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Archive for January, 2013

$300 million Ponzi scheme exposed

Federal officials say they’ve charged five former real estate executives in a $300 million Ponzi scheme, the Associated Press is reporting.

According to the AP, the Securities and Exchange Commission filed civil charges in Miami federal court Wednesday against former Cay Club president and CEO Fred Davis Clark Jr., chief accounting officer David W. Schwarz, manager and sales agent Cristal R. Coleman, sales director Barry J. Graham and sales director Ricky Lynn Stokes.

The SEC says Cay Clubs Resorts and Marinas took money from nearly 1,400 investors, touting the profitability of purchasing units at resorts in Florida and Las Vegas.

According to the report, instead of developing the properties, the SEC says the executives used new investments to pay earlier investors. They also reportedly paid themselves salaries and commissions totaling more than $30 million.

The complaint seeks financial penalties from Clark, Coleman and Stokes and the return of ill-gotten gains from all five executives.

Many equity structured products linked to Apple may now be underwater

Last year, at least 450 new structured products were linked to Apple, according to SLCG. Three-quarters of them were issued when the stock was at least $550. The shares closed Friday at $439.88, down $60 for the week.

As a result, the value of Apple-linked products suffered a one-week drop of more than 15%, estimates Craig McCann, founder of SLCG. “The vast majority of them are now underwater,” he says.

Many investors will get far less than they expected. Losses exceed 25% on more than 100 of last year’s Apple-related products, SLCG estimates.

Investors should have asked this question before buying: Why would banks offer 10% interest when most one-year debt was paying about 1%?

The answer: Investment banks got something else in return. In plain English, the Apple-linked products gave firms a cheap way of hedging or betting that Apple’s stock would go down. Now, in many cases, they can dump the fallen stock on conservative bond investors who might not want it and, in turn, will sell it again.

Apple structured products may be in trouble

More than $241 million of structured notes tied to Apple face losses after a 27 percent drop in the stock of the world’s most valuable company eroded built-in cushions that protect investors.

Banks issued 76 U.S. notes linked to Apple stock during the seven weeks starting Aug. 20 when the company was valued at $650 a share or more. Sixty- three percent of the securities absorb as much as 20 percent of stock price declines before investors are at risk of losing principal or coupon payments.

Banks issued $1.66 billion of notes in the U.S. tied to Cupertino, California-based Apple this year, almost three times as many as the year-earlier period, making it the most popular underlying company. Many of the securities are so-called reverse convertibles, notes that pay a high coupon while risking large losses if the share price plummets.

Obama nominates Mary Jo White to lead SEC

Signaling the possibility of an aggressive new strategy for regulating Wall Street, President Obama today nominated Mary Jo White, a former U.S. Attorney for the Southern District of New York and high-profile prosecutor, to head up the Securities and Exchange Commission.

Mr. Obama, in remarks announcing the nomination this afternoon, lauded White for her career accomplishments — which include prosecuting both mafia boss John Gotti and the mastermind behind the 1993 World Trade Center bombing — and expressed confidence in her abilities to help the administration keep Wall Street in check.

The president, who also re-nominated former Ohio Attorney General Richard Cordray to chair the Consumer Financial Protection Bureau (CFPB), said that both White and Cordray would be responsible for enforcing existing laws meant to protect consumers, including those enumerated in the Dodd-Frank Wall Street Reform and Consumer Protection Act, which Congress passed in 2010.

Kenneth Dachman sentenced to 10 years and ordered to pay restitution

The Securities and Exchange Commission (SEC) announced that on January 17, 2013, in a criminal action brought by the U.S. Attorney’s Office for the Northern District of Illinois, the Honorable James B. Zagel in the Northern District of Illinois sentenced Kenneth A. Dachman (Dachman) to 120 months in prison on 11 counts of wire fraud and ordered Dachman to pay more than $4 million in restitution to his victims. Judge Zagel also ordered Dachman to be placed on three years of supervised released following his prison sentence. [USA v. Kenneth A. Dachman, Case No. 1:11-CR-00504, USDC, N.D. Ill.].

Dachman was criminally charged for raising more than $4 million from investors for his now-defunct sleep disorder businesses, Central Sleep Diagnostics, LLC and Advanced Sleep Devices, LLC, which were located in the northern suburbs of Chicago. Between June 2008 and September 2010, Dachman fraudulently obtained funds from investors by misrepresenting the use of investor funds, the expected investment returns and risks involved in the investments, his business and academic background and the financial condition of his companies. The government established that Dachman misappropriated more than $2 million of commingled investor funds which he used for the benefit of himself and his family.

In February 2012, the SEC filed a civil injunctive action against Dachman based on the same events. The SEC’s action has been stayed pending the outcome of the criminal case.

SEC says no to Nasdaq request for indiviudal trading algorithms

The U.S. Securities and Exchange Commission rejected Nasdaq’s request to offer clients trading algorithms that would enable them to execute buy and sell orders according to predetermined guidelines.

Nasdaq failed to specify in its proposal how it would ensure that orders generated under its plan would comply with rules requiring risk checks on buy and sell requests before they are sent to markets, the SEC said in a Jan. 11 notice. It also didn’t respond to criticism by SIFMA that the offering would compete unfairly with algorithms supplied by brokers, the SEC said.

UBS Willow Fund investigation initiated

Last month, a class action lawsuit was filed on behalf of investors in the UBS Willow Fund. Investors are encouraged to explore all of their legal options, including whether they have potential claims against the investment adviser or broker dealer that recomended the  purchase of the fund.  The UBS Willow Fund is a private hedge fund, which was formed in 2000. In October of 2012 investors were notified that the Fund would be liquidated. While many investors were advised that the Fund was a safe, low risk product, the Fund has declined approximately 80%.

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.  To discuss your options please contact an attorney.


Labor Secretary Solis to resign

Onetime Los Angeles-area congresswoman Hilda L. Solis is stepping down as President Obama’s secretary of Labor to return home, a move seen as a potential first step to a bid for the county Board of Supervisors.

In a letter Wednesday to Labor Department employees, Solis, 55, said that after spending time with family over the holidays, she had decided to “begin a new future, and return to the people and places” she loves.

FINRA to take closer look at high-speed trading

Richard G. Ketchum, the head of the Financial Industry Regulatory Authority, said in an interview on Tuesday that he would ramp up scrutiny of high-speed trading and a batch of complex products. Finra, Mr. Ketchum said, would take aim at so-called leveraged loans and collateralized loan obligations, along with the potential conflicts that brokerage firms face in pitching their own investments over rivals’ products.

The expanded focus comes as Finra announced on Tuesday that it filed more than 1,500 enforcement actions against financial firms and brokers in 2012, an all-time record for the regulator. Finra, which barred nearly 300 people from the industry, levied more than $100 million in penalties.

Boston man charged with securities fraud in Alabama

A Boston man has been arrested and charged with violations of the Alabama securities act.

McKinney was charged with one count each of sale of an unregistered security, sale of securities by an unregistered agent and theft of property by deception. He also was charged with two counts of fraud in connection with the sale of securities. According to state officials, McKinney is accused of selling unregistered securities in the form of investment contracts.

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