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Archive for December, 2012


Morgan Stanley advises pulling money from Paulson funds

Morgan Stanley Smith Barney is recommending that its financial advisers pull client money out of Paulson’s Advantage and Advantage Plus funds, a person familiar with the matter said on Wednesday.  Morgan Stanley had been watching Paulson’s performance for months and prepared for this move when it told advisers last spring to stop putting new money into those funds, advisers with the firm have said.

Since then losses at the Advantage funds have deepened to double digits, and now the company is recommending, but not requiring, that its advisers tell their wealthy clients it is time to turn their backs on the 57-year-old Paulson. 

Investors on the Morgan Stanley platform have already asked to pull out about $36 million of the $100 million that is expected to be redeemed.  The move comes only months after Citigroup’s private bank decided to withdraw $410 million.

Peter Madoff sentenced to 10 years for role in Ponzi scheme

Peter Madoff will serve 10 years in prison for his role in his older brother’s multibillion-dollar Ponzi scheme, a U.S. judge said on Thursday.

Peter Madoff, 67, pleaded guilty in June to criminal charges including conspiracy to commit securities fraud for falsifying the books and records of the investment advisory company founded by his brother, Bernard Madoff.

He agreed at the time not to oppose a request by prosecutors for a maximum 10-year prison sentence and agreed to an order requiring him to forfeit a symbolic $143.1 billion. U.S. District Court Judge Laura Taylor Swain approved the sentence on Thursday.

“I am deeply ashamed of my conduct,” Peter Madoff said at the sentencing. “I accept full responsibility for my actions.”

Of 13 individuals charged criminally in connection with the fraud, Peter Madoff is the only one, other than his brother, who was a member of the Madoff family. Bernard Madoff, 74, was sentenced in 2009 to a 150-year prison term and was ordered to forfeit $170.8 billion.

Notice to LPL Financial, LLC Customers — Aidikoff, Uhl & Bakhtiari Launches Investigation of non-traded REIT recommendations — LPLA

Aidikoff, Uhl & Bakhtiari announces the launch of an investigation of the sales practices of LPL Financial, LLC in recommending non-traded REITs to their clients.  The investigation follows the recently filed complaint by the Commonwealth of Massachusetts Securities Division into similar non-traded REIT sales practices.  The Massachusetts complaint charged LPL with dishonest and unethical business practices.

“People who purchased non-traded REITS through LPL may have been led to believe they were suitable for conservative income seeking investors.  In fact, these investments were very different,” stated attorney Philip M. Aidikoff.

 “The Massachusetts complaint offers a behind the scenes look at business practices allegedly engaged in by LPL,” said attorney Ryan K. Bakhtiari.  “Investors should consider all of their options if they have suffered losses in non-traded REITs sold by their brokerage firm.” 

The Massachusetts complaint focused on seven non-traded REIT products:

  • Inland American
  • Cole Credit Property Trust II, Inc.
  • Cole Credit Property Trust III, Inc.
  • Cole Credit Property 1031 Exchange
  • Wells Real Estate Investment Trust II, Inc.
  • W.P. Carey Corporate Property Associates 17
  • Dividend Capital Total Realty

The individual brokers and advisors who sold non traded REITs are not targets of this investigation.   

Aidikoff, Uhl & Bakhtiari represents retail and institutional investors around the world in securities arbitration and litigation matters.  Attorneys for the firm have appeared before the Financial Industry Regulatory Authority (FINRA) and in numerous state and federal courts to resolve financial disputes between customers, banks, brokerage firms and other financial institutions.  More information is available at www.securitiesarbitration.com or to discuss your options please contact an attorney below.

Philip M. Aidikoff, pma@aublaw.com

Ryan K. Bakhtiari, rkb@aublaw.com

Aidikoff, Uhl & Bakhtiari

(800) 382-7969 Toll Free

UBS pays $1.5 billion to settle Libor probe

A sole UBS trader used a combination of bribery, flattery and fictitious trading to rig the price of money over three years, regulatory filings show.

The employee, only identified by regulators as “Trader A,” colluded with brokers, counterparts at other firms and his colleagues to influence yen Libor, which reflects how much banks charge each for loans in the Japanese currency, the U.K.’s Financial Services Authority said. E-mails published by the regulator today show he paid brokers hidden fees through phoney trades and offered to compensate colleagues and competitors for acquiescing to his requests.

“If you keep 6s unchanged, I will f—–g do one humongous deal with you,” he told a broker on Sept. 18, 2008, referring to six-month yen Libor. “If you do that … I’ll pay you, you know, $50,000, $100,000… whatever you want … I’m a man of my word,” according to a transcript of a call regulators released.

UBS was today fined 1.4 billion Swiss francs ($1.5 billion) by U.S., U.K. and Swiss regulators for trying to rig global interst rates. By colluding with other firms, the UBS employee “significantly” increased the risk that the Libor rate published had been manipulated, regulators said.

About 40 individuals at the bank, including 11 managers, sought to manipulate the rates. At least two further managers and five senior managers were aware of the practice, the FSA said. Most of the internal requests, all of the requests to other banks and almost all the negotiations with brokers were made by Trader A, according to the Swiss Financial Market Supervisory Authority.

The UBS settlement shows how a handful of individuals, seeking to profit from bets on derivatives, could manipulate benchmark rates such as Libor which is used to set interest payments on $300 trillion of securities from mortgages to student loans, as well as Euribor, the Euro interbank offered rate.

Massachusetts files complaint against LPL for non traded REITs

LPL one the largest independent U.S. broker-dealers, was accused by Massachusetts regulators today of dishonest and unethical business practices and failure to supervise agents who made improper sales.

The complaint relates to sales of seven non-traded real estate investment trusts in violation of state and company rules, according to a statement from the state’s senior securities watchdog, Secretary of the Commonwealth William F. Galvin. LPL earned at least $1.8 million in commissions on the sales from 2006 through 2009, the state said.

The complaint seeks a cease-and-desist order, censure and restitution for investors.

Diamondback Capital to wind down funds and close

Hedge fund Diamondback Capital Management LLC told investors Thursday that it plans to close and wind down its funds after receiving redemptions requests totaling more than a quarter of its assets.

In a letter to investors Thursday, the Stamford, Conn., hedge fund’s founders Richard Schimel and Larry Sapanski said they received redemption requests for Dec. 31 of about $520 million, or 26% of its assets under management. As a result, the fund would be left with about $1.45 billion in assets under management.

The announcement of the wind down comes as former Diamondback portfolio manager Todd Newman is on trial for alleged insider trading in technology stocks. Mr. Newman has denied wrongdoing.

Diamondback itself avoided criminal charges in a broad crackdown on insider trading by federal prosecutors and entered into a non-prosecution agreement with the government. The firm agreed to pay $9 million in disgorgement and penalties.

Ex-Fair Finance CEO Timothy Durham sentenced to 50 years

The Securities and Exchange Commission announced that on November 30, 2012, Timothy S. Durham, former CEO of Ohio-based Fair Finance Company (“Fair Finance”), was sentenced to 50 years in prison for orchestrating a $200 million scheme that defrauded more than 5,000 investors over almost five years. Judge Jane Magnus-Stinson of the United States District Court for the Southern District of Indiana also sentenced James F. Cochran, Fair Finance’s board chairman, to 25 years in prison, and Rick D. Snow, the firm’s chief financial officer, to a 10-year prison term. According to U.S. Attorney Joseph Hogsett in Indianapolis, Durham’s sentence is the longest white-collar fraud sentence in Indiana history.

On June 20, 2012, a federal jury in Indiana convicted Durham, age 50, of securities fraud, conspiracy and 10 counts of wire fraud. Cochran, age 57, and Snow, age 49, were also found guilty on conspiracy and securities fraud charges for their roles in the Fair Finance scheme.

On March 16, 2011, the Commission filed a civil action against Durham, Cochran and Snow based on the same conduct alleged in the criminal case. The Commission’s action has been stayed pending the outcome of the criminal case.

The Commission’s complaint alleged that Fair Finance had for decades legitimately raised funds by selling interest-bearing certificates to investors and using the proceeds to purchase and service discounted consumer finance contracts. However, after purchasing Fair Finance in 2002, Durham, Cochran and Snow began to deceive investors. Under the guise of loans, Durham and Cochran schemed to divert investor proceeds to themselves and others, including to entities that they controlled.

The Commission alleged that Durham and Cochran knew that neither they nor their related companies had the earnings, collateral or other resources to ensure repayment on the purported loans. As CFO, Snow knew or was reckless in not knowing that neither Durham and Cochran nor their entities could repay the funds they took from Fair Finance.

Final judgments entered in securities case involving China Voice Holding Corp.

On November 26 and 29, 2012, the Honorable Reed O’Connor, United States District Judge for the Northern District of Texas, entered final judgments against Alex Dowlatshahi, Christopher Mills, and Robert Wilson, permanently enjoining them and ordering monetary relief.

The final judgments against Dowlatshahi and Mills permanently enjoin them from violating Section 10(b) of the Securities Exchange Act of 1934 and Sections 5 and 17(a) of the Securities Act of 1933. Dowlatshahi, Mills, and their various companies previously consented to the injunctions to settle charges related to their role in a Ponzi scheme that sought to raise at least $8.6 million from investors across the country. The final judgment orders Dowlatshahi: (i) with his company, Lucrative Enterprises Corp., to pay disgorgement and prejudgment interest of $317,860, and a civil penalty of $150,227; (ii) with his company, Synergetic Solutions LLC, to pay disgorgement and prejudgment interest of $26,484, and a civil penalty of $12,045; (iii) with his company, Integrity Driven Network Corp., to pay a civil penalty of $50,000; and (iv) with his company, Darius Assets Holding Corp., to pay disgorgement and prejudgment interest of $322,962. The final judgment orders Mills: (i) to pay disgorgement and prejudgment interest of $2,405, and a civil penalty of $2,165; (ii) with his company, Sleeping Bear LLC, to pay disgorgement and prejudgment interest of $124,857, and a civil penalty of $116,219; and (iii) with his company, Silver Summit Holdings LLC, to pay disgorgement and prejudgment interest of $20,015, and a civil penalty of $18,025.

The final judgment against Wilson permanently enjoins him from violating Section 10(b) of the Exchange Act and Section 17(b) of the Securities Act. Wilson and his company, Strategic Capital, previously consented to the injunction to settle charges related to their role in conducting a blast fax campaign regarding China Voice Holding Corp. The final judgment orders Wilson and Strategic Capital to pay disgorgement and prejudgment interest of $764,886, and a civil penalty of $664,269. In addition, Wilson and his company, Green Horseshoe Holdings, Inc., were ordered to pay disgorgement and prejudgment interest of $73,067. The final judgment also permanently bars Wilson from participating in offerings of penny stocks.

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