The Law Planet Blog

Barry Kaye, who allegedly made his fortune in the life settlement market is facing more bad news. First, he was forced to reduce his contribution to Florida Atlantic University to $5,000,000 from his planned $16,000,000. Now Investment News is reporting, that the Ohio Department of Insurance is investigating his life settlement sales in that state. The article reports that he has been sued by an 81 year-old life settlement investor for a failed transaction.

A life settlement begins with the purchase of a high value life insurance policy by an investor. The investor can either pay with their own cash or borrow the cash from a willing borrower, usually a financial institution. So, either using their own, or someone else’s, cash the investor pays the premiums for two years, to avoid the contestability period. At that point, the policy becomes a free asset and can be sold. It was commonly believed that policies had higher values in the resale market than their cash value.

The problem, not surprisingly, is that the entire transaction was based on the availability of willing buyers. Like many great ideas of 2001-2007, these ideas don’t look so good in 2008 and 2009. The new owner of the policy has to pay the premiums, a significant sum in many cases. So the original investor ends up with no buyer, a policy they didn’t need but were convinced that they did, and possibly a significant loan that they don’t want, can’t afford and expected to be able to repay upon sale of the insurance policy. Oops.

No free lunches people. This was too good to be true and it was a sham to begin with. But the sellers of these schemes should have known better and made better disclosures.

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 His $500,000 bail was revoked because he was considered a flight risk by the Judge.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 FBI has announced that former key executive for Morgan Stanley, Darin Demizio, will serve 38 months imprisonment and three years of supervised release for conspiring to commit securities fraud and wire fraud and lying to the FBI. The trial took place in March before United States District Judge John Gleeson. United States Attorney for the Eastern District of New York, Benton J. Campbell announced the sentence.

Mr. Demizio routinely directed business from Morgan Stanley’s securities lending division to smaller brokerage firms for kickbacks that were paid to his father and Craig DeMizio, his brother. The amount of the kickbacks was over $1.6 million from 2000 – 2004. His brother was sentenced to 21 months after pleading guilty to commit securities fraud and wire fraud.

Investors can be assured that the FBI is taking bribery and kickbacks seriously in the securities business. The Demizio conviction is the 29th conviction stemming from an ongoing industry-wide investigation.

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...

As part of FINRA’s ongoing effort to consolidate and reconcile the former NASD and NYSE manuals, changes are in the works. FINRA recently filed a proposed rule change that is going to make changes to FINRA suitability rules, as we have known them, noticeably different.

FINRA’s proposed rules governing Suitability and Know Your Customer Obligations will expand the obligations of registered representatives when recommending securities or investment strategies­ to customers. This is interesting because it looks like FINRA is moving towards codifying a fiduciary standard, or at least a modified fiduciary standard.

In the past, a fiduciary duty in a non-discretionary account related to only the execution of trades and custody of assets. Now, if an investment strategy encompasses assets away from the firm, that strategy falls within the proposed rule. For instance, the recommendation to retain stocks in an account at another brokerage firm may be considered recommending an investment strategy as may the recommendation to hold, and not sell, a particular stock.

This represents a significant change in the relationship a broker has with his/her client and will broaden the areas of responsibility when making suitability determinations.

It's a new dawn. It's a new day and investors in Florida should be feeling good. Florida Governor Charlie Crist signed House Bill 483 into law on Monday, which adds protections for Securities investors today, designed to protect securities investors from Bernie Madoff type ponzi schemes.

The Bill's sponsor, State Representative Tom Grady (R- Naples) is quoted as saying the following in a recent interview:

“Our economy will grow stronger if investors have confidence in our financial markets. By increasing the tools available to the state to prosecute violators of our securities laws, we protect investors and foster needed trust in the system."

House Bill 483 gives additional power to the Office of Financial Regulation for prosecution of violations of the Florida Securities and Investor Protection Act. Whistleblowers will also be compensated with rewards for orginal information regarding money laundering investigations.

Governor Crist issued the following statement on House Bill 483 :

“Investors play a critical role in the success of Florida’s economy, and this legislation helps ensure their hard-earned money is protected. I am committed to maintaining the integrity of our markets. Enhancing protection measures and oversight is the best way to crack down on fraudulent activity and increase consumer confidence.”

HB 483 - Investor Protections received overwhelming support from legislators. This Bill provides the following Investor Protections according to the House of Representatives site:

Expands jurisdiction of Office of Statewide Prosecution to investigate & prosecute specified additional offenses; revises various provisions of law relating to viatical settlements; exempts specified transactions in viatical settlement investments from specified registration requirements; revises registration requirements; excludes post judgment interest from payments from fund; expands class of persons related to or associated with applicant or registrant for which specified violations may result in adverse actions taken against registrations; requires Financial Services Commission to adopt rules relating to disciplinary guidelines & temporary disqualification; authorizes OFR to apply to court for specified orders; specifies additional investigation & enforcement authority of AG; authorizes AG to recover costs & attorney fees; authorizes OFR use of such information in prosecution actions; increases amount of specified administrative fines; authorizes OFR to bar specified persons from submitting applications or notifications for license or registration under specified circumstances; revises criteria for prohibited practices relating to commodities; authorizes FDLE to enter into agreements to pay rewards for specified information; expands subject matter jurisdiction of statewide grand jury to include specified additional offenses.

If you have original information regarding Investor fraud you may want to contact an attorney to discuss your rights. If you want to learn more on Securities litigation and your rights as a whistleblower, visit the following pages on Securities Litigation and Stockbroker fraud.

Today, I came across an interesting article from Bloomberg News on the Arbitration debate over financial investments. It was a Commentary written by Bloomberg News Columnist Susan Antilla entitled "Obama Fails to End Kangaroo Courts for Investors".

In the article, Susan highlights the following statement from President Obama:

The Securities and Exchange Commission “should study the use of mandatory arbitration clauses in investor contracts,” and then pursue legislation if appropriate,

At the end of the Commentary, she adds:

That argument is more bogus today than ever, because cases increasingly involve the mass-marketing of financial products by multiple brokerage firms.

“The concern is that the industry arbitrator could be on a panel telling others that ‘everybody does it,’” says Brian Smiley, the president of Piaba.

And in a closed justice system where nobody can come to court and watch, who would ever know?

The Arbitration Commentary gives food for thought and highlights the key issues, but it is hard to argue over, which side Susan is on in the Arbitration argument. She makes her point very clear on the issue.

It is safe to say that after losing a loved one, a widow has a lot on their plate, However, this loss does not mean that Financial Advisors can ignore them or mismanage their account. A recent study by Allianz Life found that

About 44% of widows are inclined to obtain financial advice in new ways, and that 70% of those using financial advisers considered firing their advisers in the first three years after their husbands' deaths.

This tragic loss does not give Financial Advisors the right to prey upon Widows with risky financial investments, mismanagement of funds or simply ignoring the widow alltogether.

Five simple steps that a widow can use for Financial Guidance and respect from Financial Advisors include:

Step one: Deal with your emotional needs first after the death of your spouse. Having a clear mind and perspective is key before making major decisions,

Step two: Organize your finances and make a budget. Looking at your entire financial picture allows you to see what you need financially to live on.

Step three: Calculate your net worth. Take a look at all of your assets, investments, stocks, home, bank accounts, bonds, and everything that is of value. Ask your Financial Advisor to give you a report of what your portfolio is worth, present value and a comparison of what it was worth when your husband was alive. Give them a specific timeframe of when you expect this data.

Step four: Identify a few key Financial Advisors and Interview them for your business. Compare the Financial Advisor that was working with your spouse to the new ones that are recommended by reliable sources. Make a checklist of things that are important to you in an advisor. Rate each Advisor with a score for each of your checklist items and come up with a ranking system for comparison. Try to be objective and compare each advisor on the same benchmarks.

Step five: Sit down with your Chosen Financial Advisor and develop a long-term financial plan for your investments. Share with the selected Financial Advisor that they were selected after a careful screening process. This will allow them to see that you are serious about service and expect excellent Customer Service. Set aside a specific timeframe for a review, that you are comfortable with, i.e., monthly, bi-monthly, quarterly, semi annually. Make sure that the Financial Advisor agrees to this timeframe to go over your portfolio and hold them to it. If they fail to service your account properly, go back to your list and replace them with someone that will treat you the way that you expect to be treated.

Read the book, On Your Own: A Widow's Passage to Emotional & Financial Well-being,by Alexandra Armstrong and Mary R. Donahue for more information on how a Widow can take charge of their life and finances without being taken advantage of by a Financial Advisor. The book retails for under $20 on Amazon and other online retailers.

If you are a Widow, please note that you are not alone, According to an article on the subject from Investment News, nearly 800,000 women become widows each year. There is much comfort in numbers. Join a support group for women that are recent widows. You may find that sharing your experiences present, past and future can help you cope with your loss.

To learn more on other ways for Widows to protect themselves against Investor fraud, view some of the following Financial Services pages on Stockbroker fraud, Securities Issues, or dispute resolutions.

Today, marks a milestone in the life of The Law Planet Blog. This is our 100th Post our Blog covering Securities, Stock Fraud and Employment/LaBor Law issues.

It is also a great day for Senior Investors. A series of Grasssroots campaigns will be launched in Florida, Colorado, Vermont, North Carolina, and Washington state to protect seniors from investment fraud. The Financial Industry Regulatory Authority (FINRA) outlined new initiatives aimed at protecting and educating investors. The initiatives include a national advertising campaign and a 60-minute video, "Tricks of the Trade: Outsmarting Investment Fraud."

The video is part of the FINRA Foundation's new "fraud-fighting" education series for investors, which also includes in-person workshops and events in five states across the country this year: Colorado, Florida, North Carolina, Vermont and Washington state. These state-wide campaigns, which will be expanded to five additional states next year, are being presented in partnership with AARP, state securities regulators and other fraud-fighting organizations to help senior citizens identify and steer clear of investment fraud. A central feature of these campaigns is the presentation of an educational curriculum that has been tested and shown to reduce seniors' susceptibility to investment fraud by over 50 percent among participants.

To order a copy of the DVD Click on the FINRA link Fraud Fighting.

Stay tuned for more information on Investor protections to fight against fraud for Seniors.

The SEC announced today that it, along with Alabama Securities Commission has charged Aura Financial Services with “rampant” churning of customer accounts, “widespread” supervisory failures and other securities violations. This is stunning. It is rare that an entire firm is charged with churning. Usually it is an individual broker or office. For a firm to be charged must be pretty bad.

What do you do if you’re a client of Aura and can’t figure out what happened to your account? Contact a qualified securities arbitration attorney to look at your account statements and determine the best route to follow.

This gets back to the basics of investing. If you don’t understand what’s going on, don’t do it. If your Broker is doing things you don’t like, get another Broker. When you think you’ve been mistreated, ask a professional for a second opinion.

To learn more on this Aurora Financial Fraud case, read the SEC Press Release and Investment News article "SEC charges Birmingham B-D with churning"

The truth will always come out. This is a hard lesson that Fund Manager, Matthew D. Weitzman, just recently learned. He has been charged with investment adviser fraud, securities fraud, and wire fraud. If convicted he faces up to a maximum of 15 years imprisonment and over $5 million in fines.

Mr. Weitzman was co-founder of AFW, financial planning and investment management firm. AFW managed more than $190 million in assets at the end of 2008. According to reports in the North Country Gazette,, Mr. Weitzman converted investor money for his own use.

The Golden Goose is no more for Mr. Weitzman. His misdeeds caught up with him and now he must face the music for his crimes. Hopefully, the Investors in AFW will seek legal counsel to discuss how they can get their stolen funds back.

As we speak to Clients and give Seminars we are constantly asked "How can an investor preotect themselves against Stock Fraud?" Here are a few points that anyone can remember. Please feel free to share them with loved ones that are consistent investors. Enjoy...

1. Read your mail. Account statements are confirmations are sent for a reason. If the value of your account dropped or grew more than expected, read the prior month’s statement and try to figure it out. Ask your broker for help. If the broker won’t help, get a new broker

2. Diversify your investments. No matter how much your broker says “This is great” don’t put all your money in one place. No competent money manager does this. A private investor shouldn’t either.

3. Be proactive in dealing with your investment professional. A broker is supposed to make recommendations that are appropriate for your situation. If you’re uncomfortable and want to stay with that firm, talk to the branch manager. If you want to leave the firm, do it.

4. Remember that an investment that sounds too good to be true, isn’t true. All of the Ponzi schemes that fell apart over the last year were all succeeding because people thought they were in on a “secret” program that was always doing better than the market. It turns out there was no valid investment program. Experienced investors thought they had found the magic bullet. They should have known better. They forgot this basic principle.

Yet another financial fraud has been unearthed as part of the bloodletting of 2008/2009. As reported in Investment News, seven members of a church in Queens, New York, defrauded fellow church-goers of more than $12 million. The accused fraudsters were leaders in the church.

The formula does not appear to be different than any other. The fraudsters were trusted, pillars of the community. The promised high returns, some as high as 75% according to the article. In the end, it turned out they were doing what all Ponzi scheme artists do, they funded their "lavish lifestyle."

It's interesting that the investors in these schemes never seem to notice that, in spite of the promise of unrealistically high returns, the promoters are living well. Perhaps they rationalize in their own minds that the promoters are doing so well with their own investments that they can live well and make all their investors rich.

Get with the program people!!!! If these guys were so smart, they wouldn't be marketing only to members of their church and their lavish lifestyle would include owning Manhattan. Folks have forgotten the basic rule. If it sounds too good to be true, it is. Stay away.