The Law Planet Blog

The Financial Industry Regulatory Authority (FINRA) has permanently barred Michael J. DiMare, of Ponte Vedra Beach, Fla., from the securities industry for “misappropriating over $1.9 million in client funds.” In its news release on the settlement, FINRA stated that Dimare, formerly a registered representative, hid his financial scheme by making false statements and submitting falsified account statements to his customers.

DiMare worked for John Hancock Mutual Life Insurance Company (John Hancock) as a sales manager between 2001 and 2006, and as a registered representative/insurance agent with ING Financial Partners, Inc. (ING) from late 2006 to mid 2008. According to FINRA, DiMare persuaded his clients from at least 2001 to 2008 to invest in fictitious CDs and bonds, including what he described to be “tax free” corporate bonds.

FINRA’s investigation revealed that between 2001 and 2008, DiMare instructed some 14 of his clients to write checks payable to John Hancock – even after he no longer worked there – which he deposited directly into his bank account for eventual personal use. DiMare concealed his scheme by submitting false account statements to his clients who thought they were making legitimate financial investments.

In response to the situation, James S. Shorris, Executive Vice President and Executive Director of Enforcement for FINRA, made this statement:

"FINRA will continue to bar individuals who engage in deceit and theft with no regard for the high standards of ethical conduct that govern the industry. By deceiving customers into believing they were making legitimate investments when, in reality, he was simply enriching himself, DiMare epitomized the darkest side of the securities industry."

DiMare never admitted guilt nor denied FINRA’s charges, but the now barred schemer did consent to the entry of the agency’s findings in the settlement. John Hancock and ING reimbursed the customers defrauded by DiMare’s scheme.

Florida Broker Barred for Selling Phony Financial Products, Taking More Than $1.9 Million From Clients – FINRA’s News Release

Tips from FINRA to help Investors Avoid Financial Fraud

Despite individual investors losing a reportedly $800 million, the Charles Schwab Corp. agreed last week to pay $200 million to settle a class-action lawsuit stemming from brutal mortgage-related losses in its once-popular YieldPlus bond fund.

This case has not been as high profile in the news as the Goldman Sachs case in the news, where victims were primarily banks. The class action suit against Charles Schwab Corp., involved 250,000 individual investors.

If the judge approves this class-action settlement, Schwab would be able to move on from this legal fight. Investors are expected to receive approximately 20 to 25 cents for each dollar they lost.

Schwab has paid out $48 million in settlements and awards in other arbitration cases. However, there are approximately 180 arbitration cases still pending and a class-action suit in California state court on the horizon.

Click on the following link to read more from the LA Times on the proposed Schwab $200M settlement.

U.S. District Judge Richard Kyle sentenced Minnesota businessman Tom Petters to 50 years in prison for orchestrating a Ponzi scheme estimated at $3.7 billion. Counted among the victims of his scheme were missionaries, pastors and retirees. The sentence comes after a jury found Petters guilty on 20 counts of money laundering, wire fraud, conspiracy and mail fraud in December.

The Ponzi scheme involved the fake purchase of electronics by Petters Company Inc., which would then “resell” the supposed merchandise to discount retailers for a profit. Petters and his associates used bogus bank records and fake purchase orders to swindle investors out of $3.7 billion.

Judge Kyle stated to a packed courtroom that included Petters' relatives as well as some victims, "Mr. Petters was captain of the ship." The Judge did not believe that Petters, a former owner of Polaroid and Sun Country Airlines, was unaware of the fraud at Petters Group Worldwide.

At his sentencing hearing, Petters said, “Every day, I’m filled with pain and anguish for all the lives that have been destroyed and touched by this episode.” Petters, a successful entrepreneur and former owner of Sun County Airlines and Polaroid, apologized to his family, friends and others hurt by his actions, but never admitted guilt.

At 52 years old, Petters will likely spend the remainder of his life behind bars.

50-Year Term for Minnesota Man in $3.7 Billion Ponzi Fraud – NY Times Article

Minn.'s Petters Gets 50 Years in $3.7B Fraud Case – ABC News/Money Article

Lawyers argued before the Supreme Court on whether a key provision of the Securities and Exchange Act should protect foreign fraud victims when the alleged scammer has a U.S. subsidiary. "This case has 'Australia' written all over it," Justice Ruth Bader Ginsburg said. The law's scope is pivotal, as courts increasingly face lawsuits over transnational fraud.

Three Australians who bought stock in National Australia Bank, the country's largest bank, filed a class action when the bank was forced to write down more than $1.75 billion on HomeSide Lending, a U.S. mortgage service provider the bank bought in 1998.

The bank had to sell the Florida-based subsidiary after HomeSide miscalculated how much revenue it would receive from mortgage-backed securities in 2001. Investors said the bank, HomeSide and four officers made false and misleading statements in SEC filings. When those statements were revealed in Australia, they allegedly caused the bank's stock price to plummet.

A final ruling is expected by late spring or early summer.

Click on the following link to read more on the Justices Hear Debate on Scope of Anti-Fraud Law - Courthouse News Service

Wall Street look out... Change is in the air...The Senate Banking Committee passed a sweeping financial regulation bill on March 22. The bill now moves to the Senate for a full vote.

President Obama and his senior advisers are now planning to focus more on issues such as financial regulation reform. The administration is “seeking to tap into the anger among many voters over Wall Street excesses” that are at the root of the current economic crisis.

The financial regulation bill ultimate goal is to increase investor protections. If signed into law, the financial reform bill that passed the Senate panel would create a bureau within the Federal Reserve that provides investors with a greater level of security. The bill would also establish a regulatory council to “survey threats to the financial system.”

According to U.S. Senator Richard Shelby (R-Ala) major points of disagreements in the bill incude the following areas: the powers of a Consumer Financial Protection Bureau that would be created within the Federal Reserve, regulation of the sprawling market in over-the-counter derivatives and provisions that would give corporate shareholders a greater say over executive pay and boards of directors.

President Obama stated:

"We are now one step closer to passing real financial reform that will bring oversight and accountability to our financial system and help ensure that the American taxpayer never again pays the price for the irresponsibility of our largest banks and financial institutions."

Click on the following links to read more about the Financial Regulation Bill.

Senate panel passes sweeping financial-regulation bill - Washington Post
Panel Sends Financial Overhaul Bill To Full Senate - AP - NPR
Bank Panel Clears Bill on Overhaul - NYT

First Allied Securities, Inc, a San Diego-based broker-dealer, was charged with failing to reasonably supervise one of its registered representatives. The Broker engaged in unauthorized fraudulent trading in the accounts of two Florida municipalities. The Securities Exchange Commission (SEC) reports that First Allied has agreed to settle the charges for nearly $2 Million.

The SEC alleges that Harold H. Jaschke, former First Allied Broker, churned the accounts of two Florida municipalities and misrepresented his trading practices on their behalf. The two Florida Municipalities involved, were the City of Kissimmee and the Tohopekaliga Water Authority. In late 2009, Harold Jashke was charged with fraud for making over $4 million in commissions while his customers lost money due to his fraudulent behavior.

The SEC found that this fraud occurred from May 2006 and March 2008. This matter could have been avoided if First Allied identified the "red flags" and adequately supervised Jaschke, according to SEC reports.

The supervision of broker-dealers is taken seriously by the SEC. Rosalind Tyson, Director of the SEC’s Los Angeles Office stated the following:

"By failing to establish reasonable systems to prevent Jaschke’s misconduct, Fist Allied did not fulfill its obligation to reasonably supervise its registered representative.”

In addition to the settlement, First Allied agreed to censorship by the SEC. They will cease and desist from “committing or causing any future violations of certain books and records provisions,” and will hire an independent consultant to review First Allied's company’s policies and procedures.

Investor Tip: Be aware of your Broker’s method of managing your portfolio. A common fraudulent practice by brokers is the use of excessive trading to generate commissions and other revenue without regard for the customer's investment objectives, this practice is known as churning.

We encourage Investors to read monthly statements carefully. Ask questions about your Broker's investment strategy for your portfolio. If you suspect find that a Broker is engaging in unethical behavior with your investments, speak up and do so quickly. This can help save many headaches if the fraud is caught early on.

Cllick on the following link to read more on First Allied Securities, Inc being charged with failing to Supervise.

Click on the following link to learn more about Churning and Securites Fraud.

The U.S. Securities and Exchange Commission charges owner of Delphi Investment Group with Securities fraud. The interesting twist is that the owner is Sean David Morton, a California based psychic. Allegedly, Morton billed himself as "America's Prophet" and scammed investors out of more than $6 million. The SEC calls Morton a con artist who "falsely touted historically predicting rises and falls in the market."

The SEC complaint provides great detail of how Delphi Investment Group masterminded their securities fraud scheme.

1) Morton used common practices such as a monthly newsletter, Delphi Associates Newsletter, a company website (www.delphiassociates.org), and a nationally syndicated radio show to attract and lure investors. In addition, he held public events to promote his psychic abilities.

2) Morton, who did not seek accreditation status from the Delphi Investment Group investors, placed investor funds in the bank accounts of the Entities, which were shell companies controlled by Morton and his wife and commingled the investors' funds among the Entities' accounts.

3) Morton promised investors that all funds would be used to trade foreign currencies, however, only invested about half of the funds with foreign currency. Unbeknownst to the investors, Morton and his wife diverted some of the investor funds, into their own nonprofit organization, PRJ.

For more information on the Psychic Sean David Morton Securities Fraud charges click on the following links:

SEC charges Sean David Morton with fraud - WSJ
'Psychic’ US share tipster Sean David Morton charged with fraud - UK Telegraph
Self-Proclaimed 'Psychic' Charged with Investor Fraud - ABC News Blog

If you are a Mcfee, Inc., investor, we have good news for you. The Securities and Exchange Commission has announced distribution of approximately $67 million to over 16,000 investors in connection with McAfee, Inc. financial fraud settlements.

The Fair Fund was created after McAfee (formerly Network Associates, Inc.), agreed to pay approximately $50 million in penalties and disgorgement to settle SEC charges in 2006 that it defrauded investors by overstating its revenues and earnings.

Investor questions regarding the distribution can be answered by calling 1-800-893-4359. Information regarding the distribution also can be obtained at McAfeeSECsettlement.com.

As an investor, do you fully understand the power and meaning of your proxy in corporate elections? The Securities and Exchange Commission is taking steps to educate investors on proxy voting and support greater investor participation in corporate elections.

The series of measures include amending the SEC’s e-proxy rules, issuing an Investor Alert, and creating new Internet resources that explain the proxy voting process in plain language.

The Securities Exchange Commission has created a new subsection on the SEC website Spotlight on Proxy Matters.

This new area on the SEC website provides investors educational information on such things as:
New Shareholder Voting Rules, Corporate Elections FAQ, Voting Procedures FAQ, "E-Proxy" or "Notice and Access" and Receiving Proxy Materials FAQ.

According to SEC Chairman Mary L. Schapiro:
"Investor participation in elections at companies they own is critical to effective corporate governance.”

Investors should be aware that last year, the SEC approved a change to the NYSE rule that previously allowed brokers the discretion to vote shares held in customer accounts in an uncontested election of directors without receiving voting instructions from those customers. The new SEC rule only allows brokers to vote those shares in elections at companies if they are instructed by their customers. However, the change does not apply to mutual funds or certain closed end funds.

We encourage investors to make use of the new educational site Proxy Matters and other helpful consumer information provided by the Securities Exchange Commission.

Boca Raton resident, Donald Platten, was sentenced to 262 months in prison, to be followed by 3 years’ of supervised release for securities fraud, mortgage fraud, and tax fraud, according to the Justice Department and Internal Revenue Service (IRS). Restitution for the victims have not yet been determined by the Court.

Mr. Platten was convicted of conspiracy to commit securities fraud, six counts of securities fraud, conspiracy to commit wire fraud, and impeding the internal revenue laws, in 2009. He was acquitted of eight additional counts of securities fraud.

According to the indictment and evidence introduced at trial, Platten was the president of Harvard Learning Centers Inc., a Florida corporation also located in Boca Raton. Harvard Learning changed its name several times and claimed to be involved in several different business ventures.

Click on the following link to read more on Donald Platten's conviction of Securities Fraud and Mortgage Fraud

The Boston-based State Street Bank and Trust Company was charged by the Securities and Exchange Commission with misleading its investors about their exposure to subprime investments while selectively disclosing more complete information to specific investors.

The State Street Bank agreed to pay over $300 million to settle the securities fraud charges. Investors that lost money during the subprime market meltdown in 2007, may be entitled to these funds. This payment is in addition to nearly $350 million that State Street previously agreed to pay to investors in State Street funds to settle private claims.

According to Robert Khuzami, Director of the SEC's Division of Enforcement,

"Investigating potential securities law violations arising out of the credit crisis remains a high priority for the SEC Enforcement Division."

State Street also was ordered to cease and desist from any further violations of certain securities laws. The SEC's enforcement action took into account the company's remediation and its cooperation, including:

* Replacement of key senior personnel and portfolio managers.
* Conducting a review of its procedures and revised its risk controls.
* Entering into private settlements with harmed investors.
* Recent agreement — pursuant to a limited privilege waiver — to provide information it was not otherwise obligated to provide to enable the SEC to assess the potential liability of individuals with respect to certain investor communications.

Click on the following lnk to read more on the State Street Investor settlement of $300 million

SEC order and settlement against State Street Bank and Trust Company

Last week, the Massachusetts Securities Division’s Enforcement Section filed a complaint against Securities America, Inc. (Securities America) claiming that the company omitted information and mislead investors. In the complaint, Massachusetts claims that Securities America violated a state securities act in connection with the sale of millions of dollars worth of Medical Notes to investors.

According to the state of Massachusetts, Securities America sold investors roughly $697 million worth of Medical Capital notes issued by Medical Capital Holdings, Inc. (Medical Capital). Securities America offered the notes to investors in a number of private placements, meaning the securities were considered too risky to be solicited or sold to the general public. The complaint alleges that Securities America did not properly disclose the material risks associated with the notes prior to selling them to investors.

In a statement concerning the issue, Massachusetts Secretary of the Commonwealth, William Galvin, said:

“Our investigation showed that Securities America ignored their own due diligence analysts and sold these notes to unsophisticated investors without telling them the risks involved. People invested their life savings, while this dealer hid from them the truth of what they were getting into.”

In addition to allegedly misleading investors by Securities America, since August of 2008, Medical Capital has been in permanent receivership and has defaulted on every one of its outstanding note obligations. This means that approximately $1.079 billion of notes are in default, leaving millions of investors’ dollars – including the life savings of many – frozen. The civil complaint also seeks restitution for investors whose dollars are now illiquid.

From approximately 2003 to 2009, Medical Capital issued over $1.7 billion in Medical Capital notes. Acting as a placement agent between the notes and investors, Securities America handled the sale of roughly 37 percent of the total notes issued, or $697 million.
In connection with the sale of the notes in Massachusetts alone, Securities America received nearly $30 million in compensation. This does not include the untold millions of dollars worth of compensation received from countless more allegedly mislead investors in other states.

Although Massachusetts filed this complaint on behalf of investors within its state lines, this case of financial fraud affects investors throughout the United States. If you invested in Medical Capital notes using Securities America, please contact an attorney experienced in securities fraud immediately to discuss protecting your rights under the law.

Click on the following link to read the official complaint filed by the Commonwealth of Massachusetts

Click on the following link to read the Boston Herald’s article, State seeks restitution for securities of America investors.

The U.S. Securities and Exchange Commission (SEC) is taking proactive measures to increase investor protection through strengthening regulatory requirements. This rule new change is expected to significantly increase the governing structure of money market funds, thus adding substantial protection to investors. The newly adopted rules will become effective 60 days after their publication in the Federal Register.

A full-scale review of the regulatory regime of money market funds by the SEC was precipitated by large-scale factors, including the ongoing financial crisis. The SEC’s review was also triggered by the Reserve Primary Fund’s so-called “breaking the buck” weakness, which causes a money market fund’s net asset value to fall below $1.00 per share. When this happens, investors lose money.

According to the SEC, the new rules are designed to increase the resilience of money market funds to stresses (such as economic pressure), and lessen the risks of runs on the funds. The agency hopes to achieve these ends by tightening the maturity and credit standards of quality as well as implementing new requirements for liquidity.

According to SEC Chairman Mary L. Schapiro,

"These new rules will have substantial benefits for investors and are an important first step in our efforts to strengthen the money market regime. These rules will help reduce risks associated with money market funds, so that investor assets are better protected and money market funds can better withstand market crises.”

• Improving liquidity
• Placing limits on lower quality securities
• Shortening maturity limits
• Using “Know Your Investor” procedures
• Performing periodic stress tests
• Using Nationally Recognized Statistical Rating Organizations (NRSROs)
• Strengthening repurchase agreements

For more information about this reform and other important investor information, visit the SEC’s Web site at: http://www.sec.gov

David Brooks, a founder and ex-chief executive officer of DHB Industries (DHB), a contracting company for the U.S. military and other agencies, is accused of looting the company of $185 million. According to a federal prosecutor, Mr. Brooks allegedly used the looted money to fund “lavish” personal expenditures.

Along with Sandra Hatfield, DHB’s former chief operating officer, Mr. Brooks is accused of securities fraud, insider trading, manipulating financial records, and a bevy of additional charges. Brooks and Hatfield reportedly used deceitful techniques to increase the company’s reported earnings and profits substantially.

According to federal prosecutors, Brooks and Hatfield reportedly inflated the value of DHB’s stock by lying about the inventory of supposedly shipped combat vests to the U.S. military. As a result, the duo defrauded the company for a combined $190,000 million, reportedly $185 million for Brooks, and $5 million for Hatfield. Both have pleaded not guilty to the charges
.
“This is a case about the naked greed of two people, Sandra Hatfield and David Brooks, and the lies and the fraud that they used to satisfy that greed,” Richard Lunger, Assistant U.S. Attorney told jurors in his opening statement. “In the end they lied in order to push up the price of the company’s stock, then [they] sold their stock for $190 million.”

In July 2006, shares of DHB stock were removed from American Stock Exchange listings. Although still headquartered in Pompano Beach, Florida, DHB has since been renamed Point Blank Solutions, Inc. According to the company’s Web site, Point Blank is an industry leader in ballistic technologies, including its Point Blank Body Armor and other protective apparel, for the military and other authorities.

For more information about the case, click on the following Bloomberg Business Week article on the DHB Fraud of Ex-CEO

To learn more about this and other financial fraud cases, visit the U.S. Securities and Exchange Commission’s Web site www.SEC.GOV

The case is U.S. v. David Brooks, 06-CR-550, U.S. District Court, Eastern District of New York (Central Islip).

Disbarred lawyer, Scott Rothstein admitted to masterminding a Ponzi scheme that defrauded investors of $1.2 billion. In a Ft. Lauderdale courtroom, Rothstein pleaded guilty to five federal charges, including wire fraud, money laundering, and racketeering. This scheme is the largest financial fraud case in South Florida history.

According to federal officials, the highly successful Ponzi scheme lasted roughly four years. In the process, Rothstein swindled $1.2 billion from countless investors ranging from retirees to athletes. The 47-year-old disbarred lawyer faces a sentence of up to 100 years in federal prison at his sentencing in May.

Along with his scheme came donations to state and national political parties and politicians in excess of hundreds of thousands of dollars. These contributions include $200,000 to the Florida Democratic Party, $150,000 to the Florida Republican Party, and approximately $9,600 to the U.S. Senate campaign of Florida Governor Charlie Crist. All such donations have reportedly been returned.

Federal officials indicate that Rothstein used proceeds from the scheme to buy numerous homes, cars, and other expensive items. Rothstein reportedly owned over 24 homes and other properties, nearly two (2) dozen exotic cars – including a Maserati and a Ferrari – expensive jewelry, an 87-foot yacht, and more. Thus far, authorities have reportedly seized roughly $60 million in assets from Rothstein and his estate.

See the following links below on how Investors can learn more about protecting themselves and investments from fraud.
U.S. Securities and Exchange Commission’s Investor Information Page:

Financial Industry Regulatory Authority’s Investors Page:

To read more on the Rothstein guilty plea, click on the following links:

Bloomberg News
Business Week
SouthFlorida Business Journal

The Department of Justice and the US Attorney for the Southern District of New York announced that seven Wall Street professionals and attorneys were indicted on Friday for insider trading at hedge funds and stock trading firms. The defendants included Zvi Goffer, Arthur Cutillo, Jason Goldfarb, Craig Drimal, Emanuel Goffer, Michael Kimelman and David Plate. The recent indictment includes conspiracy to commit securities fraud and three additional counts of securities fraud.

According to published reports, the defendants allegedly operated an insider trading network, where one member obtained information to pass along to others and traded on nonpublic information, about public company acquisitions and mergers. The conspirators tried to hide their scheme by using prepaid phones to pass along information.

It is believed that, the insider trader scheme earned the co-conspirators approximately, $11 million for themselves and their firms. The defendants will have a day of reckoning before United States District Judge Richard J Sullivan, on February 2, 2010, at their scheduled arraignment.

The Federal Bureau of Investigation and the Securities exchange commission are to be greatly praised with their role in helping to uncover this fraud, According to United States Attorney Preet Bharara. Assistant United States Attorneys Andrew Fish, Reed M. Brodsky and Marc Litt are in charge of prosecuting the case.

It is important to note that the defendants face a maximum of 170 years in prison collectively as a group. Was the risk of this jail time worth the reward? If you ask a few famous fraudsters, Bernie Madoff and Scott Rothstein, the answer is a resounding NO.

Click here to read more from the Department of Justice on the detailed counts, charges and penalties

Happy New Year! Today marks the first day of 2010. It marks the beginning of a fresh new start.

Please enjoy a few important highlights from the Securities and Exchange Commission:

The SEC has approved stronger safeguards to Protect Clients’ Assets Controlled by Investment Advisers
The new rules provide safeguards where there is a heightened potential for fraud or theft of client assets. The SEC’s new amended custody rule promotes independent custody and requires the use of independent public accountants as third-party monitors.

According to SEC Chairman Mary L. Schapiro, “The Madoff Ponzi scheme and other frauds have caused investors to question whether their assets are safe when they entrust them to an investment adviser. These new rules will apply additional safeguards where the safeguards are needed most — that is, where the risk of fraud is heightened by the degree of control the adviser has over the client’s assets.”

SEC Charges Houston-Based Broker With Defrauding Florida Municipalities
The Securities and Exchange Commission charged a Houston-based broker with engaging in unauthorized and unsuitable trading on behalf of two Florida municipalities, putting them at risk of losing millions of dollars while he personally made over 14 million in commissions.

$418 Million Fair Fund Distribution to Harmed Investors in Invesco Mutual Funds

The Fair Fund distribution stems from a prior SEC enforcement action against IFG. This distribution also includes money from two other Fair Funds related to separate unlawful marketing timing enforcement actions that affected Invesco investors.

Investment Adviser charged by SEC in Fraudulent Scheme Utilizing Football Stars
The Securities and Exchange Commission filed securities fraud charges against Kurt B. Barton and Triton Financial LLC,
for operating a multi-million dollar scam that used former professional football players to promote its offerings

Former McKesson executive, Charles McCall can now join the Bernie Madoff Club. Yesterday he was found guilty of investment fraud that cost investors $8.6 billion. McCall is a former Chairman of the McKesson Corp.

A San Francisco jury found him guilty of securities fraud and violating accounting rules. On a positive note he was acquitted on falsifying records. His sentencing will take place next March.

Read the Bloomberg article to learn more on the Securities charges against Mr. McCall and his former colleagues.

I am pleased to announce that yesterday our Investment Fraud Seminar in West Palm Beach was a huge success. It was held in the beautiful Phillips Point Club. The beautiful intracoastal was a great backdrop for this well attended Seminar.

The 4 hour seminar, Investing in a Post Madoff Environment: Financial Fraud: How it's accomplished, how to detect it, and how to recover from it was attended by over 100 people from South Florida. The attendees included, CPAs, Attorneys, Bankers, Financial Representatives and a host of other professionals. The Seminar was sponsored by the Financial Services Divsion of LaBovick & LaBovick, P.A.

Speakers at the Seminar included:

William Nortman, Esq., Akerman Senterfitt

Richard A. White, Turris Consulting, LLC

Moderator: Jeffrey S. Grubman, Esq, Jeffrey S. Grubman, P.A.

Topics coverd at the Seminar included areas such as: Investment fraud, Ponzi schemes, FINRA, Churning, Florida Investor Protection Act, Churning, and much more.

We look forward to sharing more information on our next educational seminar on investment and financial fraud.

If you would like to have a transcript of the seminar or more information on investment fraud, let us know.

Our vendor partner for this program, the Daily Business Review, will be publishing a printed version of the transcript in 3 - 4 weeks in their paper as a supplement.

Stay tuned...

Not a minute too soon, Florida Governor Charlie Crist, signed the Florida Investor Protection Plan, Florida House Bill 483, into law, effective July 1, 2009. As we mentioned in a previous post on The Law Planet Blog, this was a new day for Florida investors. In the wake of fraudulent Ponzi Schemes such as, the Bernie Madoff Ponzi Scheme and the new Scott Rothstein Ponzi Scheme, investors need extra protections against investor fraud.

Yesterday, the law blawg, LawUpdates.com, wrote an excellent commentary on the Florida Investor Protection Act

The post gives background on "blue sky laws" and how states regulate securities transactons within their state. The authors provide a clear and concise analysis of Florida's Investor Protection Act that sheds light on how in Florida, the AG and government agencies have more authority to fight investor fraud.

The following excerpt from LawUpdates.com sheds llight on new authority under the new Investor Protection Act:

Specifically, the IPA authorizes the Attorney General, with permission from the state’s Office of Financial Regulation (the “OFR”), to investigate and bring securities fraud actions – criminal and/or civil—against anyone violating the anti-fraud provision under the Florida Securities and Investor Protection Act (“SIPA”). The AG has the ability to seek restitution for victims and obtain other civil penalties. The Florida Department of Law Enforcement has the ability to pay rewards for original information in money laundering investigations under the new law.

As the authors of the LawUpdates.com further point out:

Florida’s IPA has yet to be tested in court. It’s possible that a firm or broker-dealer offering securities in Florida and impacted under this new law will file a court action claiming that federal laws preempt the state’s efforts against it.

All eyes are on Florida once again, for taking Center Stage, on such a significant issue. Time will tell how the new Investor Protection Act will stand up against preemption. We will keep the faith that JUSTICE WILL PREVAIL.

Kudo's to our lawmakers for taking a bold step and passing the Florida Investor Protection Act.

Earlier this week, Seattle Federal District Court Judge Marsha Pechman, ruled that the case against several former Washington Mutual executives and Deloitte & Touche could move forward. She dismissed some of the claims, however, denied defense requests to dismiss any defendants.

In May 2009, Judge Pechman, dismissed the initial 388 page plaintiff complaint as “verbose” and “disorganized”. In her earlier decision, she wrote the following: “The Court remains mystified at counsel’s failure to allege cohesive claims, submit helpful briefing, or prepare a response to the court's inquiry in advance of oral argument. Plaintiffs' counsel cannot expect the court to engage in the necessary analysis when counsel is not prepared to do so."

In the revised 267 page complaint, submitted by the plaintiff’s counsel, Judge Pechman, finds that it is cogent and concise”. The heart of the case involves Washington Mutual’s residential lending practices and alleges that greed to raise the bank’s stock price is a major factor in why proper standards were ignored to meet consumer demand.

This case is on behalf of individuals who purchased securities issued by Wamu or its subsidiaries from October 19, 2005 to July 23, 2008 (the “Class Period”).

After reading the complaint, one can see that there are several issues on who should be held accountable for protecting Wamu investors from fraud. Many lawyers are involved in this legal battle that can last for several years.

Fraudsters Beware: Investors will hold you accountable for your actions and justice will be served.

According to a recent report issued by the Office of the Inspector General (OIG), the Securities and Exchange Commission’s (SEC) enforcement division needs to improve its processes and procedures for investigating and managing the fight against securities fraud. The main example cited in the report was the most current and most blatant example of the SEC’s failure to properly investigate securities fraud complaints - Bernard Madoff’s multi-billion-dollar Ponzi scheme. The report issued by the OIG stated that complaints about Mr. Madoff’s possible involvement in securities fraud were received by the SEC as long ago as 1999. Even though complaints of alleged fraud were made to the SEC in regard to Mr. Madoff, SEC staff failed to recommend that the SEC take action on these complaints.

The purpose of the OIG’s report was to determine the SEC enforcement department’s shortcomings and to identify those areas in which the department needs to make improvements to better fight securites fraud. The goal of the report was to bolster SEC enforcement measures in an effort to prevent another securities fraud case with such far-reaching implications and consequences as the Madoff case. It is the SEC’s job to protect investors from securities fraud. When the department fails to properly carry out its job duties the ramifications can spell disaster for investors.

The following systemic problems within the SEC’s enforcement department were identified in the OIG’s report: staff’s failure to thoroughly review complaints; due diligence was not exercised regarding complaints; inexperienced staff conducted unsupervised investigations; complaints were not sufficiently reviewed; staff failed to seek assistance from other departments and divisions; staff did not verify information with independent third-party representatives; administrative tasks were not completed in a timely manner. According to the OIG report, additional areas in which staff felt changes needed to be made and information clarified included: case handling procedure, program priorities, and working relationships.

The report issued by the OIG offered 21 recommendations to the department in order to create a more effective program. These recommendations focused on management control, establishment of formal guidelines, and a review of existing policy and procedures. The Director of Enforcement at the SEC stated that these measures would be implemented.

To read more on the this of OIG Recommendations view the following: Office of Inspector General (OIG) Audit on SEC - Program Improvements Needed within the SEC's Enforcement Division, Housingwire.com

LaBovick & LaBovick, PA filed a FINRA arbitration against Ameriprise Financial Services, (NYSE: AMP), formerly known as American Express Financial Advisors (AEFA) for stockbroker misconduct and negligence. The claim alleges that Deborah Amilowski, Financial Advisor for Ameriprise Financial Services, failed to properly advise a Senior investor on risks associated with unsuitable products for a person of that age, at the time of the initial investment and negligence in properly identifying the beneficiary resulting in additional loss to the trust.

The FINRA Statement of Claim, filed on August 13, 2009, stated that Ms. Amilowski, recommended a RiverSource variable annuity as an initial investment to a 77 year old investor at the time of purchase, thus ineligible for a guaranteed death benefit. This investment was too risky for someone of this age.

Click on the following link to learn more on the FINRA Arbitration claim against Ameriprise Financial.

After all of the grief that Stanford caused to investors he swindled $7 billion from, can you believe he is complaining about intolerable conditions in jail. His $500,000 bail was revoked because he was considered a flight risk by the Judge.

The WSJ shared his Stanford's complaint to the Judge asking for a transfer in the article "Allen Stanford on His Life in Jail: ‘Conditions Are Intolerable". Jail is not supposed to be a walk in the park or a country club experience.

Texas Billionaire Allen Stanford shared the following through his Attorney, Dick DeGuerin:

1. For at least a week, during the hottest part of the summer, with outside temperatures of 100 [degrees] or more, the place where Allen Stanford is being held as a pretrial detainee has had no air conditioning and for part of that time was without power altogether.

2. Allen Stanford is housed in a single cell with between eight to ten other men. For part of the time last week, they were in total darkness and so far (this motion is prepared on Sunday, July 26) the cell has been without air conditioning for at least a week. There are no windows for light or ventilation and the conditions are intolerable.

3. Allen Stanford urgently asks the Court to transfer him to the Federal Detention Center in downtown Houston run by the Bureau of Prisons and renews his request for transfer, both because of the oppressive conditions under which he is suffering, as well as the impossible conditions for preparing for his complex trial.

4. Regarding the inability of Allen Stanford to consult with his lawyers, the discovery in this case is by electronic means and none of the visiting conditions at the Joe Corley Detention Facility allow the use of electronics. Allen Stanford will be denied his constitutional right to review the evidence in his case if he is detained pretrial at the Joe Corley Detention Facility.

5. Counsel for Allen Stanford has tried to address the conditions with the Marshal’s Service and the Joe Corley Detention Facility, but thus far to no avail. See Exhibit A, a letter to United States Acting Marshal Saenz.

Respectfully Submitted,
Dick DeGuerin

He should not get preferential treatment. Let us know what you think of Stanford's current conditions. Is this fair or cruel and unusual treatment?

The trial for USA v Tzolov and Butler 08-370 started this week in New York's U.S. District Court for the Eastern District.

The case involves two former Wall Street brokers that worked for Credit Suisse Group AG, Eric Butler and Julian Tzolov. They were charged with fraudulently dealing in subprime mortgage-backed auction rate securities (ARS) for corporate clients who specifically requested much safer investments.

The trial seems to be a pass the blame for the defense. The prosecution's argument is that the brokers mislead clients about auction rate securities deals, because of greed in trying to earn millions of dollars in commissions for risky investments instead of much safer investments such as government-guaranteed student loans. The defense cites an entirely different argument, they attribute the losses of the investments to the collapse of the real estate market instead of GREED.

It is important to note that one of the brokers, Tzolov, saw the writing on the wall and recently struck a deal with the prosecution. Eric Butler, pleaded not guilty, and decided to try his luck with a jury. His former partner in crime, Tzolov, struck a deal after pleading guilty, and will be a witness for the prosecution. His testimony should really be interesting.

According to a recent article published by Reuters

"The defendant and his partner promised something better, a better opportunity," U.S. prosecutor Greg Andres said in opening arguments to the jury.

"They did not honor that promise. They invested in securities the clients didn't ask for and didn't want."

This is an important trial to watch regarding investment fraud. The defense is trying to blame the market for the loss of the investors, instead of what seems to plague many Wall Street brokers and others accused of Securities and Investment fraud: GREED.

This makes me think of a statement from the famous fictional villain, Gordon Gekko, in the Oliver Stone movie Wall Street, "Greed is Good". I imagine that people such as Bernie Madoff, Michael Milken, Robert Allen Stanford, Arthur Nadel would all agree that "Greed carries a high price tag".

What will happen in the USA v Tzolov and Butler 08-370 case and the fate of former broker Eric Butler's fate? Time will tell...

Stay tuned...