor of Real Estate One Land Services, Inc., located in Pittsburgh, Pennsylvania, fraudulently closed the loans by failing to pay off the borrowers’ existing mortgages. It further notes that Mackey attempted to conceal the fraudulent loan closings by preparing false HUD-1 settlement documents that showed that the existing mortgages had, in fact, been paid off.

The scheme also involved changing real estate appraisal reports to fraudulently represent equity in the properties. In some cases the scheme also involved negotiating fake short sales defrauding the lenders holding the borrowers’ first mortgages.

Contact a Fort Lauderdale Foreclosure Defense Attorney

If you are at risk of losing your home to foreclosure, there is action you can take. Contact Fort Lauderdale mortgage foreclosure attorney Marcy Resnik to discuss how you can defend your legal rights in a foreclosure. You can contact Ms. Resnik online or call her at 954-321-0176.

 

Do-It-Yourself IRAs Result in Litigation

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Lawsuits targeting custodians of self-directed IRAs made the news this week, in a Wall Street Journal article titled “New Suits Over Do-It-Yourself IRAs.”

A self-directed individual retirement account (SIDRA) is an IRA held by a trustee or custodian that permits investment in a broader set of assets than is permitted by most IRA custodians.

SIDRA investment options may include tax lien certificates, promissory notes, real estate, businesses, and LLCs.

The Retirement Industry Trust Association reports that self-directed IRAs have grown rapidly in the past three years, and now make up an estimated 2% to 5% of the $4.6 trillion held in IRAs overall.

According to the Wall Street Journal, experts expect to see more SIDRA lawsuits, as regulators fight investment frauds involving older Americans’ retirement savings.

Securities Litigation and FINRA Arbitration

Contact Fort Lauderdale securities litigation attorney Howard N. Kahn, Esq. if you or someone you know has a securities dispute. In addition to being an experienced securities litigation attorney, Mr. Kahn also serves as a FINRA arbitrator for individual investors, brokers, and brokerage firms. You can reach him at 954-321-0176 or online.

FINRA Board Authorizes Arbitration Panel Changes

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The FINRA Board of Governors authorized FINRA to file with the SEC proposed amendments to FINRA Rule 12403 to simplify the panel selection rules.

Rather than requiring the customer to elect a panel selection method, parties in all customer cases with three arbitrators would have the same selection method.

Under this method, all parties would see lists of 10 chair-qualified public arbitrators, 10 public arbitrators and 10 non-public arbitrators. The rules would permit four strikes on each of the public arbitrator lists. However, any party could select an all-public arbitration panel by striking all of the arbitrators on the non-public list.

Alternatively, if the parties leave on the non-public list one or more of the same non-public arbitrators, the parties could have a majority public panel—that is two public and one non-public arbitrator.

Other actions from the FINRA Board’s April 18th meeting include:

  • Beginning with the next FINRA Board meeting in July, designated Board members will host a webcast immediately following the meeting to share key points with investors.
  • The Board authorized FINRA to file with the SEC proposed amendments to the Discovery Guide used in customer arbitration proceedings to provide general guidance on e-discovery issues and product cases, and to clarify existing provisions relating to affirmations.

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 Suspends NY Attorney Living in Boca Raton

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William J. Reilly, a New York attorney residing in Boca Raton, Florida, is suspended from practicing as an attorney before the Securities and Exchange. Judge Donald M. Middlebrooks of the U.S. District Court for the Southern District of Florida entered a judgment on April 16, 2012, enforcing an order entered by the Securities and Exchange Commission.

The judgment finds that on October 27, 2009 the SEC suspended Reilly from appearing or practicing as an attorney before the SEC, with the right to apply for reinstatement after three years. In the Matter of William J. Reilly, Esq., Admin. Proc. 3-13666 (Oct. 27, 2009). The judgment further finds that a registration statement on Form S-8 filed with the SEC on June 21, 2011 incorporated as an exhibit a legal opinion letter signed by Reilly. By this conduct, Reilly knowingly violated the terms of the order suspending him from appearing or practicing before the SEC as an attorney.

The judgment entered by the court under Section 21(e) of the Securities Exchange Act of 1934 requires Reilly to comply with the SEC order. [SEC v. William J. Reilly, 9:11-CV-81322-DMM (S.D. Fla.)] (LR-22336)

Securities Litigation and FINRA Arbitration

Contact Fort Lauderdale securities litigation attorney Howard N. Kahn, Esq. if you or someone you know has a securities dispute. In addition to being an experienced securities litigation attorney, Mr. Kahn also serves as a FINRA arbitrator for individual investors, brokers, and brokerage firms. You can reach him at 954-321-0176 or online.

SEC Charges optionsXpress in Naked Short Selling Scheme

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The Securities and Exchange Commission today charged an online brokerage and clearing agency specializing in options and futures as well as four officials at the firm and a customer involved in an abusive naked short selling scheme.

The SEC’s Division of Enforcement alleges that Chicago-based optionsXpress Inc. failed to satisfy its close-out obligations under Regulation SHO by repeatedly engaging in a series of sham “reset” transactions designed to give the illusion that the firm had purchased securities of like kind and quantity. The firm and customer Jonathan I. Feldman engaged in these sham reset transactions in a number of securities, resulting in continuous failures to deliver. Regulation SHO requires the delivery of equity securities to a registered clearing agency when delivery is due, generally three days after the trade date (T+3). If no delivery is made by that time, the firm must purchase or borrow the securities to close out the failure-to-deliver position by no later than the beginning of regular trading hours on the next day (T+4).

The former chief financial officer at optionsXpress, Thomas E. Stern of Chicago, was named in the SEC’s administrative proceeding along with optionsXpress and Feldman. Three other optionsXpress officials – head of trading and customer service Peter J. Bottini and compliance officers Phillip J. Hoeh and Kevin E. Strine – were named in a separate administrative proceeding and settled the charges against them for their roles in the scheme.

According to the SEC’s order, the misconduct occurred from at least October 2008 to March 2010. In September 2011, optionsXpress became a wholly-owned subsidiary of The Charles Schwab Corporation.

The SEC’s Enforcement Division alleges that the sham reset transactions impacted the market for the issuers. For example, from Jan. 1, 2010 to Jan. 31, 2010, optionsXpress customers including Feldman accounted for an average of 47.9 percent of the daily trading volume in one of the securities. In 2009 alone, the optionsXpress customer accounts engaging in the activity purchased approximately $5.7 billion worth of securities and sold short approximately $4 billion of options. In 2009, Feldman himself purchased at least $2.9 billion of securities and sold short at least $1.7 billion of options through his account at optionsXpress.

According to the SEC’s order, by engaging in the alleged misconduct, optionsXpress violated Rules 204 and 204T of Regulation SHO; Feldman willfully violated Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rules 10b-5 and 10b-21 thereunder; optionsXpress and Stern caused and willfully aided and abetted Feldman’s violations of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rules 10b-5 and 10b-21 thereunder; and Stern caused and willfully aided and abetted optionsXpress’ violations of Rules 204 and 204T.

In the separate settled administrative proceeding, Bottini, Hoeh, and Strine consented to a cease-and-desist order finding that they caused optionsXpress’ violations of Rules 204 and 204T of Regulation SHO and ordering them to cease-and-desist from committing or causing violations of Rules 204. They neither admitted nor denied the SEC’s findings. (Rel. 34-66814; File No. 3-14848 and 33-9313; File No. 3-14848)

Securities Litigation and FINRA Arbitration

Contact Fort Lauderdale securities litigation attorney Howard N. Kahn, Esq. if you or someone you know has a securities dispute. In addition to being an experienced securities litigation attorney, Mr. Kahn also serves as a FINRA arbitrator for individual investors, brokers, and brokerage firms. You can reach him at 954-321-0176 or online.

Goldman Sachs Lacked Adequate Policies for Research “Huddles”

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Goldman agreed to pay a $22 million penalty and consent to a censure, a cease-and-desist order, and undertakings to settle SEC charges that the firm lacked adequate policies and procedures to address risks associated with weekly “huddles.” Huddles were a practice where Goldman’s stock research analysts met to provide their best trading ideas–frequently material, nonpublic information about upcoming research changes–to firm traders and later passed them on to a select group of top clients.

Goldman also agreed to review and revise its written policies and procedures to correct the deficiencies identified by the SEC. The Financial Industry Regulatory Authority (FINRA) also announced today a settlement with Goldman for supervisory and other failures related to the huddles.

The Commission’s Order finds that from 2006 to 2011, Goldman held weekly huddle meetings in each of its research sectors, sometimes attended by sales personnel, in which analysts discussed their top short-term trading ideas and traders discussed their views on the markets. Beginning in 2007, Goldman began a program known as the Asymmetric Service Initiative (ASI), in which analysts shared information and trading ideas from the huddles with select clients. The huddles and ASI were extensive undertakings by Goldman and were created with the goals of improving the profitability of the firm’s traders and generating increased commission revenues from ASI clients.

Research analysts were made aware of the importance of huddles and ASI to Goldman and to their own evaluations and potentially their compensation. The huddle program created a serious and substantial risk that analysts could share material, nonpublic information concerning upcoming changes to their published research with ASI clients and the firm’s traders. The risks were further increased by the fact that many of these clients and traders were frequent, high-volume traders. Despite those risks, Goldman failed to establish adequate policies or adequately enforce and maintain its existing policies, to prevent the misuse of material, nonpublic information concerning upcoming changes to its research.

The Order also finds that Goldman conducted limited surveillance of trading ahead of research changes, but did not perform any surveillance specifically related to huddles. Furthermore, Goldman’s surveillance of trading ahead of research changes was not reasonably designed to ensure that analysts were not prematurely disclosing material research changes to firm traders and clients, either through the huddles, ASI or otherwise.

In 2003, Goldman paid a $5 million civil penalty and disgorgement and interest totaling more than $4.3 million to settle SEC charges that, among other violations, Goldman violated Section 15(f) of the Securities Exchange Act of 1934 (the Exchange Act) by failing to establish, maintain, and enforce written policies and procedures reasonably designed to prevent the misuse of material, nonpublic information obtained from outside consultants concerning U.S. Treasury 30-year bonds. In re Goldman Sachs & Co., Exchange Act Rel. No. 48436 (Sept. 4, 2003). Goldman settled the SEC’s 2003 proceeding without admitting or denying the findings.

The Order issued today finds that Goldman willfully violated Section 15(g) of the Exchange Act (previously Section 15(f)). The Commission censured the firm and ordered it to cease and desist from committing or causing any violations and any future violations of Section 15(g) of the Exchange Act.

Goldman was ordered to pay a civil money penalty of $22 million, $11 million of which shall be deemed satisfied upon payment by Goldman of an $11 million civil penalty to the Financial Industry Regulatory Authority in a related proceeding.

In addition, Goldman agreed to complete a comprehensive review of the policies, procedures, and practices relating to the findings of the Order, and to adopt, implement and maintain practices and written policies and procedures consistent with the findings of the Order and the recommendations contained in the comprehensive review. In June 2011, Goldman entered into a consent order relating to huddles and ASI with the Massachusetts Securities Division (Docket No. 2009-079).

In the SEC’s action, Goldman admits to the factual findings to the extent those findings are also contained in Section V of the Massachusetts Consent Order, but otherwise neither admits nor denies the SEC’s findings. (Rel. 34-66791; File No. 3-14845)

Securities Litigation and FINRA Arbitration

Contact Fort Lauderdale securities litigation attorney Howard N. Kahn, Esq. if you or someone you know has a securities dispute. In addition to being an experienced securities litigation attorney, Mr. Kahn also serves as a FINRA arbitrator for individual investors, brokers, and brokerage firms. You can reach him at 954-321-0176 or online.

Checks Going Out to Mortgage Foreclosure Victims

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A check for $1,000 may not do much to offset the financial distress associated with a mortgage foreclosure, but that is the most many victims can expect under a recent government program intended to provide compensation for mortgage errors. The payments will range from $300 to $125,000.

Military veterans who incorrectly had their home foreclosed on while they were on active duty will receive the highest payments.

Bank regulators initially planned a review of all qualifying mortgage files, but soon discovered that the number of actual mortgage errors exceeded expectations. The automatic portion of the review was then terminated early. Consumers were allowed to ask for a review of their foreclosure files, and about 439,000 did so. These borrowers are expected to be paid twice as much as those who didn’t seek a review.

Overall, payments of $3.6 billion payable to 4.2 million borrowers are scheduled to begin on April 12 following an agreement reached by the Office of the Comptroller of the Currency and the Federal Reserve Board with 13 mortgage servicers.

Qualifying mortgages must meet the following criteria:

  • Home that were in any stage of the foreclosure process in 2009 or 2010
  • Mortgages were serviced by one of the following companies, their affiliates, or subsidiaries: Aurora, Bank of America, Citibank, Goldman Sachs, HSBC, JPMorgan Chase, MetLife Bank, Morgan Stanley, PNC, Sovereign, SunTrust, U.S. Bank, and Wells Fargo.

Mortgage compensation checks will be sent in several waves beginning with 1.4 million checks on April 12.  The final wave is expected in mid-July 2013.  More than 90 percent of the total payments to borrowers at 11 of the 13 servicers are expected to have been sent by the end of April.  Information about payments to borrowers whose mortgages were serviced by Goldman Sachs and Morgan Stanley will be announced in the near future.

In most cases, borrowers will receive a letter with an enclosed check sent by the Paying Agent—Rust Consulting, Inc.  Some borrowers may receive letters from Rust requesting additional information needed to process their payments.  Previously, Rust sent postcards to the 4.2 million borrowers notifying them of their eligibility to receive payment under the agreement.

Rust is sending all payments and correspondence regarding the foreclosure agreement at the direction of the OCC and the Federal Reserve.

Borrowers can call Rust at 1-888-952-9105 to update their contact information or to verify that they are covered by the agreement.  Information provided to Rust will only be used for purposes related to the agreement.

Borrowers should beware of scams and anyone asking them to call a different number or to pay a fee to receive payment under the agreement.

Accepting a payment will not prevent borrowers from taking any action they may wish to pursue related to their foreclosure.  Servicers are not permitted to ask borrowers to sign a waiver of any legal claims they may have against their servicer in connection with accepting payment.

Fort Lauderdale Foreclosure Defense Attorney

Choosing the best approach to protecting yourself and your family from a mortgage foreclosure involves many legal considerations. Contact Fort Lauderdale mortgage foreclosure attorney Marcy Resnik to discuss how you can defend your legal rights in a foreclosure. You can contact Ms. Resnik online or call her at 954-321-0176.

Miami Ponzi Scheme Targeting Cubans Ends in Jail Term

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Gaston E. Cantens was sentenced to five years’ imprisonment followed by three years of supervised release for conspiring to commit mail and wire fraud in violation of 18 U.S.C. §371 involving a $135 million securities offering fraud and Ponzi scheme targeting Cuban-American investors primarily from South Florida.

Cantens, who is now 73, served as president of Royal West Properties, Inc. (Royal West), a Miami-based real estate developer that purchased and resold thousands of parcels of real estate on the west coast of Florida. Cantens funded Royal West by offering investors no-risk promissory notes that promised investors annual returns of 9% to 16% purportedly backed by recorded mortgage assignments.

On January 25, 2012, Cantens pled guilty to a criminal Information filed by the United States Attorney for the Southern District of Florida. According to the Information, beginning in 2008, Cantens made numerous material misrepresentations to investors about the financial health of Royal West when Cantens knew that Royal West, among other things, paid existing investors with new investors’ funds, assigned the same collateral to multiple investors, assigned investors to non-performing or non-existing mortgages, and failed properly to record mortgages and other interests in the public records, causing investors to have unsecured legal interests in the mortgages and parcels.

On March 3, 2010 the SEC filed an injunctive action that named Cantens and his wife, Teresita Cantens, as defendants. The SEC’s complaint alleged that Cantens and his wife violated Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.

On March 24, 2011, both Cantens and Teresita Cantens each consented to entry of a Final Judgment of Permanent Injunction and Other Relief in the SEC action. In addition to being enjoined from further violations of the federal securities laws, Cantens and his wife were ordered to pay full injunctive relief and disgorgement of $5,276,750, along with prejudgment interest of $88,297.62.

The Order forgoes seeking payment of civil penalties under Section 20(d) of the Securities Act and Section 21(d) of the Exchange Act based on the Cantens’s asserted inability to pay as evidenced by their sworn financial statements and supporting documents submitted to the Commission staff.

Contact Fort Lauderdale securities litigation attorney Howard N. Kahn, Esq. if you or someone you know has a securities dispute. In addition to being an experienced securities litigation attorney, Mr. Kahn also serves as a FINRA arbitrator for individual investors, brokers, and brokerage firms. You can reach him at 954-321-0176 or online.