Stockbroker Litigation News

Firm Sued for Advising Clients to Invest in Ponzi Scheme
A woman has sued a New York law firm for fraud and breach of contract, alleging she was advised to place substantial funds with a money manager who was operating a Ponzi scheme that has since collapsed. In her lawsuit, she claims her former attorneys advised her to invest funds from an $875,000 settlement with a purported money manager, who embezzled the funds. Under the settlement agreement, the funds were supposed to be placed in trust accounts at Morgan Stanley. Last year, the money manager was arrested and charged with running a $30 million Ponzi scheme. She also alleged that the firm did not disclose that the Ponzi schemer was a client from whom it also took fees for referrals. She alleges the firm acted in a manner that was "wrongful and egregious," and she is seeking at least $700,000.

Judge Ready to Decide Who Will Control Millions in Rothstein Assets
The thorny question of who will control and divide tens of millions of dollars in assets that belonged to convicted Ponzi crook Scott Rothstein will likely be decided shortly. At a recent hearing, federal prosecutors battled attorneys for the bankruptcy trustee over which side would be better suited to dole out funds to victims. The judge had tough questions for both sides, but the main issue of concern to some victims - whether the Justice Department would establish a restitution process for all the funds - was resolved by prosecutors at the hearing. U.S. Attorney General Eric Holder has already signed off on plans for a restitution program for Rothstein's victims, and the government wil soon file a pleading setting forth its methodology for determining how victims would be compensated. Federal prosecutors have argued that allowing the trustee to administer the funds would unnecessarily divert money from victims to legal fees.

Aiding and Abetting Charges in $22 Million Ponzi Scheme Reinstated Against Law Firm
A state appellate court has reinstated aiding and abetting charges against a New Jersey law firm in a suit by investors over its alleged role in a $22 million Ponzi scheme. The panel said that it "cannot and will not endorse what is essentially a 'see no evil, hear no evil' approach." In 2008, a judge had granted the firm its motion to dismiss the charges brought by investors who claimed the lawyers knew about the undisclosed criminal histories of the perpetrators of the scheme prior to its unraveling. However, the appellate panel reversed, saying the investors had adequately alleged the lawyers had actual knowledge of the underlying fraud. Investors sued the firm in 2007 after losing the $1.9 million they had invested in a purported real estate investment company. The company, which was actually a Ponzi scheme, went into receivership after its principal backers were indicted on federal securities fraud charges in 2006. In their complaint, investors alleged that they invested their money in the company in reliance on private offering memoranda drafted by the law firm that contained misrepresentations and omissions, which included the extensive criminal histories of its operators. After the FBI raided the company's offices in 2005, the complaint alleges that a backdated amendment that claimed to reveal the criminal pasts was drafted for the 2004 memoranda. Investors claim that the firm, which drafted three versions of the private placement memoranda, had actual knowledge of and assisted in the fraud. As escrow agent, the firm received documents about the suitability of potential investors, and it knew about the criminal histories of the management, the complaint claimed.

SEC Accuses Berwyn Man of $16 Million Ponzi Scheme
The Securities and Exchange Commission filed civil charges against a Berwyn man and his companies, alleging he stole from his investment claims to pay for a luxurious lifestyle. The SEC claims he operated a Ponzi scheme that raised at least $16 million from 140 investors since 2006, including about $2.3 million as recently as a month ago from 30 investors. The convicted felon and repeat violator of securities laws promised investors annual returns of 10 to 16 percent on real estate investments in the Philadelphia region. However, evidence is lacking that he made real estate investments, and the SEC alleges he used new money from investors to pay off previous investors and for personal expenses.

Ponzi Schemer's Wife Wants Some of Her Bling Back
Federal agents confiscated the homes, yachts, cars and jewelry when they raided Scott Rothstein's $6.4 million Florida home last year, but now his wife wants some of her jewelry back. She has filed a petition in her husband's criminal case claiming the government has no right to keep some of the 304 seized watches, necklaces and earrings her husband gave her as gifts "based on their personal friendship and relationship" before the high-powered attorney started his $1.2 billion Ponzi scheme in 2005. Separately, in bankruptcy court, the trustee for Rothstein's defunct law firm accused his wife of charging more than $1.1 million to the law firm's credit car and spending money she didn't earn despite being on the firm's payroll. Rothstein pleaded guilty to the scheme and was recently sentenced to 50 years in prison. 

Judge Finds Investor's $15 Million Claims Against Socialite Meritless
A Florida doctor never got over being swindled in a $194 million Ponzi scheme, so he sued a Palm Beach socialite who allegedly attracted him to the scheme. A federal judge has since denied his claim - calling it 'meritless' - and the ruling may stand as a precedent for investors trying to recover from other investors. The doctor claimed the socialite praised a Ponzi schemer's skill and acumen as a trader and money maker. He alleges she lied about making money with the scheme, leaving him to lose "a few million." The judge was not amused with the end-around attempted by the doctor, writing: "This pleading needs no introduction. This court is well aware of the plaintiff's litigation misconduct." The judge alleged that the SEC or the U.S. Attorney's Office would have known if the socialite was promoting the scheme, and records show the doctor invested before his interactions with the socialite.

SEC Accuses Money Manager of Fraud Tied to Housing Bust
The government opened a new front in its probe of financial firms' dealings in the mortgage market, filing civil fraud charges against an investment adviser and his firm in connection with complex securities during the 2007 housing bust. The Securities and Exchange Commission accused a money manager and his firm of fraudulently managing the securities in a way that cost investors tens of millions of dollars. The SEC also said he reaped millions in fees and undisclosed profits at the expense of clients. The SEC is seeking injunctions, and unspecified restitution and fines. The money manager denied the SEC's charges and said he would contest them in court. The SEC has been carrying out a wide-ranging investigation of financial firms' conduct in the run-up to the financial crisis of 2008. In the high-profile Goldman Sachs case, the firm is accused of misleading investors by failing to tell them that the mortgage securities had been chosen with help from a Goldman hedge fund client that was betting the investments would fail. The SEC has been conducting "a broad examination sweep" of more than 50 investment firms, focusing on how they met their legal obligations to investors amid the stress of the housing crisis.

Mortgage Executive Charged in $1.9 Billion Fraud Scheme
Federal prosecutors are targeting tens of millions of dollars in cash and property allegedly tied to the former chairman of one of the country's largest privately held mortgage lending companies, who was recently indicted on fraud charges. Justice Department officials announced that the former chairman has been charged in a 16-count indictment in Virginia for allegedly orchestrating a $1.9 billion fraud scheme that contributed to the collapse of Colonial Bank. In charging documents, prosecutors listed vehicles and property that the government wants him to forfeit, including a 1963 Rolls Royce, a 1929 Ford Model A, a 1970 Cadillac El Dorado and a 1958 Mercedes Benz Cabriolet. Administration officials say the alleged fraud began as early as 2002. In an effort to conceal mounting operating losses at the mortgage company, he and his co-conspirators allegedly misappropriated money from Colonial Bank's mortgage lending division and from a mortgage lending facility controlled by the mortgage company. Charging documents also allege he committed wire and securities fraud in trying to convince the federal government to provide Colonial Bank with more than $553 million in funds from the Troubled Asset Relief Program.

Pittsburgh Company Subject of SEC Probe
The Securities and Exchange Commission is investigating whether Pittsburgh-based Mylan Inc. disclosed confidential information about earnings to a select group of analysts in violation of the agency's fair disclosure rules. The day after the meeting, the generic drug giant's shares jumped 7 percent, and trading volume was heavy at 20 million shares. The SEC's fair disclosure rule was enacted in 2000 to prevent companies from leaking non-public material information to selected investors. It is not unusual for companies to host invitation-only meetings with investors, but the law requires that any market-sensistive information be disseminated publicly. Following the meeting, some analysts issued reports to clients saying they were encouraged by management's comments.

SEC Suspends Former General Counsel
A former general counsel of McKesson Corp. has been stripped of his right to practice before the Securities and Exchange Commission for five years as part of a civil settlement resolving charges that he participated in financial reporting fraud. The SEC alleged in its complaint that he and other senior executives took part in a scheme to inflate the revenue and net income of an Atlanta-based provider of health care technology, which merged with McKesson in 1999. The SEC alleges the former general counsel falsified documents and circumvented internal accounting contracts. As general counsel, he negotiated two large backdated transactions with side agreements that allowed customers to pull out of sales contracts. That fraud enabled the companies to issue false press releases and periodic SEC reports that said the companies were financially successful and had exceeded analysts' expectations, the SEC claimed. A federal jury had acquitted him of related criminal charges last year, and civil charges in the case were settled when a judge ordered him to pay a civil penalty of $60,000 and barred him from acting as an officer or director of a public company for five years.

Rothstein's Top Assistant Pleads Guilty, Describes Her Role in Ponzi Scheme
Scott Rothstein's top assistant said that her boss told her he was tied in with the Mafia and mobsters would kill him if she didn't forego fake settlement agreements in his $1.2 billion Ponzi scheme. She was questioned in a federal courtroom about her role in the fraud before he agreed to accept her pre-arranged guilty plea. She pleaded guilty to one count of money laundering conspiracy in a sometimes dramatic hearing. She faces a maximum sentence of 10 years in prison. Prosecutors argued that the benefited directly from the Ponzi scheme, earning a $250,000 salary, occupying a home bought by Rothstein and driving a Maserati sports car that Rothstein gave her. Her attorney told the judge that his client met with federal investigators nine times and accepted responsibility for assisting Rothstein in his conspiracy even though she did not know precisely what her boss was up to.

Lawyer's Ponzi Victims to Share Proceeds from Insurance Trust
The victims of a Ponzi scheme run by a lawyer who apparently killed his wife and daughters and then committed suicide last year could recoup some of their losses following a court battle over a $5 million insurance policy the lawyer took out in his name. The insurance policy's proceeds have been transferred to the public administrator overseeing the lawyer's estate rather than relatives of his wife. An insurance trust set up to benefit the lawyer's wife and daughters in the event of his death was silent on what happened if they died before him. A surrogate dismissed objections by the wife's relatives that allowing the $5 million to go to the lawyer's estate would effectively allow it to profit from the deaths. The surrogate wrote that the wife's "collateral relatives could not have had any reasonable expectation of benefit from the insurance police. Thus, it cannot be said that equity would be better served by directing the proceeds of the life insurance trust to her relatives, leaving the victims of the Ponzi scheme with no hope of recovering even a small portion of their losses." At least 27 people have submitted affidavits collectively claiming losses of more than $25 million stemming from the scam. The scheme involved investing in short-term real estate notes.

Former General Counsel Escapes Derivative Suit Over Options Practices
The former general counsel of Atmel Corp. has been dismissed from a derivative suit over stock option backdating at the company. He had threatened to blow up an earlier settlement between plaintiffs and the company when he claimed that a conflict involving Atmel's law firm tainted the $9.65 million deal. The derivative suit was filed against 25 Amtel executives on behalf of the company's shareholders. The general counsel refused to settle and was headed for trial next year. He "has indicated his intent to vigorously contest each and every claim in the action," said the settlement agreement. "Defendant has consistently maintained that he acted in accordance with governing laws at all times and that he had no involvement in the alleged wrongdoing." The former general counsel, who was fired in a dispute over travel funds and later blamed for the company's backdating problems, has an ongoing defamation and breach of contract suit against the company. The plaintiffs agreed to dismiss their claims against him with prejudice. Meanwhile, Amtel gets a cash payment from its insurers for a net benefit of $1.7 million under the deal.

Judge Delays Appointing Lead Counsel in Toyota Shareholder Litigation
A federal judge has delayed appointing the lead plaintiffs' attorneys in the shareholder litigation against Toyota Motor Corp. until the Supreme Court decides whether foreign purchasers of a company's stock have standing to sue in the United States. The judge agreed to consolidate seven class actions pending in Los Angeles on behalf of Toyota shareholders whose holdings declined by tens of millions of dollars after the company announced a series of recalls associated with sudden unintended acceleration. After two hours of contentious arguments in a courtroom full of plaintiffs' attorneys, some of whom brought representatives of their institutional clients to the hearing, the judge declined to appoint a lead plaintiff and lead counsel. Instead, she told counsel to make fresh arguments 10 days after the Supreme Court rules in a case on point. The justices have heard oral arguments in the case, which addresses whether U.S. courts have jurisdiction over claims brought by foreign investors who purchased U.S. stock and allege fraudulent conduct that occurred in the United States.

Prosecutors Recommend 40 Years for Rothstein
The lawyer who turned his fast-growing Florida firm into a vehicle for Florida's largest Ponzi scheme - defrauding investors of $1.2 billion - should spend 40 years in prison, federal prosecutors told a judge in a sentencing memorandum. Scott Rothstein is scheduled to be sentenced shortly, and his attorneys asked the judge to sentence him to 30 years. The federal probation office has proposed life, driven largely by the outsized dollar loss to victims. The statutory maximum is 100 years. "While the defendant's criminal activity in this case can only be described as reprehensible, it is beyond dispute that his post-offense conduct has been extraordinary," his attorneys argued, referring to Rothstein's cooperation explaining his fraud and working as an information in a case related to organized crime. Rothstein's Ponzi scheme centered on investments in lawsuits settlements. He targeted friends and clients and created a larger-than-life persona as the head of his firm. He spent millions on yachts, real estate and sports cars and bought a share of a restaurant at the Versace mansion in Miami Beach. Most important to the continuation of his scam, he bought power. He spent other people's money buying prestige, donating to charities and political candidates, including two governors and a senator.

Judge Sorts Claims in Rothstein Ponzi Scheme
Several people and institutions are laying claim to a piece of the collapsed empire of disbarred attorney Scott Rothstein, who is awaiting sentencing after pleading guilty to operating a $1.2 billion Ponzi scheme. A judge has begun sorting through the claims, with some observers claiming more than $469 million is being sought by investors and creditors. The judge hoped to settle the claims - a list of 46 expected to quickly grow larger. The question involves which of Rothstein's former assets - including dozens of pieces of real estate and homes, business interests, luxury vehicles, yachts, jewelry and bank accounts - should be forfeited to the U.S. government and which should go to individuals, banks or companies who claim they are the true owners. Other than cash, assets that are forfeited to the U.S. government will eventually be sold, with most of the proceeds going to victims of Rothstein's Ponzi scheme. An auction is scheduled for 10 vehicles and an 87-foot yacht.

Investment Fund Suing for $61 Million Lost in Rothstein Scheme
An investment fund claiming a $61 million loss in Scott Rothstein's phony settlement financing scheme is suing the convicted felon and TD Bank, claiming the money disappeared in the final two months before the fraud came crashing down. A total of $30 million in investment funds from Emess Capital was cleaned out of Rothstein's TD Bank trust accounts in a six-day period just before the firm's chairman flew to Morocco, also the destination of a $16 million wire transfer by TD Bank, a federal racketeering lawsuit. Emess received reassuring account printouts and meetings with Rothstein and several representatives TD Bank about its investments and the safety of the accounts. Emess now claims its dealings with the bank were riddled with "critical false and fraudulent representations" supporting Rothstein's criminal ventures.

SEC Charges Connecticut Hedge Fund with Insider Trading
The SEC filed suit against a Connecticut hedge fund and its chairman, alleging both agreed to pay $28 million combined in disgorged profits and penalties to settle the case. Federal investigators had been looking into the allegations since at least 2005 but closed early investigations after failing to find enough evidence to bring a case. But then something happened that didn't help the fund: The employee at the center of the case got divorced, and e-mails implicating the employee in the insider trading scheme came to light in filings. He joined the fund in 2001 after working for Microsoft, and he used his contacts at Microsoft to tip the fund to the fact that Microsoft was about to release a better-than-expected earnings report in the spring of 2001. The firm then made $14 million on trades of Microsoft securities, according to the SEC's complaint. The case against the employee continues on, with the SEC alleging he misled them during the initial investigation in 2005.

Prominent Yale Donor and Former Outside Counsel Charged in $60 Million Fraud
The New York Country district attorney's office has charged the former CEO of Industrial Enterprises of America and an outside lawyer with running a $60 million stock scheme. The lawyer served as outside counsel to Industrial Enterprises and briefly as its top executive. He also served on the company's board of directors and worked as its CFO and general counsel. Prosecutors claim the pair conspired to make phony stock grants in an effort to boost Industrial Enterprises' share price, which would allow the defendants to sell their worthless stocks in the company and its subsidiaries at inflated prices. The former CEO is accused of using proceeds from his illicit stock sales to fund a lavish lifestyle, who owns homes in Palm Beach and Southampton and has spent more than $500,000 on private jets. He earned roughly $15 million from the scam, while investors lost $60 million. The lawyers is alleged to have reaped $6 million from his role in the fraud, some of which he spent on a $250,000 Harry Winston diamond ring for his wife.

Forum Appeal Denied Over New Jersey Pension Fund's $180 Million Investment in Lehman
Litigation over the New Jersey pension fund's purchase of $180 million in Lehman Bros. stock shortly before the company's bankruptcy filing will stay in federal court. The 3rd U.S. Circuit Court of Appeals refused to hear the state's appeal from removal. The court based its ruling on jurisdictional grounds, rather than deciding an open question in the circuit - whether the securities law's prohibition against removal trumps the bankruptcy code, which allows it.

Former Assistant Attorney General Charged Over Solicitation of Investors for Ponzi Scheme
A former Massachusetts assistant attorney general, his business partner and their company face a purported class action for funneling investors to a man charged with running a Ponzi scheme. The case claims that the attorney and his partner in a brokerage and investment banking company solicited the plaintiffs and other clients to invest with an alleged Ponzi scheme operator in violation of the Massachusetts Uniform Securities Act. Earlier this year, the operator was arrested on mail fraud charged for operating a Ponzi-style scheme. According to the federal complaint against him, his scheme involved approximately 130 victims who lost more than $29 million. The current case alleges that the two began soliciting investors for the operator as early as 1997. Plaintiffs are seeking full recovery of their investment money, plus 6 percent interest per year from the investment date, minus any income they've already received.

Publisher's Suit Proceeds Against Madoff Fund Operator
The publisher of the New York Daily News may move forward with a $40 million lawsuit against a hedge fund operator who allegedly handed off millions of his clients' funds to convicted swindler Bernie Madoff to invest. A judge sustained the publisher's common law fraud claim, finding it alleges "misrepresentations of a present known fact" - that the hedge fund operator had delegated control and investment discretion of one of his hedge funds to Madoff. The judge, however, dismissed claims against the auditor or the hedge fund operator's fund. That complaint fell short because it failed to allege that the accounting firm was aware of "concrete facts" indicating Madoff's fraud.

Moody's: SEC Considering Action Against Us
Moody's Corp. disclosed that its credit rating unit could face enforcement action from the U.S. Securities and Exchange Commission for allegedly misleading regulators in a 2007 application to remain a nationally recognized rating agency. Moody's said in a recent filing that the SEC is mulling starting an administrative case and "cease-and-desist" proceedings, and that a so-called Wells Notice was received from the SEC. Regulators send Wells Notices to firms or people to alert them of the likelihood that the government will file an enforcement action against them. Companies or people being investigated have the right to argue why they should not be charged by filing a "Wells submission." According to Moody's filing, the SEC claims that Moody's description of its procedures for determining credit ratings was "false and misleading" because of Moody's own finding that a policy had been violated internally. The SEC is specifically looking at Moody's response to its own finding that in 2007, members of a European rating surveillance committee had violated its code of conduct.

Shareholder Sues BP Directors
A BP shareholder is suing the company, alleging it ignored safety concerns that caused the explosion at the Deepwater Horizon rig in the Gulf of Mexico. The explosion resulted in 11 deaths and an oil spill that is leaking 5,000 barrels of crude per day into the Gulf. She claims that BP directors ignored safety concerns that arose from a 2005 blast at BP's Texas City refinery and leaks at its Alaska pipeline in the pursuit of profits. Her lawsuit, filed in New Orleans, says BP directors made "purely cosmetic changes at the corporate level while ignoring the substance of the safety violations and the threat they posed to the entirety of the Gulf, commercial and private property and the company's own survival as a going concern." BP is facing at least 100 civil suits related to the spill and faces up to $15 billion in cleanup and legal costs.

Maxim Settles Backdating Class Action for $173 Million
A couple of weeks after a former CFO of Maxim Integrated Products lost a securities fraud trial, the company announced a $173 million settlement with plaintiffs in a stock option backdating class action. The cash payment makes the deal the largest backdating settlement within the 9th U.S. Circuit Court of Appeal and the third-largest overall. The settlement shows Maxim is closing the door on stock option backdating litigation against it. The plaintiffs, public pension funds, claimed damages during the proposed class period, between 2003 and 2008. They alleged that Maxim had improperly backdated its stock options, which inflated its stock price. Last year, a judge granted much of Maxim's motion to dismiss the complaint, limiting both company statements the plaintiffs could argue had caused them to lose money. Later, the plaintiffs moved to certify the class, and that motion was pending when the settlement was reached. The SEC's recent verdict against Maxim's former CFO wasn't a driving factor in the settlement, Maxim said.

Parties in Toyota Securities Suit Told to Resolve Discovery Fight
A federal judge in Los Angeles has declined a request by plaintiffs lawyers in a shareholder class action to force attorneys for Toyota to turn over documents that were provided to Congress, which has been investigating vehicle recalls associated with sudden unintended acceleration defects. Instead, the judge ordered both parties to reach a discovery agreement on their own. The suit is the first shareholder class action to allege that Toyota's executive and directors made false and misleading statements to shareholders regarding the defects. The recalled caused Toyota's stock price to drop by almost $20 in one week. In court documents, lawyers for the plaintiff asked the judge to lift a stay on discovery and instead order that documents relevant to the case be preserved or turned over. Under securities law, discovery is stayed in a shareholder case if a judge has yet to rule on pleading motions, such as a motion to dismiss. The lawyers pointed to "serious allegations" that Toyota failed to disclose the defects, specifically mentioning a $16.4 million fine that the National Highway Traffic Safety Administration imposed after finding Toyota waited four months to report the defects. Toyota argued that the lawyers' claims were based on news reports and statements from a single congressman. At least six shareholders have filed suits against Toyota.

Goldman Sachs Reveals Slew of Shareholder Suits
Goldman Sachs' general counsel made a rare filing with the government, revealing at least six shareholder suits against the company over its dealings in the subprime mortgage market, and one highly critical letter from an institutional shareholder. The filing made no direct reference to a rumored Justice Department criminal investigation, but it did say the company anticipates that additional shareholder actions may be filed. The filing said that since the SEC filed suit against Goldman, several putative shareholder derivative actions have been filed in New York Supreme Court and U.S. District Court in Manhattan against the company, its board of directors and certain officers and employees. The shareholder suits generally allege "claims for breach of fiduciary duty, corporate waste, abuse of control, mismanagement and unjust enrichment in connection with collateralized debt obligation offerings made between 2004 and 2007." The complaints also allege challenge "the accuracy and completeness of the company's disclosure," which may be why the company decided to disclose them. The complaints seek declaratory relief, unspecified money damages, restitution and corporate governance reforms.

Justices Give Boost to Securities Fraud Plaintiffs in Merck Ruling
In a rare boost for securities fraud class actions, the U.S. Supreme Court closed off a "statute of limitation" defense for Merck & Co. in its battle against Vioxx-related shareholder suits. The Court unanimously ruled that the litigation is timely and must go forward, in spite of Merck's insistence that the suit was filed too late under the two-year statute of limitations contained in the Sarbanes-Oxley Act of 2002. The Court took an expansive view of the two-year statute, finding that the clock should start ticking only after plaintiffs discovered the facts of the fraud violation - including whether the company intended to defraud investors. The Court rejected Merck's proposal that the triggering point for the statute of limitations should be when plaintiffs were on "inquiry notice" - the moment when a plaintiff should have had enough information to inquire further into possible fraud.

New Jersey's Suit Against Merril Lynch Over Stock Deal Alteration Can Go Forward
A judge has given a green light to New Jersey's lawsuit over its $300 million purchase of Merrill Lynch & Co. stock in 2008, which alleges the investment bank gave misleading information about its financial condition and welshed on its promise to treat all investors in the same stock offering equally. A judge denied a motion to dismiss the case and allowed the state to proceed with all of its claims: breach of contract; negligent misrepresentation; and breach of the covenant of good faith and fair dealing. He also ruled that Bank of America, which bought Merrill Lynch for $50 billion after the fact, could potentially be held liable for those damages.

Law Firm Not Liable for Losses of Refco Investors
Secondary actors such as attorneys can only be held liable for false statements in private damages actions under the securities laws if the statements are attributable to them at the time they are disseminated, a federal appeals court has decided. Ruling in a civil suit brought against a former and its former partner and now prison inmate in connection with the Refco Inc. securities fraud and financial meltdown, the court rejected civil liability for both. The suit was brought by plaintiffs who purchased Refco securities before the discovery that top officials at the brokerage firm had conducted fraudulent transactions between the firm and third parties to conceal hundreds of million in Refco debt - a scandal that drove the firm into bankruptcy. In the civil suit, the plaintiffs claimed involvement by the firm and its partner in 17 sham loan transactions and charged they were responsible for false statements in memorandum for an unregistered bond offering in 2004. A circuit court affirmed a lower court's ruling that the firm and its partner were not to blame as the false statements did not originate with either.

High Court Rules with Investors in Lawsuit Against Merck
investors suing Merck over its handling of the pain medication Vioxx got a boost from the U.S. Supreme Court in a case that has hinged on when a two-year statute-of-limitations clock started ticking. The court backed the lawyers suing Merck & Co. Inc. in a class action securities fraud lawsuit. Merck pulled Vioxx from the market in 2004 because it increased heart problems. It expects to have completed $4.85 billion in payments to patients to resolve injury claims by the end of the year. The securities fraud case has been described as very large and likely to include "tens of thousands of investors and involve investing losses in the multiple billions." Merck shareholders have seen several setbacks in recent years, including a settlement for Medicare overbilling and a study that said Merck's cholesterol drug Vytorin was no more effective than a generic. In the case, Merck argued that the two-year limit had already passed when the lawsuit was filed in 2003, because the two-year time period should have started with "inquiry notice," the point when the facts would have led "reasonably diligent" plaintiffs to investigate further. The court rejected that argument and said the clock started when investors had actual knowledge of a violation or a reasonably diligent investor could have known. Shareholders argued that "Merck withheld from the investing public its inside knowledge" that Vioxx was causing heart problems. 

Former SEC Lawyer Gets 8 Years for Pump-and-Dump Fraud
A former enforcement attorney for the Securities and Exchange Commission has been sentenced to eight years in prison for his role in a series of multimillion dollar pump-and-dump stock fraud schemes. He was convicted by a jury earlier this year on 10 counts of wire fraud and conspiracy. He testified that he was acting within the law, but the jury rejected his defense - and so did the judge, who said that his testimony "was an affront to justice. It was one of the biggest packs of lies I've ever heard." Prosecutors allege that the attorney, who worked for the SEC for 15 years before taking a job with a private firm, aided schemes that by conservative estimates cheated more than 1,500 investors our of at least $2.4 million. The fraudsters would pump up the value of dubious penny stocks and then sell the shares at inflated prices to unwitting buyers. Eight other coconspirators have already been convicted and sentenced in a case that has been under investigation for more than three years. The attorney's eight-year term was one of the most severe, which prosecutors had argued for. He claims his sentence was deserved because he lied on the witness stand and because his status as a respected attorney helped provide cover for the fraud.

SEC Wins Backdating Verdict in Maxim Case
The San Francisco SEC office won big in its first stock option backdating trial. A California jury concluded found that Maxim Integrated Products' former CFO was liable for securities fraud related to a backdating scandal. After an eight-day trial, the jury took three days to decide that he was liable on eight out of 11 counts, including fraud and lying to auditors. They cleared him on three, including making false proxy statements. The punishment, which could amount to fines, disgorgement and a bar on serving as a corporate officer, is now in a judge's hands. The former CFO is the first executive to be taken to trial over backdating by SEC lawyers in San Francisco. Over the past three years, the office cracked down on backdating - a common and illegal practice of fudging stock option grant dates without properly accounting for the expense. Other SEC targets have either settled or gone to trial on criminal charges. The SEC charged the former CFO in 2007 with making false financial reports by improperly backdating stock option grants to Maxim employees and directors. Maxim's CEO settled with the SEC for $800,000 at the time, and the company wasn't fined after restating its earnings by $495 million.

Was Goldman Sachs Counsel's Talk with Investors a Mistake?
When Goldman Sachs & Co. put its general counsel on a conference call with investors to talk about a fraud suit, some corporate counsel quivered. He answered investors' questions about the Securities and Exchange Commission's suit against the company and tried to reassure callers that Goldman had done nothing wrong and would fight the SEC. The danger is that opposing counsel could argue that his statements constitute a waiver of attorney-client privilege. For example, if the company conducted an internal investigation that concluded there was no wrongdoing, and the general counsel expressed that conclusion, then opposing counsel might seek all communications and work product related to the internal probe. However, others didn't feel as wary about advising a corporation to let its general counsel speak out. Some said a company should first consider the general counsel's experience, knowledge and ability to deal with the media. There's also little risk of waiving attorney-client privilege, because merely discussing the company's defense in public is not waiving privilege.

Merrill Lynch Suit May Resemble Goldman Sachs Fraud Case
The SEC's suit against Goldman Sachs has people wondering whether other banks committed the same conduct with which the SEC has charged Goldman - that is, structuring piles of debt they secretly knew would fail and then pitching those piles of debt to investors. A Dutch bank alleged almost a year ago that Merrill Lynch did something similar in creating an investment fund nicknamed Nora. The bank sued Merrill and recently filed papers in which it claimed the SEC's charges against Goldman "bear directly" on Merrill's conduct in the Norma matter. The suit alleges a hedge fund which "cooperated" with Merrill in structuring the doomed investment fund and then bet against it. The bank claims Merrill falsely represented that an independent collateral manager picked the contents of Norman when, in reality, the hedge fund had a major hand in those decisions. The hedge fund denied charges that it behaved in this way in the wake of a story that alleged the hedge fund structured deals designed to fail. 

Former Shareholder Claims Firm Kept Money
A former shareholder at a law firm claims the firm committed fraud and balked on an agreement to return his capital contribution when he left in 2006. He filed a lawsuit in Los Angeles Superior Court alleging that the firm unlawfully induced him to sign over portions of his paycheck as capital contribution. As a shareholder at the firm from 1991 to 2006, he alleged that, despite assurances from the firm that its policy was to repay capital contributions when shareholders left, it had no intention of doing so and unjustly kept his money for lost billables that it suffered. He claims the firm is responsible for punitive damages plus $150,000 in unpaid capital reimbursements, interest on that amount and damages for infliction of emotional distress. His attorney estimated damages at about $300,000.

Investors to Goldman Sachs: Anything You'd Like to Tell Us?
Now that keeping secrets about an investor has gotten Goldman Sachs & Co. in hot water with the Securities and Exchange Commission, a new disclosure issue has come up. The question, in a nutshell, is: Why didn't Goldman tell its investors that it was being investigated by the feds? In a conference call, Goldman's general counsel first defended the company against the SEC's fraud suit. He said Goldman was not legally required to disclose that an investor who helped choose a portfolio of subprime mortgage debt was taking a short position - Wall Streetese meaning that the investor was betting the portfolio would lose money. Then he had to defend the company against some of its own investors, who wanted to know why they hadn't been told about the SEC's investigation. The probe became serious when the SEC served a so-called Wells notice on Goldman in mid-2009. Until the agency filed suit, Goldman's annual and quarterly financial reports contianed no mention of the SEC's investigation or the Wells notice. The reports alluded only generally to requests for information about subprime mortgages that most financial service firms were receiving from various government agencies.

Judge Tosses Investors' Madoff-Related Claims Against SEC
A federal judge has thrown out a lawsuit alleging that the U.S. Securities and Exchange Commission is liable for failing to detect Bernard Madoff's $50 billion Ponzi scheme. The judge ruled that the agency acted within its discretion. "Plaintiffs in this case largely fail to identify any mandatory 'policies' or 'practices' that were violated in this case," the judge wrote. "Their complaint and their moving papers do not contain any attempt to rebut the government's preliminary showing that the SEC retained discretion to decide when to investigate, how to investigate and whether or not to take enforcement actions." The investors sued last year under the Federal Tort Claims Act, alleging that the SEC "owes a duty of reasonable care to all members of the general public including all investors in U.S. financial markets who are foreseeably endangered by its conduct." The suit cited the SEC Office of Inspector General's report last year detailing how the agency failed to uncover Madoff's scheme. The investors asserted in their complaint that SEC investigators ignored numerous red flags and tips regarding Madoff. When they finally launched investigations, they failed to communicate among one another about their conclusions, the investors alleged. Specifically, they claimed that the SEC failed to coordinate its investigations, failed to follow up with third parties about Madoff's practices, assigned inexperienced staffers to the case and failed to follow its own internal procedures.

Goldman Sachs' Counsel Surprised and Disappointed by SEC's Suit
Co-general counsel of Goldman Sachs Group, Inc. strongly defended his company and told investors that the government's suit against the Wall Street giant took him by surprise. He said his legal department spent the past 18 months talking and providing records to the Securities and Exchange Commission, but the agency didn't notify the company that it was filing suit. Speaking in a conference call on the first quarter earnings report, he defended Goldman's integrity and business principles. The record shows the charge was unfounded, he said, and "we dispute the respective view of the facts in this case and the applicable law." The SEC charged Goldman, Sachs & Co. and one of its vice presidents with defrauding investors. The complaint alleges that the company misstated and omitted key facts about a financial product tied to subprime mortgages, as the U.S. housing bubble was beginning to burst in 2007. The SEC said the company marketed a complex financial product, called a collateralized debt obligation or CDO, to investors without telling them that a major hedge fund that was betting against the mortgage market had played a key role in selecting the portfolio. The hedge fund, Paulson & Co., paid Goldman Sachs about $15 million to structure a transaction in which Paulson could take short positions against mortgage securities that it helped choose. While investors lost about $1 billion on the CDO, Paulson earned about $1 billion by betting against it, the complaint states.

Federal Prosecutors Want Up to $1.2 Billion Returned to Ponzi Victims
Ordered to tell a judge whether federal prosecutors would seek up to $1.2 billion stolen by a convicted Ponzi scheme, the federal government said: Yes, we want it. The a motion for a preliminary order of forfeiture, the U.S. Attorney's Office said it plans to seek as much of Scott Rothstein's assets as possible. The judge recently ordered the government to make its intentions clear and criticized prosecutors for waiting so long. The items up for grabs were listed in previous court filings: dozens of houses, building and warehouses in Florida, New York and Rhode Island; a dozen fancy sports cars; boats and jet skis; 304 pieces of jewelry; sports memorabilia; pricey watch and guitar collections; Rothstein's interests in a host of limited liability companies; his share of the Versace mansion; and a dozen bank accounts with cash totaling several million dollars. The government also intends to take control of campaign contributions to - and returned to - Florida's governor and chief financial officer and the Republican Party of Florida. ma

Plaintiffs Seek to Revive Ponzi Suit
Investors are asking a Tampa federal judge to reconsider her dismissal of a class action lawsuit for alleged negligence tied to a Sarasota investment adviser accused of running a $400 million Ponzi scheme. A judge ruled the proposed class action filed by six investors against the firm did not meet the requirements of the Securities Litigation Uniform Standards Act and ordered the case closed. However, the investors' lawyer followed up with a motion asking the judge to reconsider based on a recent ruling in a similar New York case. That ruling should carve out an exception for some hedge fund lawsuits in federal court even when SLUSA does not apply. The suit alleges a law firm acted negligently in its representation of a convicted Ponzi schemer who pleaded guilty to 15 counts of operating the $168 million scheme from 1999 to 2009. His investors though they were investing in a variety of hedge funds under his control or association. The suits accuse the firm of preparing disclosure documents for investors that failed to mention the defendant was a disbarred New York attorney who drained a client's escrow account. The suit also accuses the firm of  a conflict of interest for representing the defendant and his investment funds simultaneously. About 300 investors could be covered in the class action if its certigied. Another 100 investors who turned a profit are subject to lawsuits themselves.

Madoff Trustee Reports $1.5 Billion in Assets Recouped
The trustee charged with liquidating the estate of Bernard L. Madoff's investment firm has recovered some $1.5 billion in assets and hopes to begin distributing the money to customers before the end of the year. As of March 31, the bankruptcy judge in the case has allowed 2,011 of 12,249 claims and committed $668 million in cash advances from the Securities Investor Protection Corporation, the "largest amount of SIPC funds in any one SIPA liquidation proceeding." In addition to bringing 14 avoidance actions aimed at recouping more than $14.8 billion from feeder funds, the trustee has uncovered a "complex web of tangled investment structures that fed money into" Madoff's Ponzi scheme and has served more than 75 subpoenas in 20 jurisdictions. In spite of his progress, he has come under fire form many investors who have protested his "cash in/cash out" approach to calculating customer claims.

Minnesota Businessman Gets 50 Years for $3.7 Billion Ponzi Scheme
A federal judge has sentenced a fallen Minnesota tycoon to 50 years in prison for orchestrating a $3.7 billion Ponzi scheme that counted hedge funds, pastors, missionaries and retirees among its victims. The judge did not believe that the one-time owner of Polaroid and Sun County Airlines was unaware of the fraud within his operations, as he had claimed. A jury convicted him of 20 counts of wire fraud, mail fraud, money laundering and conspiracy last year. Prosecutors argued that the large number of victims - expected to exceed 500 - was reason enough for a stiff sentence. The defendant's business used fake purchase orders and bogus bank records to persuade investors to finance what they were told would be purchases of electronics such as big-screen televisions that his company would resell to discount retailers such as Sam's Club and Costco. In reality, the merchandise never existed and the sales never took place. He blamed other business associates - who all pleaded guilty in hopes of leniency at sentencing- and said his biggest mistake was trusting them.

Prosecution and Defense Spar at Close of KB Home Backdating Trial
The former chief executive of KB Home spent months denying that stock options had been backdated at the company. However, in 2006, pressed with damning e-mails produced by the company's outside lawyers, he changed his story, admitting that he and the head of human resources had been looking back in time to date options. Those actions, which began about six years earlier, amounted to fraud, prosecutors claim. The defendant's lawyer argues that the government's entire case was wrong because it was almost entirely based on the head of human resources, who changed his own story about the options granting process at KB Home after being repeatedly grilled by prosecutors. The CEO was indicted last year on seven counts of mail fraud, five counts of wire fraud, three counts of securities fraud, four counts of making false statements in filings with the SEC and one count of lying to accountants. If convicted of all the charges, he faces a maximum sentence of 415 years in federal prison.

Court Weighs Ex-Players' Suit Against NFL and Union Over Ponzi Scheme
Federal appeals court judges grilled a lawyer trying to revive a suit brought by retired professional football players against the National Football League and the NFL Players Association. The ex-players asked a panel of the 11th U.S. Circuit Court of Appeals to reverse last year's ruling dismissing their suit claiming that the league and the union should be liable for a Ponzi scheme perpetrated by a union-approved broker. Representing the ex-players, their attorney argued that the judge's dismissal deprived her clients of a legal remedy. The judge pressed her on that point, saying, "I don't think it goes that far." The judge was also hard on the defense attorney. When he began poking holes in the plaintiffs' case, the judge reminded him that the court wasn't going to rule on the validity of the case. He continued to argue that none of the plaintiffs asked the association about the broker before deciding to invest millions of dollars with him. The players claim that the broker stole $11 million from them and that the NFL and the players association should be held liable because they allowed the broker to be placed on a list of approved financial advisers for players without a thorough background check. The plaintiffs' lawyer contends that a cursory background check would have found that multiple liens had been filed against the broker and his business partner. A check also would have show that neither the broker nor his former partner was registered in any state as a financial adviser and that their company didn't have adequate professional liability insurance coverage. The broker was convicted in 2006 of fraud and money laundering. Prosecutors said he bilked as much as $150 million from his clients, many of them professional athletes and entrepreneurs. His own mother invested her savings with him and lost money. He committed suicide in jail three days after his conviction, leaving behind a mountain of court complaints against him and relatively little money for his victims to reclaim. An investigation of him and his company turned up less than $500,000 in assets. He had previously set that figure at $180 million.

Ex-CFO Blames Dead Boss at SEC Backdating Trial
The former chief financial officer is arguing that he shouldn't be blamed for backdating options at Maxim Integrated Products Inc. Instead, he claims the fault lies six feet under with the founder and CEO of Maxim who died of a heart attack in 2009. Over the past three years, the SEC has cracked down on backdating - a common and illegal practice of fudging stock option grant dates without expensing them. The SEC charged the CFO in 2007 for making false financial reports by improperly backdating stock option grants to Maxim employees and directors. The CEO settled with the SEC for $80,000 at the time. Maxim wasn't fined, no criminal charges were brought and later restated its earnings by $495 million. The CFO's attorneys are trying to cast doubt on the SEC's case by discussing handwritten memos from the CEO that would appear to exonerate the CEO and incriminate the CFO. The SEC initially trumpeted these notes, but hasn't mentioned them since their authenticity has come into question. The SEC plans to call employees who will talk about how options were backdated, two board members who asked the CFO whether or not Maxim was backdating stock options, outside accountants and shareholders that were affected.

Securities Class Action Filings Fall in 2009
According to the recently released PricewaterhouseCooper annual securities litigation report, federal class action filings fell from 210 in 2008 to 155 last year. There were 51 filings directly related to the financial crisis in 2009, compared with 99 in 2008. It was the second straight year that financial services firms bore the brunt of new securities filings, and while the overall numbers decreased, plaintiffs lawyers seem to still be looking for new targets. "Although 2009 saw a decline in the total number of federal securities class action lawsuits, neither financial services firms nor companies in other sectors should take this as license to drop their guard," the report said. "The decline may simply be a lull as the plaintiffs' bar refocuses following two years of intense financial crisis-related filings."

Justices to Consider a Border Battle Over Lawsuits
"Foreign-cubed" is the name of the latest legal nemesis that keeps lawyers for companies ranging from Toyota to Vivendi up at night. The term refers to securities class action litigation in which the investors are foreign, the issuers are foreign and the fraudulent conduct took place on foreign soil. However, because of some company tie to the United States, they end up in U.S. courts, where plaintiffs usually can do a lot better than if the suits were filed abroad. Six years after the moniker was first coined, a foreign-cubed suit has made its way to the Supreme Court. In the case, foreign investors accused Australia's largest bank of fraud involving a Florida subsidiary, but the bank insists all of the disputed activity took place in Australia. Foreign companies and countries have flooded the Supreme Court with friend of the court briefings, signaling the importance of the case worldwide. Even parties litigating over the Toyota safety meltdown are watching - several securities class actions have been filed in federal courts against the company, which trades on the Toyota Stock Exchange. The case comes to a Supreme Court that has grown increasingly skeptical about U.S. courts exerting extraterritorial jurisdiction. In 2007, the majority spoke approvingly of the presumption that "United States law governs domestically but does not include the world." Three years earlier, a unanimous Supreme Court said extending the reach of American antitrust laws too far into foreign situations would be "an act of legal imperialism."

In Retrial, Former Brocade CEO Found Guilty of Most Counts
A federal jury has convicted the former CEO of Brocade on nine out of 10 felony counts - just one less than the last time he was tried over the backdating of stock options. The government had seen its 2007 conviction - it's first and most high-profile conviction of an executive over backdating - thrown out last year by the 9th U.S. Circuit Court of Appeals, which said prosecutors had misled jurors with false assertions during closing arguments. The former CEO was originally sentenced to 21 months in prison and given a $15 million fine. However, prosecutors will now ask the court to revisit his loss calculation and ramp up the sentencing guidelines. The jury in the retrial had appeared to be hung up on the conspiracy count and were having trouble believing that there was a conspiracy between the former CEO and a former human resources chief. The jury ultimately acquitted him of that count.

Lawyer Disbarred for Giving Inside Trading Information
A former partner and attorney convicted for insider trading has been disbarred by the New York Appellate Division. Prosecutors accused him of providing insider information about his clients' upcoming acquisitions to a friend. According to the indictment, his friend, her father and two others reaped nearly $600,000 after trading on the tips. In 2009, a jury convicted him of six counts of security fraud. Noting that a conviction of the federal securities statute triggers automatic disbarment, a unanimous panel held that it did not matter whether he profited from the scheme; it is enough that he engaged in acts constituting "intent to defraud."

Former General Counsel Tries to Derail Backdating Settlement
The canned Atmel Corp. general counsel wants to blow up the company's stock option backdating settlement, claiming that a conflict involving Atmel's law firm "taints" the $9.65 million settlement that is now headed for final approval in federal court in California. The derivative suit was filed against 25 Atmel executives on behalf of the company. While 24 of the defendants have reached a deal, the former general counsel and the company haven't come to terms. He was fired in a travel funds scandal at the semiconductor company and later blamed for the company's backdating problems. He also has an ongoing defamation lawsuit against the company. He claims that "the individual settling defendants would logically seek to minimize the amount they are required to contribute to a settlement; the company has an interest in increasing the recovery." The question of conflicts has always been a little gray in derivative cases, which are brought by shareholders in the name of the company. This is because the interests of the defendant executives are normally aligned with the nominal plaintiff, the company: They both want the case dismissed on a common defense called demand futility. If a case progresses past a motion to dismiss, then executives normally get different lawyers than the company because they are then technically at odds. But it's not a hard-and-fast rule.

Insurance Companies Must Fund Former Executives' Defense Until Court Rules
A three-judge panel has ruled that a court - not insurance companies - will determine whether two insurance companies have to pay defense costs for four Stanford Financial Group executives who face criminal charges and civil litigation. The civil litigation filed by the U.S. Securities and Exchange Commission and the federal criminal charges stem from allegations that the former executives conspired to defraud investors who bought about $7 million in certificates of deposit sold through Stanford International Bank. Both the criminal and civil cases are pending, and three executives have pleaded not guilty to the criminal charges against them and deny the allegations in the civil suit. The two insurance companies contended that they should not have to pay under the company's directors-and-officers policy because they determined in 2009 that the former executives engaged in "money laundering." According to the panel's opinion, the liability policy limit is $100 million; but a money-laundering exclusion in the policy bars coverage for loss from any claim "arising directly or indirectly as a result of or in connection with any act or acts of money laundering." The policy also provides that the insurance companies must pay the costs in the event that money laundering is alleged "until such time that it is determined that the alleged act or acts did in fact occur." As the panel read the policy, "the determination is a judicial act" and that act must occur in a separate coverage proceeding.

Former Lawyer Settles with SEC in Insider Trading Case
A former Nixon Peabody lawyer has reached a financial settlement with the Securities and Exchange Commission to resolve the federal insider trading case filed against her last year. Under the terms of the settlement, she does not have to admit or deny the allegations lodged against her in exchange for paying back the $5,800 she made off the illegal trade, interest on that amount and additional penalties. In a suit filed against her last year, she was accused of using information about a pending merger given to her by a client in 2004 to make an illegal profit when the deal was finalized.

Goldman Sachs Sued for Not Divulging Madoff Ban to Investor
A Bernard Madoff victim who lost $15 million is suing Goldman Sachs for allegedly failing to tell him in 2004 that it had put a taboo on the Madoff Fund and that he should pull his money out. The retired businessman claims in his suit that "Goldman Sachs implemented an internal ban on investment with the Madoff Fund in or around 1999, after Goldman Sachs conducted or attempted to conduct satisfactory due diligence into the Madoff fund." As a consequence, the company had a fiduciary duty to insist that Goodman follow its advice, in 2004, that he switch roughly half his money out of the Madoff Fund and invest it in a Goldman Sachs hedge fund. Goldman Sachs claims the company never instituted an internal ban on Madoff, so there is no merit to the allegation that the company failed to divulge information.

Judge Weighs Couple's Returning $277,705
A federal judge in Philadelphia overseeing efforts to recover money in a Main Line Ponzi scheme held a hearing over a proposed settlement with a couple who got more out of the fund than they put in. The investors agreed to return $277.705 in "false profits" to the receiver trying to recover funds for investors who lost money to a convicted money manager. The judge had approved similar settlements with six other investors, recovering nearly $1 million. However, the settlements also involved smaller investments of principle than the couple's $1.5 million. It would potentially be more cost-effective for the receiver to spend money going after a larger amount such as the couple. The SEC supported the proposed settlement with the couple, because they appear to have acted in good faith, and opposed the receiver's filing of a lawsuit against them seeking to recover the principle.

Miami Couple Accused of $135 Million Ponzi Scheme
The Securities and Exchange Commission has charged a prominent Miami-based business leader and his wife with fraud, alleging they conducted a $135 million Ponzi scheme involving real estate investments from hundreds of elderly Cuban-American investors living in Florida. The SEC alleged that the couple, founders and co-owners of a real estate development company, sold promissory notes to investors after acquiring various properties and later financing their sale. The couple lured investors by saying investments in their real estate business were safe and would produce annual returns of between 9 and 16 percent, the SEC said. However, when property owners defaulted on their mortgages, the company's financial condition deteriorated and the couple used new investor money to repay earlier investors and cover the firm's operating costs. The couple also misappropriated more than $20 million from investors to fund unrelated personal business ventures, pay themselves high salaries and divert money to their children and grandchildren.

Federal Judge Approves Settlement in MetLife Cases
A New York judge has approved a combined $50 million settlement in two class actions that had accused the Metropolitan Life Insurance Co. of making false claims to shareholders in 2000 as part of the company's attempt to privatize. Under the agreement, MetLife will pay $32.5 million to a yet-to-be-named health-related non-profit organization, $2.5 million the National Institutes of Health and a total of $15 million to about two dozen attorneys.

Former General Counsel of Monster Worldwide Gets Probation in Backdating Case
The former general counsel at Monster Worldwide Inc. has been sentenced to one year of probation, getting a break on his sentence because of his extensive cooperation with a government probe into backdating stock options at the job search company. He was also ordered to forfeit $381,000 and pay a fine of $6,000. The sentence was imposed more than three years after he pleaded guilty to securities fraud and conspiracy to commit securities fraud. His cooperation was "complete and obviously substantial," referring in part to his help in winning the 2009 conviction of the company's ex-COO, who has been sentenced to two years in prison.

Court Refuses to Overturn Conviction of Rite Aid Executive
A former Rite Aid Corp. executive has lost another round in his bid to overturn the criminal conviction that landed him in federal prison for his role in a $1.6 billion accounting scandal, but did win the right to be resentenced. A three-judge panel affirmed a lower court decision rejecting his claim that newly developed evidence warranted a new trial or the dismissal of charges, but the panel did order that he be resentenced in light of changes in the way sentences in such cases are calculated. The former chief counsel and board vice chairman of Rite Aid was sentenced to 10 years in prison after a jury convicted him in 2003 of conspiracy, obstruction, lying to federal regulators and witness tampering. The charges stemmed from a federal investigation into the scandal that severely diminished the value of Rite Aid's stock and forced the company to retroactively lower net earnings in 2000.

Former Madoff Aide Charged with Conspiracy and Securities Fraud
Bernard Madoff's claim to have pulled off his multibillion-dollar swindle without assistance fell apart as one of his longtime aides was charged with helping him cook the books. The aide, an accountant who worked for Madoff since the late 1960s, was arrested on charges of conspiracy, securities fraud and tax charges. The 63-year-old was also sued by the Securities and Exchange Commission, which accuses him of falsifying records both to disguise Madoff's fraud and illegally enrich himself. A judge has freed him on a $5 million bond, secured by $2 million in assets. Authorities say their investigation has show that Madoff needed a team of enabler to carry out his massive crime, including people working on the purportedly "legitimate" side of the family business, which processed stock trades. Prosecutors said that hundreds of millions of dollars were siphoned out of the accounts belonging to Madoff's client and used to support those other operations at Bernard Madoff Investment Securities, all with the knowledge of the aide.

Reluctant Judge Defers to SEC in Accepting Bank of America Deal
A judge has "reluctantly" approved a $150 million agreement between the Securities and Exchange Commission and Bank of America Corp., which settles allegations that the bank failed to make required disclosures in connection with its $50 billion takeover of Merrill Lynch & Co. in 2008. Before reaching his decision, the judge reviewed hundreds of pages of discovery materials released recently to determine whether the bank's management or attorneys intentionally withheld material information from shareholders before they voted to approve the acquisition. He called the settlement "far from ideal" and said its major defect was that it "advocates very modest punitive, compensatory and remedial measures that are neither directed at the specific individuals responsible for the nondisclosure nor appear likely to have more than a very modest impact on corporate practices or victim compensation." "While better than nothing, this is half baked justice at best," the judge wrote. However, at the end of the day, he deferred to the SEC's conclusion that the "bank and its officers acted negligently, rather than intentionally" in the failure to disclose. The settlement will bring to an end two SEC actions, one accusing the bank of keeping shareholders in the dark about billions of dollars in losses sustained by Merrill in the two months before the merger. The other action alleges that Bank of America failed to inform shareholders that it had authorized Merrill to pay up to $5.8 billion in bonuses in 2008.

Bank of America Counsel's Firing Not Caused by Merger Advice, SEC Says
In its continuing battle to win court approval of a settlement with the Bank of America, the Securities and Exchange Commission insisted that the bank's former general counsel did not lose his job because he gave unwelcome advice about the bank's takeover of Merrill Lynch & Co. Instead, the agency, in a "supplemental statement of facts," cited bank sources to the effect that he was "terminated for reasons having no connection to his legal advice or any other aspect of his job performance. Rather, he was terminated in an attempt to avert the imminent departure of the Bank's then-head of global corporate and investment banking." The papers come roughly a week after the director of the SEC's New York regional office urged a judge to approve a $150 million consent judgment between the agency and the bank. In 2009, the judge rejected a $33 million settlement of an SEC action claiming the Bank of America failed to tell shareholders that it had given Merrill the green light to pay up to $5.8 billion in bonuses in 2008. At a hearing, the judge appeared more receptive to the $150 million proposal, which would cover both the suit over the bonus pay and a section action, accusing the bank of failing to disclose "extraordinary" losses to shareholders in a proxy statement issued before they approved the merger in 2008. However, the judge continued to ask pointed questions about the role of the lawyers who had advised the bank on disclosure issues. The judge focused on what he called "striking differences" between a statement of facts presented by the SEC and those set forth in a suit brought by the attorney general.

For Former Brocade CEO's Backdating Retrial, Feds Want Lawyer's Quotes In
If the government has its way, a defense lawyer's media statements will be used against the former Brocade CEO in his retrial for backdating stock options. Even though the lawyer is no longer representing the former CEO, prosecutors will seek to introduce his press release statements by calling to the stand one of the most well-known and pugnacious public relations men in the country, who also worked for the former CEO. The former CEO was convicted of conspiracy and fraud in 2007 for backdating employee stock options at Brocade Communication Systems Inc. He was sentenced to 21 months in prison and given a $15 million fine. However, an appeals court threw out the conviction last year, saying prosecutors had misled jurors with false assertions during closing arguments. According to court documents, when prosecutors first indicted the CEO in 2006, his camp issued press releases in which his attorney said, "He did not backdate options." However, at trial the lawyer argued that he did backdate, but that the practice wasn't illegal.

Bail Set at $10 Million for Madoff's Former Finance Chief
Bail was set at $10 million for jailed financier Bernard Madoff's former finance chief, who has remained imprisoned since he pleaded guilty six months ago and cooperated with the government's investigation. The judge required he remain under house arrest and required that he and his wife forfeit all family assets except for an amount of less than $300,000 to be agreed upon by the government, the defendant and the judge. The judge twice before rejected requests for the man's freedom, calling his role in the fraud "crucial" and saying his potential sentence was "astronomical." He pleaded guilty earlier this year to helping Madoff's multidecade Ponzi scheme that cost thousands of investors billions of dollars. Madoff is serving a 150-year prison sentence.

New Indictment Boosts insider Trading Charges Against Alleged Hedge Fund Insider
Federal prosecutors boosted their insider trading charges against the man they say was behind history's largest hedge fund insider trading case. The rewritten indictment accuses the founder of Galleon Group of making up to $45 million from trades based on secrets. A prosecutor has said in court that the total of his illicit gains may top $50 million. The indictment adds two securities fraud charges against the founder and expands the time frame for some of the alleged crimes from months to years. The fresh indictment resulted from what prosecutors say they learned as a result of some defendants who have pleaded guilty in a case that has resulted in charges against 21 people, many of them formerly high-level executives with major corporations. The founder has denied the charges that were first brought with his arrest. Once described as one of the wealthiest men in America, he remains free on $100 million bail.

SEC Abandons Beleaguered Backdating Case Against Former Broadcom Executives
The U.S. Securities and Exchange Commission has voluntarily dropped its civil case against four former executives of Broadcom Corp., including the former general counsel. The move came after a federal judge said there were "serious problems" with the charges. It was the latest setback in the U.S. government's pursuit of securities fraud tied to stock options backdating at Broadcom. Last year, a judge dismissed criminal charges against Broadcom's co-founder and the former chief financial officer, based in large part on prosecutorial misconduct. The judge also dismissed the SEC's related complaint but gave the commission the option to amend the charges. In a notice of intent not to proceed, the SEC cited the judge's decision to dismiss the case, as well as statements made during a subsequent hearing.

Shareholder Suits Fly as Deals Flourish
Securities defense lawyers at big firms have noticed an uptick in shareholder lawsuits over mergers and acquisitions, even those worth under $100 million, a reflection of both increased deal activity and eroded share values that have lowered sale prices. While many target companies are being sold for a premium over their current stock price, those values are often far below what they used to be a few years ago. However, defense lawyers say these mergers are being scrutinized even when there isn't a rival bidder. Plaintiffs firms are also targeting a lot more smaller deals with values less than $100 million. These suits are called "bump up actions" because they usually aim to increase the sale price.

Judge Tosses Remaining Broadcom Charges, Finds 'Serious Problems' in SEC Complaint
A federal judge has dismissed drug charges against the former CEO of Broadcom Corp. and threw out a plea deal reached between prosecutors and a witness in a related stock-options backdating prosecution. In a related civil complaint, the judge gave the U.S. Securities and Exchange Commission seven days to file amended securities fraud charges against the CEO and three other former Broadcom executives. The judge told an SEC attorney that he found "serious problems of proof" with the existing complaint. In the case, the judge granted a dismissal motion that the government filed after the judge threw out stock-options backdating-related charges against the executives last year. The judge cited prosecutorial misconduct, finding that the government "distorted the truth-finding process" by, among other things, intimidating and influencing witnesses. He also cited a lack of evidence, noting that there was "considerable debate" about an accounting practice at issue that was used by Broadcom and hundreds of major companies.

Lawyer Pleads Guilty to All Counts in $1.2 Billion Ponzi Scheme
The former chairman of a 70-lawyer firm has taken responsibility for crimes that came as a shock to his millionaire friends and trusting charities. The lawyer admitted committing five felonies, including racketeering conspiracy, money laundering conspiracy, fraud conspiracy and two counts of wire fraud. The U.S. Attorney's Office later filed a proffer stating that the lawyer had used money collected by fraud to ingratiate himself with politicians and police as well as to prop up his law firm to propel the scheme forward. "Ponzi scheme funds were also used to provide gratuities to high-ranking members of police agencies in order to curry favor with such police personnel and to deflect law enforcement scrutiny," prosecutors wrote. The lawyer faces up to 100 years in prison. Prosecutors agreed not to push for a life sentence if the sentencing guidelines end up there, leaving the judge with complete discretion to sentence. The lawyer potentially could reduce his time behind bars by cooperating with prosecutors and naming others involved in the fraud. He waived any right to property seized by federal agents as they tracked down several homes, 16 luxury vehicles and sports cars, hundreds of pieces of jewelry, $271,160 cash that happened to be at the lawyer's primary residence when agents showed up, $80,000 in American Express gift cards and 20 bank accounts including one at a Switzerland bank. Federal authorities have said they are investigating employees and others who may have known of the scam rooted in phony investments in employment and sexual harassment lawsuit settlements.

In Securities Dealer's Sentencing, Judge Blasts 'Corrupt' Wall Street Culture
In sentencing a former Credit Suisse securities dealer to five years in prison, a judge has condemned "the pernicious and pervasive culture of corruption" on Wall Street. "The blame for this condition is shared not only by individual defendants, but also by the institutions that employ them, those who carelessly invest, and those who fail to regulate," he wrote. "Supervision is seriously negligent; greed and short-term gain are so enormous that fraud and arrogant disregard of others' rights and of ethics almost encourage criminal activities such as the defendant's," he said. In addition to the five-year sentence and three years of supervised release, the dealer was also fined $5 million, about $1 million more than his estimated assets. Following a three-week trial, the dealer was convicted of securities fraud, conspiracy to commit securities fraud and conspiracy to commit wire fraud for his role in a scheme to trick investors into purchasing high-risk and high-commissioned subprime securities. He misled investors into believing the securities being purchased in their accounts were backed by federally guaranteed loans. In fact, the securities were backed by subprime mortgages and collateralized debt obligations, which ultimately cost the investors more than $1.1 billion in losses.

Wells Fargo Executives Face Shareholder Suit Over Alleged 'Sham' Tax Shelters
A plaintiffs firm has filed a shareholder complaint against executives and directors of Wells Fargo, accusing them of turning a blind eye to the banking giant's alleged use of "sham" tax shelters. Filed in San Francisco, the complaint alleges that Wells Fargo officials allowed the bank to avoid paying millions of dollars in federal income taxes by buying equipment from the public entities and leasing it back to them. At the same time, the suit claims, Congress and the IRS were challenging these kinds of tax shelters. "Simply stated, this conduct exemplified bad corporate citizenship that was blatantly abusive and rotten to the core," the complaint reads.

New SEC Suit Alleges Bank of America Hid 'Extraordinary Losses' at Merrill
The Securities and Exchange Commission filed a new lawsuit against Bank of America, claiming the bank failed to disclose billions of dollars in rising losses at Merrill Lynch before shareholders voted on a merger in December of 2008. The new suit will be heard by the same judge who is also handling an earlier SEC suit accusing the bank of misleading shareholders about billions of dollars in Merrill bonuses. The judge recently denied a motion by the SEC to add a new charge to its earlier complaint against Bank of America, but he told the SEC it could bring the charge as a separate case if it wants. The new charge accuses the bank of failing to disclose the "extraordinary losses" at Merrill Lynch before the shareholders voted in December 2008 to approve the merger between the two financial giants.

Federal Judge Denies SEC Motion Seeking New Charge Against Bank of America
A federal judge has denied a motion by the Securities and Exchange Commission to add a new charge to its earlier complaint against Bank of America, but the judge told the SEC it could bring the charge as a separate case if it wants. The judge said he wanted to move ahead with the trial date on the earlier complaint, and there was a danger of confusing the jury by introducing a different charge involving a different set of facts. The judge said that, in fairness to the bank, it would need more time to pursue its defense and expert testimony against the new allegation. The new charge accuses the bank of failing to disclose the "extraordinary losses" at Merrill Lynch & Co., Inc., before the shareholders voted in 2008 to approve the merger between the two financial giants. The SEC wrote a letter to the judge to add the charge to its easier complaint, which alleged that the bank failed to disclose Merrill's $5.8 billion bonus pool to the shareholders. In the letter, the SEC alleges that by the time of the shareholder vote, the bank knew of $4.5 billion in net losses at Merrill in October 2009, and estimated an additional multibillion-dollar loss for November. "These losses alone constituted more than one-third of the merger value as of December 5, and approximately 60 percent of Merrill's entire losses in the preceding three quarters of the year," the letter stated. Merrill would eventually lose $15.3 billion in the fourth quarter alone. The bank argued that the new claim had no legal basis, that the SEC didn't act diligently in waiting so close to the trial date to file the new charge, and that the bank would be prejudiced because the discovery and other pre-trial processes are closed.

Next Target for Plaintiffs Bar: Nursing Homes?
The American Association for Justice, which lobbies on behalf of plaintiffs lawyers, won a small victory in the long war over mandatory arbitration. Congress banned defense contractors from including in their employment contracts any provisions that require arbitration - clearing the way for more employment disputes to be taken to court. Now the group wants to do the same for contracts between nursing homes and patients. The group wants Congress to pass the Arbitration Fairness Act, which would ban mandatory arbitration in all consumer and employment disputes. The nursing home industry has been singled out as the likely centerpieces of the group's push. Bills to prohibit such provisions in nursing home contracts have been introduced in the House and Senate, but did not receive votes in 2009. "When you bring your mother to the only nursing home in your area, and you're looking at a 500-page document...you're going to sign whatever it is you have to sign to get your mother into that home," an attorney supporting the group said.

Class Action Denied for Madoff Investors' Suit Against Bank
People who invested with imprisoned swindler Bernard Madoff through Westport National Bank will have to work a little harder to get back lost investment money. A federal court judge has ruled that the victimized investors cannot file a class action lawsuit against the bank. The judge also denied the bank's motion to dismiss. The 26 plaintiffs were suing for part of $60 million lost from accounts the bank invested with Bernard L. Madoff Investment Securities. All together, more than 200 investors could have been part of the class. The plaintiffs argue that the bank breached its contractual duty to serve as custodian of the accounts, a role designed to prevent fraudulent investment activity. The judge determined that the plaintiffs' complaints about the bank's activities were "within the bounds" of the Securities Litigation Uniform Standards Act of 1998. That federal law limits to 50 the number of plaintiffs filing a securities-related lawsuit in state court.

Securities Class Actions Falling Off as Credit Crisis Dwindles
An annual report released by Stanford Law School's Class Action Clearinghouse and Cornerstone Research found that securities class action suits fell 24 percent in 2009 as litigation related to the credit crunch and subprime crisis began to slow. The study follows a similar report released recently by NERA Economic Consulting, which also showed that the surge in securities class actions may have peaked. Clearinghouse researchers previously concluded in a midyear assessment that class action filings had fallen off because most major financial institutions linked to the precipitous economic downturn had already been hit with suits in 2008. According to the year-end Stanford study, the number of companies sued on stock fraud claims dropped from 223 in 2008 to 169 last year, compared with an annual average of 197 over the previous decade. The study also found that 2009 filings were also marked by an unusually long delay between allegations of wrongdoing and ensuing legal action. The study suggests that the lag time is a result of law firms revisiting old cases, particularly in the second half of the year, when the median lag time of 100 days tripled its historic average.

Former Comverse Executives to Shell Out Millions in Backdating Settlement
The legal woes over alleged stock option backdating continue to hound the former general counsel of Comverse Technology Inc., one of the first companies caught up in the continuing scandal. The former lawyer for Comverse has already spent a year in federal prison for his role in stock option backdating at the company, making him the first corporate executive to serve time for options-related crimes. Now he must pay $1 million to partially fund a class action settlement stemming from alleged stock option backdating. The company's former CEO will also pay $60 million to Comverse as part of the settlement. In return, Comverse will drop its lawsuit against the former executives, and the executives will drop their countersuits against the company. Comverse will use the money to help fund a $225 million class action settlement. In 2006, federal prosecutors and the Securities and Exchange Commission charged the former general counsel, the former CEO and another executive with a scheme to reap millions of dollars in profits by changing the grant dates of stock option awards from 1998 to 2002. According to the government, the former general counsel exercised options and sold stock worth about $17 million between 1991 and 1999. He allegedly made $14 million in profits, and about $1 million of which was due to backdating.

Court Tosses $33 Million Verdict Against Bank and Broker Charged with Aiding Ponzi Scheme
Dealing a huge setback to the victims of the $1 billion Ponzi scheme operated by a Pennsylvania businessman, a federal appeals court overturned a jury's verdict of more than $32.7 million against a bank and a broker accused of helping the businessman to keep the scheme alive. The unanimous three-judge panel ruled that the court-appointed receiver who stepped into the shoes of the businessman's investment company has standing to sue any entity that harmed the businessman's firm. But the court ultimately rejected the theories of the case, saying the receiver cannot pursue claims against those who assisted the businessman's firm by giving it access to more cash and investors - even if those acts ultimately resulted in a deepening of the insolvency of the firm. In the civil suit, the plaintiffs argued that the pyramid scheme would have unraveled much earlier if not for the assistance the businessman received from a Florida bank, its president and another brokerage firm. They claimed that the bank and broker ignored "red flags" that should have put them on notice of the scheme. In its verdict, the jury said the bank and its president should pay about $13.1 million, and the brokerage firm should pay nearly $19.7 million. Specifically, the jury found that both the bank and the brokerage firm had "either conspired with or aided and assisted" the businessman in his fraudulent activities.

Judge Rejects Bank of America's Media Reports Defense in SEC Case
The judge who is overseeing the Securities and Exchange Commission's suit against Bank of America has ruled that BofA cannot present expert testimony asserting that media reports should have alerted shareholders to the billions it planned to pay Merril Lynch executives after the 2008 merger. In BofA's answer to the SEC's complaint, the bank's lawyers argued that numerous media outlets reported in advance of the BofA shareholder vote on the Merril merger that Merril executives were expected to receive billions in bonuses. That assertion echoed the bank's filings with the judge last year, when lawyers offered up affidavits that contended that such media reports were part of the total mix of information available to BofA shareholders. BofA's point is that since shareholders should have known from media reports that bonuses would be paid, the bank's decision not to mention those bonuses in pre-merger disclosure materials was not important. In rejecting that argument, the judge pointed to the bank's own proxy statement, which specifically cautioned investors not to rely on other sources of information about the merger. "In effect, the bank is arguing that, even though it expressly warned its shareholders to disregard the media, it can now defend itself by asserting that a reasonable shareholder would have disregarded these warnings and, by consulting the media, perceived that the bank's alleged lies were immaterial," the judge wrote. "Even a zealous advocate might perceive that such an argument hints at hypocrisy."

Defendants Move to Dismiss Investors' Billion-Dollar Madoff Suit
When the Madoff litigation landscape began to take shape, burned investors homed in on the so-called "feeder funds" that funneled billions to Bernard Madoff's investment fund. Chief among the targets were funds managed by Fairfield Greenwich. Last year, three firms filed an amended complaint accusing Fairfield and its co-founders of committing fraud by passing along $7 billion of their investors' money to Madoff. The defendants answered the allegations with two monitors to dismiss the plaintiffs' complaint. Fairfield Greenwich's argument seems to be that the defendants were also duped by Madoff and that they, too, lost money. In addition, the defendants list a variety of technical shortcomings in the amended complaint, claiming, for example, that plaintiffs lack standing for some claims and fail to meet pleading requirements for others. The defendants are hoping that the judge not only dismisses the case, but also declines to give the plaintiffs an opportunity to re-plead.

Securities Class Actions May Have Hit Their Peak
After three years of significant growth, federal securities class actions dropped slightly in 2009 - a sign that the flurry of activity spurred by the credit crisis has died down. NERA Economic Consulting has predicted that federal securities class action filings will top out at 235 in 2009, down by 7 percent from the 253 filed in 2008. Another securities class action tracker, the Stanford Securities Class Action Clearinghouse and Cornerstone Research, does not release its annual report until the year is over, but its tally showed 169 filings as of mid-December, compared to 223 filings for all of 2008. That would represent a 24 percent decrease. The credit crisis, which hit in 2007, has been the biggest factor fueling the recent increase in federal securities class actions, according to the NERA report. For example, NERA reported only 130 filings in 2006, or slightly more than half as many as in 2008. Cases relating to the credit crisis made up 40 percent of the securities class actions that NERA tracked in 2008. That percentage fell to 30 percent in 2009. Credit crisis-related filings were almost twice as common during the first half of the year than during the second, providing further evidence that those types of actions are on the way out. The year saw a significant decline in the number of auction-rate securities cases, which spiked in 2008 with 22 filings. NERA predicted just seven such filings in 2009. Auction-rate securities are investments that involve long-term bonds or preferred stock on which the interest rates are periodically reset.

Comverse to Pay $225 Million in Backdating Settlement
In a settlement that was a long time in the crafting, Comverse, the large information technology company, has agreed to pay $225 million to settle a securities class action over backdated stock options. The lead plaintiff, an Israel-backed insurance company and pension fund, said the agreement took a full year to complete from the time it was first brought before a mediator. Under the settlement, Comverse will pay its $165 million share by selling auction rate securities back to UBS. If that doesn't work, the company will pay with a mixture of cash and stock. The deal marks the second-biggest backdating settlement.

Civil Actions in Question Following Dismissal of Broadcom Criminal Charges
Stock options backdating lawsuits filed by shareholders against Broadcom Corp. face an uncertain future now that a federal judge has thrown out the government's criminal case against two former executives. Civil claims remain pending against Broadcom's co-founders, as well as the former chief financial officer and former general counsel. Lawyers for all four were in court when a judge dismissed criminal charges against the former CFO, who had been in trial since October. The judge cited prosecutorial misconduct, finding that the government "distorted the truth-finding process" by, among other things, intimidating and influencing witnesses. He also cited a lack of evidence, noting that there was "considerable debate" about an accounting practice that was used by Broadcom and hundreds of major companies. He also dismissed the backdating charges against one of the co-founder and a civil action brought by the U.S. Securities and Exchange Commission against all four, although he gave the agency the opportunity to file its civil case again. Two shareholder cases - a derivative lawsuit and a class action - are pending before a separate judge in Los Angeles related to the backdating of stock options. Recently, a judge granted final approval of a $118 million partial settlement in the derivative action. Claims remain against three of the executives. In the settlement, insurance companies for Broadcom agreed to pay $118 million to resolve backdating claims, one of the largest such deals in a derivative action to date. ives are seeking federal whistle-blower protections available under federal securities law.

Hedge Fund Founder's Ex-Wife Accuses Him of Insider Trading
The ex-wife of a Wall Street magnate has filed a civil racketeering suit against her husband in which she accuses him of committing insider trading violations. The suit was filed under a civil version of RICO laws used mostly against organized crime figures. The suit accuses him of understating his income during divorce proceedings and hiding money from his ex-wife. She is seeking $300 million. She claims her husband admitted to her in 1985 that he received inside information on General Electric's takeover of RCA, though he indicated to her that he did not believe he committed insider trading by later profiting from that information. His wife also claims that he funneled money through a friend of his who was later convicted of fraud and fled to Costa Rica.

SEC Invokes Immunity in Negligence Suit by Madoff Victims
The Securities and Exchange Commission has moved to dismiss a suit by two Bernie Madoff victims who want to hold the agency accountable for failing to uncover Madoff's Ponzi scheme more quickly. Attorneys have sued the SEC in Manhattan under the Federal Tort Claims Act on behalf of two Madoff investors who together lost more than $2.4 million. The suit was the first to target the government directly for alleged negligence in the face of Madoff's long-running shenanigans. The SEC argued in its motion to dismiss that it cannot be held liable for any failures connected to its Madoff investigations because its activities fall under a "discretionary functions" exception to the FTCA that shields the day-to-day judgment calls of government agencies. The SEC did not defend its investigation in the motion.

Billionaire Hedge Fund Manager indicted in Insider Trading Case
A wealthy Manhattan hedge fund manager and another executive embroiled in a massive insider-trading case were indicted on multiple counts of conspiracy and securities fraud. The billionaire hedge fund manager was arrested earlier this year on a criminal complaint alleging he used inside information to make trades that generated millions of dollars in profits for a fund in his firm. The second person indicted in the $52 million insider-trading case was a portfolio manager at New Castle Funds. The pair are among 21 Wall Street professionals charged in the case. Six have pleaded guilty and agreed to cooperate with the government. Previously filed complaints had accused the pair of cashing in on tips about the earnings and acquisition plans of Google, Inc., Hilton Hotels Corp. and various other companies. In one recorded conversation between the two, the portfolio manager said she was "glad that we talk on a secure line, I appreciate that," to which the other replied: "I never call you on my cell phone." Both could face up to 20 years in prison.

Federal Judge Takes Issue with SEC's Treatment of Ponzi Scheme 'Winners'
A federal judge has publicly disagreed with the policy of the Securities and Exchange Commission in how it treats investors in Ponzi schemes who were lucky enough to get their money back before the scheme collapsed. As the judge sees it, the policies of the SEC and the Commodity Futures Trading Commission are potentially unfair to later investors whose funds are typically used to pay back principal - and to provide the false "profits" - to the early investors. "The SEC and CFTC have apparently adopted a nationwide policy that there can be no recovery of principal winning Ponzi scheme investors even when the investors should have seen 'red flags' alerting them to the true nature of their 'investments,'" the judge wrote. Both federal agencies, the judge found, have adopted policies that such early investors will never be ordered to return the principal unless there is evidence that they had some notice of the existence of the Ponzi scheme. "Because the winning investors' returned principal is actually the losing investors' money, those losing investors could well view the position of the SEC and CFTC as extraordinarily unfair," the judge wrote. The judge found that under state fraud laws, the agencies could potentially impose a stricter test that might lead to a fairer distribution of the available funds to all of the investors by requiring the return of both profits and principal form early investors who should have seen "red flags" that warned the investment was "too good to be true."

Former Attorney Pleads Guilty in Insider Trading Scandal
A second attorney has been swept up in a wide-ranging probe into insider trading in New York. The attorney pleaded guilty to conspiracy and securities fraud, telling the judge that he stole information about clients of the firm, reaping $32,500 in kickbacks. He also admitted to stealing confidential information in 2007 on pending mergers and acquisitions as part of a conspiracy with another attorney who was arrested earlier this year. He could face up to 25 years in prison. He said that he and a co-conspirator got the information by "reviewing files, overhearing conversations and questioning unwitting associates" and then passed the information on to another lawyer outside the firm. That lawyer then sent the information to a broker who was allegedly caught on a wiretap telling the broker that the trading of a conspicuous number of options in a stock was "a ticket right to the big house."

SEC to Insider Traders: Watch What You Say
The associate regional director of the Security and Exchange Commission's New York office recently said, "There are a lot of people nervous about wiretaps, and they should be. You should wonder if your phone is being tapped." He said that inside trading, after a downturn over the past two decades, "has come back into force." He described what his agency was seeing as more than one-off, opportunistic activity, but a "determined business" based upon collecting information from corporate insiders. He said his agency is "aggressively pursuing" these bad actors, and he specifically singled out hedge funds. "A lot of hedge funds have been making huge returns because they were cheating," he said. In conjunction with his statements, the cooperation standard for individuals who want to self-report securities violations is likely to be announced soon. Executives who tend to know the most about bad conduct usually decline to testify, which blocks the SEC from obtaining information to move a case forward. The new cooperation will be modeled after a policy the SEC adopted in 2001 that set forth expectations for cooperation by companies.

Dell Pays $40 Million to Settle Securities Fraud Class Action
A month after asking the 5th U.S. Circuit Court of Appeals to affirm the dismissal of a 2007 securities class action, Dell agreed to settle the case for $40 million. The timing of the settlement raises obvious questions about how Dell thought the 5th Circuit would rule. In 2008, a judge tossed the shareholders' case with prejudice, finding that the plaintiffs' consolidated complaint fell short in establishing scienter and loss causation. The plaintiffs' appealed, and oral arguments took place earlier this year in New Orleans. Within weeks, Dell and the plaintiffs filed a joint motion to stay the appeal as they negotiated a settlement. The two sides told the appellate court they'd reached a deal in a joint motion. It appears from the settlement that Dell was concerned about the outcome of the 5th Circuit. Dell's statement said, "Because such litigation can be protracted, expensive, could involve significant management time and attention, and because the outcome of the pending appeal was uncertain, Dell believes resolving this matter is in the best long-term interests of the company and its shareholders. Plaintiffs' lawyers argued that the appellate judges seemed reception to the shareholders' positions on both scienter and loss causation.

SEC: $2 Billion Paid to Injured Investors
The Securities and Exchange Commission has announced that, for the first time, it has distributed more than $2 billion in a calendar year to injured investors as a result of its enforcement actions and proceedings. The Sarbanes-Oxley Act gave the agency the authority to distribute civil penalties and ill-gotten gains to injured investors. Before SOX, the SEC could give investors only the ill-gotten gains. Since the law was changed in 2002, the agency has distributed roughly $6.6 billion to investors. A big chunk of the amount distributed this year came from settlements and fines with two companies at the center of the financial crisis. More than $840 million came from AIG, and more than $320 million from Bear Stearns. In both cases, the penalties were imposed and the money was put aside long before the crisis.

Securities Fraud Suits Resurface
Plaintiffs lawyers are slapping public companies with securities class actions months or years after the date the alleged fraud came to lights as they turn their attention from cases related to the financial meltdown back to traditional securities suits. The delayed filings are a shift from the previously common practice of pursuing a securities fraud class action days or a handful of weeks after a stock-price decline caused investor losses. Eight of the 23 securities class actions filed against public companies in October and November define the class as investors who bought or acquired the company's stock during some time between 2006 and the first half of 2009. One has already been voluntarily dismissed by the plaintiffs.

Consolidated Securities Class Action Complaint Filed Against Bank of America
Even though the rejected Securities and Exchange Commission settlement with Bank of America for alleged disclosure deficiencies in Bank of America's merger with Merrill Lynch has been getting all the attention, the securities class action against the company that's pending in New York federal district court could end up being more important. The lead plaintiffs in the case - an ad hoc group of public pension funds from Texas, Ohio, the Netherlands and Sweden - filed their consolidated class action complaint against BofA, certain directors and officers and the former CEO of Merrill. In the suit, the plaintiffs claim that BofA made false and misleading statements about Merril's financial condition before shareholders could vote on the merger. It also alleges that BofA made a material omission when it did not disclose to shareholders that the merger agreement allowed Merrill to pay up to $5.8 billion in bonuses to its executives and employees. All told, the plaintiffs claim that BofA's stock fell 56 percent in January as a result of the belated disclosures, which destroyed "tens of billions of dollars in shareholder value."

Boies Schiller Files Suit Against Bear Stearns
The firm Boies, Schiller & Flexner has been working with a "substantial number" of former Bear Stearns shareholders who aren't part of the pending securities class action against the defunct investment bank. These are shareholders who didn't buy or sell shares in the time frame covered by the class action, but sustained huge losses because they held onto their Bear Stearns stock. They claim that they didn't sell because they received false assurances about Bear's health and assert that they lost millions as a result. The firm has filed the first of what is expected to be a number of fraudulent inducement suits against Bear Stearns. The client in the first suit is the former CEO of the money management firm Private Capital Management, which owned the largest block of Bear shares. His suit involved only his personal losses, which amount to "tens of millions of dollars." The complaint alleges that Bear executives repeatedly and personally assured him that everything was fine at the investment bank, even when they knew that its mortgage-backed securities were drastically overvalued.

Former Nixon Peabody Lawyer Hit with Inside Trading Charges
A former Nixon Peabody lawyer was charged with insider trading in D.C. federal court. The complaint, filed by the Securities and Exchange Commission, alleges that she used information about a pending merger given to her by a client in 2004 to make an illegal profit when the deal was finalized. In 2004, the complaint alleges, she was asked by her client, the chief executive office of Teleplus Consumer Services Inc., to draft a letter of intent involving a potential merger with Rooms.com, an online travel company. Fifteen minutes after that conversation, she called her broken and instructed him to buy 10,000 shared of Teleplus for $1,200. Teleplus was trading at 12 cents a share. When the deal between Teleplus and Rooms.com was announced a few days later, she allegedly called her broker and instructed him to sell the 10,000 shares of Teleplus for a profit of $5,800.

SEC Mishandled Madoff Probes, Says Watchdog Report
The watchdog of the Securities and Exchange Commission has found the agency consistently mishandled its five investigations of Bernard Madoff's business, despite ample complaints over 16 years about the multibillion-dollar fraud. But the SEC inspector general's report found no evidence of any improper ties between agency officials and Madoff. Despite speculation that senior SEC officials may have tried to influence the probes, the report found no evidence of that. The SEC enforcement staff, conducting investigations of Madoff's business, "almost immediately caught him in lies and misrepresentations, but failed to follow up on inconsistencies" and rejected whistleblowers' offers to provide additional evidence.

Judge Tosses Amended Securities Fraud Suit Over Freddie Mac Deal
A federal judge in New York has thrown out an amended securities fraud suit alleging that a real estate finance firm deceived shareholders by hiding a plan to sell its housing bond portfolio to Freddie Mac. The class action suit claimed shared of Centerline Holding Co. fell 25 percent in value when the firm announced the Freddie Mac deal in 2007. The judge dismissed a previous version of the complaint in January, ruling that the shareholders failed to meet federal pleading standards for the intent to deceive, a key element of proof in a securities fraud case. In her ruling, the judge said the amended allegations of deception still fall short of the mark.

Broadcom Stock Options Backdating Claims Settled for $118 Million
Insurance companies for Broadcom Corp. have agreed to pay $118 million to settle allegations of stock options backdating, in one of the largest such deals in a derivative action to date. The proposed settlement would be the second largest in a derivative action involving stock options backdating. The largest, reached in 2007 between several pension funds and former executives of UnitedHealth Group Inc., was worth an estimated $900 million. Shareholders had contended that the individual defendants manipulated Broadcom's stock options from 1997 to 2007 to enrich themselves and that Broadcom issued false and misleading statements to the U.S. Securities and Exchange Commission. Broadcom was forced to restate its earnings downward by $2.2 billion.

Foundation Sues Merrill Lynch for $30 Million Over Madoff Investments
A complaint by a Florida-based foundation seeking $30 million in damages from Merrill Lynch claims the Wall Street financial advisory firm was taken in by Bernard Madoff at a face-to-face meeting months before his investment empire collapsed in fraud. The MorseLife Foundation alleges Merrill Lynch was negligent and breached his fiduciary duty by failing to advise the foundation to pull its money from what ended up being the largest Ponzi scheme in U.S. history. The lawsuit contends Merrill Lynch agreed to advise MorseLife on its investments and initially was skeptical about the Madoff fund. The financial advisory firm changed its tune following a meeting with Madoff in 2008. Merrill supposedly advised MorseLife that Merrill did not see any down side and recommended maintaining and even agreed to increasing MorseLife's concentration of its investments in the Madoff portfolio.

Judge to Rule in Freddie Mac Subprime Mortgage Fraud Suit
An Ohio federal judge will decide soon whether to throw out a multibillion-dollar shareholder suit accusing mortgage backer Freddie Mac of subprime-loan fraud. The Ohio Public Employees Retirement System filed the class action securities fraud suit in 2008 after Freddie Mac disclosed a $2 billion subprime-related loss for third-quarter 2007. The suit alleges Freddie Mac and its former top executives lied about the company's subprime mortgage exposure. Freddie Mac has urged the judge to dismiss the complaint, saying it fails to meet federal pleading standards for securities fraud.

GE Pays $50 Million to SEC
It only took seven years, but the SEC finally took General Electric to task for reporting materially false results in financial statements in 2002 and 2003. The company agreed to pay $50 million to settle SEC allegations that it misled investors, but GE did not admit or deny wrongdoing. The company wrote a much bigger check to the lawyers and accountants who investigated the alleged wrongdoing: roughly $200 million, according to GE. The SEC's complaint alleges that on four occasions, GE officials approved accounting that was not in compliance with generally accepted accounting principles, including one instance where improper accounting allowed the company to maintain a nearly decade-long string of meeting or beating analysts' expectations for earnings per share. "When a company makes misleading public statements, the SEC will hold that company accountable," said the regional director of the SEC's Boston office.

Hacker Can be Sued for Fraud Under Securities Exchange Act
A man who hacked into a computer network to gain advance information about a company's financial reports can be sued for fraud under the Securities Exchange Act even though he owed no fiduciary duty to the company. The court said there is nothing in the case law that "expressly imposes a fiduciary-duty requirement on the ordinary meaning of 'deceptive' where the alleged fraud is an affirmative misrepresentation rather than a nondisclosure." The Ukrainian national invested $42,500 through his online trading account in 2007 and spent almost all of it on "put" options, betting the company's quarterly earnings would disappoint and the stock price would drop. The SEC alleges that he made $286,456 on the put options when the company's earnings came in below the expectations set by Wall Street analysts. They also allege he was the one who hacked into their secure server and downloaded critical information about the company in advance of the earnings call.

Bristol-Myers Pays $125 Million to Settle Plavix Securities Class Action
Bristol-Myers has agreed to pay $125 million to settle a securities class action that alleged it violated securities laws by hiding material information about their efforts to settle a patent lawsuit with the Canadian generic drug maker Apotex. In 2002, Apotex challenged Bristol-Myers' Plavix patent. In 2006, Bristol-Myers entered into negotiations with Apotex to settle the patent dispute. A tentative settlement agreement fell apart and Apotex briefly sold generic Plavix in the United States before a federal judge ordered it to stop. Though Bristol-Myers eventually prevailed in the patent case, Plavix sales suffered. Also, during the 2006 settlement negotiations, a Bristol-Myers executive told Apotex that Bristol-Myers would not launch a generic version of Plavix to compete with the Apotex version of the drug in 2011 if Apotex agreed to the settlement. Bristol-Myers is required to seek advance Federal Trade Commission review of any patent-related settlement agreements, but it didn't tell the FTC about this side deal. In 2007, the company agreed to pay a fine of $1 million for lying to the FTC, which led shareholders to file suit against Bristol-Myers in the security class action.

Midstaters Bilked of $14 Million
A Florida couple defrauded 44 midstate investors of $14 million, according to lawsuits filed in federal court by the U.S. Securities and Exchange Commission and the U.S. Commodities Futures Trading Commission. The couple collected nearly $20 million from investors beginning in 2005. Government agencies claim that most of that money was spent on luxury personal items. The suits are asking the court to stop the couple from taking or moving any of the money and to pay restitution and civil penalties. Less than 10 percent of the investors' money has been returned. Among the purchases made with the money was a $2.4 million house, $2.3 million of renovations, almost a dozen luxury vehicles totaling $1.9 million, including two Porsches, four Lamborghinis, three Ferraris and a Bentley, $1.4 million in jewelry, $51,000 for a private jet to the Bahamas and $50,000 in gold bullion.

Georgia Lawyer Pleads Guilty to Ponzi Scheme Worth $2 Million
For nearly four years, a Georgia man capitalized on his credibility as a real estate and business law attorney to bilk friends and clients of more than $2 million in what federal prosecutors say was a Ponzi scheme in which he siphoned more than $200,000 for his personal use. He pleaded guilty to the fraud scheme, including one charge of wire fraud for his theft from 24 clients and investors in Georgia, Florida and Tennessee between 2002 and 2006. He could face more than 20 years in prison.

Judge Gives Madoff 150-Year Sentence
Victims of Bernard Madoff broke out in cheers and applause as he was ordered to spend 150 years behind bars for his gigantic Ponzi scheme. The sentence was ordered after the judge heard 50 minutes of tearful testimony from nine heartbroken victims of a fraud in excess of $13 billion in investor losses to date. Madoff reportedly admitted the fraud was in excess of $50 billion when he confessed to his sons and prepared for his arrest in December 2008. Madoff pleaded guilty to securities fraud and 10 other felonies in March. Madoff was not technically eligible for a life sentence, but the judge said he had the discretion to "stack" the sentences for each crime committed and have the terms run consecutively.

Life Term Sought for 'Extraordinary Crimes' by Madoff
Citing a fraud of "extraordinary dimensions" perpetrated by Bernard Madoff, the government has requested either the U.S. Sentencing Guideline of 150 years in prison or "alternatively, a term of years that both would assure that Madoff will remain in prison for life, and forcefully would promote general deterrence." Between December 1995 and December 2008, the Ponzi scheme that Madoff engaged in was "wholesale fraud" caused net losses of $13.2 billion to 1,341 accounts. His crime has been characterized by the government as "serious and long-running, complex and highly orchestrated and devastating to generations of investors around the country and abroad." The "scope, duration and nature" of Madoff's crimes render him "exceptionally deserving of the maximum punishment allowed by law," the government argued. Madoff's attorneys have asked for a sentence of 12 years, which would give him a shot at emerging from prison before he died. The government quotes a dozen of Madoff's more than 250 victims in his sentencing memorandum.

Pennsylvania Federal Judge Dismisses Subprime Securities Class Action
Immediately following the dismissal of three subprime class actions, a Philadelphia federal district court judge has dismissed another: a case against Radian and three current and former officers of the company. Radian, which provides mortgage insurance and other financial products to financial institutions, held a 46 percent interest in a company called Credit-Based Asset Servicing and Securitization. Plaintiffs lawyers alleged that in the first eight months of 2007, the defendants made false and misleading statements about C-BASS's profitability and liquidity, thus misrepresenting the value of Radian's investment in C-BASS. Specifically, the plaintiffs asserted that Radian should have written down the value of its investment in C-BASS sooner than it did. But the judge found that the plaintiffs came up short in showing scienter: "The plaintiffs' inference of scienter is neither cogent, nor compelling, nor strong in light of competing inferences, and a reasonable person would not deem the inference of scienter cogent and at least as compelling as nonculpable inference."

Former CEO Asks for High Court to Review Insider Trading Conviction
The former CEO of Qwest, Joe Nacchio, has asked the Supreme Court to review his insider trading conviction, raising questions about the fairness of the judge who presided at his trial. Nacchio also asked a federal judge in Denver to reconsider his request to remain free on bail during his Supreme Court appeal. Nacchio was convicted in 2007 of 19 counts of insider trading and acquitted of 23 counts. A three-judge panel overturned the conviction, but the full court reinstated it last month. Nacchio's attorneys asked the high court to review whether jury instructions were proper, whether a defense expert was properly barred from testifying and what should be considered material information that needs to be disclosed. They also claim that the trial judge "openly displayed ethnic bias against the defendant and his counsel and recently resigned in disgrace in a lurid prostitution and obstruction of justice scandal."

New Indictment Adds to Dreier Victim Tally
Indicted attorney Marc Dreier sold more than $700 million in phony real estate development notes and fake pension plan notes during his four-year scam, according to an indictment. The new indictment, which adds a count of money laundering, also alleges a greater number of victims than originally thought. It accuses Dreier of selling notes to at least 13 different funds and three individuals between 2004 and 2008, with the purchase price wired to an attorney trust fund maintained by his firm. The overall loss to investors in Dreier's schemes remains roughly $400 million, but the realization that he sold as much as $700 million in bogus notes allowed the government to increase the amount it is now seeking in forfeiture.

Alleged Madoff Victim Files Suit Against Financier
Another victim of indicted New York financier Bernard Madoff filed a lawsuit, lodging the complaint against a Washington state investment advisor who ultimately put the money in a hedge fund that invested with Madoff. The lawsuit claims that the plaintiff invested $115,000 with FutureSelect Prime Advisors of Washington, and that FutureSelect's managing partner failed to perform proper due diligence before investing the money with a hedge fund that in turn invested the money with Madoff. Madoff pleaded guilty to 11 counts of fraud, money laundering, theft and perjury, owning up to a monster Ponzi scheme that may have cost investors more than $50 billion.

Landmark Decision Reached in First Hong Kong Insider Trading Trial
Hong Kong's first criminal trial for insider trading has resulted in the conviction of a former investment banker and four others. A former vice president was convicted of passing confidential information to his girlfriend and three family members about the proposed privatization of a company he was working with. All four then traded in their shares of that company before the company announced its plans to privatize. The case was brought by the Securities and Futures Commission under a 2003 law that criminalized insider trader. Before the 2003 legislation, insider trading was considered a civil offense and was rarely punished. The crime now carries a 10-year maximum prison term.

With No Deal, Madoff to Plead Guilty to 11 Counts
Unless he changes his mind, Bernard L. Madoff will plead guilty to 11 counts in the largest Ponzi scheme in history, and he may be sent right to prison, where he could face as much as 150 years behind bars. Madoff does not have a plea deal with the government, and he must plead guilty to all 11 counts. Madoff formally waived indictment for charges of securities fraud, investment advisor fraud, mail fraud, false statements, false filings with the Securities Exchange Commission, theft from an employee benefit plan, perjury and three counts of money laundering. Although the information states that Madoff directed employees to generate false and fraudulent documents, monthly statements and trade confirmations, and it refers to the fact that he and "others" benefited from the fraud, the information does not allege a conspiracy.

Bank's Failure to Purchase Securities Alleged to Breach Consumer Fraud Act
The state Supreme Court is poised to decide whether a bank can be held liable under the Consumer Fraud Act for an employee's failure to deliver on a promise to buy securities for a client. The plaintiff in what could be a landmark case received a $12,000 settlement check from a personal injury suit. She deposited $5,000 into her checking account and took the remaining $7,000 in cash. While at the bank, she inquired about purchasing securities and was directed to an employee of the bank's affiliate. On the employee's recommendation, she purchased 61.52 shares of a mutual fund for $2,000 cash and opened a brokerage account. The employee did not deposit the $2,000 into either account. With no funds in the brokerage account, the bank applied $500 from her checking account as partial payment for the purchase and liquidated $1,500 of her mutual fund units from her brokerage account to cover the remainder due, thus reducing the trade amount from $2,000 to $500. She filed sued in New Jersey, alleging both common law fraud and unconscionable commercial practices under the Consumer Fraud Act.

SEC and Madoff Agree to Settle Civil Fraud Case
The Securities and Exchange Commission announced an agreement with disgraced money manager Bernard Madoff that could eventually force him to pay a civil fine and return money raised from investors. The partial judgment, which renders permanent a preliminary injunction that froze Madoff's assets after his arrest, must be approved by the judge overseeing the Madoff case in federal court in Manhattan. The civil proceeding is separate from the criminal case against the Wall Street figure, who is accused of bilking $50 billion from investors in what may be the largest Ponzi scheme in history.

Fraud Claims Against Mirant Dropped
Mirant Corp. has prevailed in a six-year legal battle to clear the company of allegations that it defrauded shareholders and violated federal securities laws. A U.S. District judge dismissed the consolidated litigation with prejudice, ruling that shareholder plaintiffs repeatedly failed to show how Mirant had broken federal laws. Shareholders' allegations implied that Mirant, an energy marketer, had illegally manipulated utility prices to reap profits and inflate its stock. The judge determined that the suit "lacks an explanation and legal basis. The blanket characterization of business transactions as illegal does not make them so."

7th Circuit Makes It Harder for Plaintiffs to Keep Securities Class Actions in State Court
The 7th U.S. Circuit Court of Appeals has made it tougher for plaintiffs to keep securities class actions in state court by holding that the 2005 Class Action Fairness Act's preference for federal jurisdiction trumps the Securities Act of 1993. The decision stems from a disputed real estate investment trust merger and splits with a 9th Circuit interpretation of conflicting terms between the 1933 Act's anti-removal provisions and the Class Action Fairness Act's terms that allow removal of state class actions to federal court. The 7th Circuit held that an anti-removal provision in Section 22 of the Securities Act of 1933 does not prevent removal when other requirements of the CAFA are met. The CAFA is more recent and thus generally allows removal, despite the 1933 Act bar, so long as terms of the CAFA are met. This breaks with a 2008 decision in the 9th Circuit that held that the more specific terms of the 1933 Act, applying to securities cases, can trump the generalized terms of the 2005 act applying to all civil actions.

SEC Charges Pennsylvania Investment Manager in $50 Ponzi Scheme
An investment manager ran a Ponzi scheme that swindled an estimated $50 million from as many as 80 investors, federal authorities charged. The manager was given the money to invest between 1995 and 2008. Through his firm, he either lost it playing the market or didn't invest it at all. Meanwhile, the manager was telling his investors that he was making huge profits. His portfolio in September reported a value of more than $150 million but its trading account contained less than $147,000. The SEC said the manager admitted using as much as $20 million in investor funds to repay other investors and withdrawing up to $12 million in so-called fees for his own use. Investigators said account statements provided to his investors show he actually pocketed $28 million. He is expected to be charged with fraud and related accounts.

Worker Lawsuit Over Ford Stock to Go Forward
A judge has ordered Ford Motor Co. to start discussing settlement of a lawsuit filed on behalf of employees who had company stock as a retirement investment. Current and former nonunion workers claim it was a mistake for Ford to offer company stock as an investment for retirement. From 2000 to 2006, the stock fell approximately 70 percent and now trades under $2.20. The lawsuit claimed that Ford's stock was an investment option, and a company match, during a volatile period for the automaker. The judge ruled in the workers' favor, finding that Ford failed to apprise participants of the myriad of systemic, internal and marketplace problems which threatened the viability of the company.

Six Charged in $40 Million Securities Class Action Scheme
Six people participated in a scheme to obtain more than $40 million from some of the largest securities class action settlements in the last 10  years. Between 2001 and 2007, the group allegedly created fake companies and submitted fraudulent claims to receive shares of various settlements. According to the charges, in all three settlement agreements unnamed accounting firms acted as claims administrators responsible for disturbing the settlement funds.

SEC Charges Pennsylvania Billionaire with Insider Trading
The U.S. Securities and Exchange Commission charged Mark Cuban, former Pennsylvania resident and one of the richest people in the world, with insider trading, saying he used confidential information about an Internet company's stock offering to avoid losses of more than $750,000. The SEC claims that in 2004 he sold 600,000 shares of a search engine business hours after he learned through confidential discussions that the company's public stock sale would be below market price. Cuban, owner of the Dallas Mavericks, was told the confidential information by the CEO of the search engine company, after which he called his broker and told him to sell all his holdings in the company.

SEC Brings Second-Highest Number of Enforcement Actions in History
The Securities and Exchange Commission brought 671 enforcement actions in fiscal year 2008, the second-highest total in the agency's history. The SEC also repeated last year's total of distributing more than $1 billion to investors harmed by others' actions during fiscal year 2008. The agency's higher enforcement caseload includes a spike of more than 25 percent in insider trading cases and more than 45 percent in market manipulation cases, compared with fiscal year 2007 actions. The SEC also reported that it is conducting more than 50 investigations related to the subprime mortgage market.

Broadcom Founder and Prosecutors Decline to Withdraw Plea Bargain in Backdating Case
The founder of Broadcom Corp. and federal prosecutors in the criminal backdating case involving the manufacturer have declined to withdraw a plea agreement that the federal judge overseeing the case has said would "erode the public's trust in the fundamental fairness of our justice system." A judge rejected the plea deal last month. Under those arrangements, the founder would serve five years probation, pay a $250,000 fine and make a $12 million payment to the U.S. Treasury. The judge said the deal would give the perception that "justice is for sale." However, both the founder and the prosecutors who negotiated the plea are refusing to reject it.

Former CEO and CFO of Duane Reade Charged with Securities Fraud
Duane Reade Inc.'s former chief executive and chief financial officer were indicted on charged of exaggerating the income of the New York area's largest drug store chain by millions of dollars. The two are alleged to have deceived the investing public by providing false and misleading information about Duane Reade's financial condition while lining their own pockets with millions of dollars in compensation. 

Goldman Sachs Hit with Suit Over Student-Loan Auction Securities
Two institutional investors have sued Goldman Sachs Group Inc. for allegedly convincing them to continue buying auction rate securities when the Wall Street firm knew the market for them was collapsing. Both investors claim that Goldman hid a drop in third-party demand for the securities in August 2007 and even began secretly increasing purchases for its own accounts to create and maintain "the illusion of continuing liquidity in the market."

Former UBS General Counsel Settles Insider Trading Allegations
The former chief lawyer for UBS' investment bank has agreed to pay $6.5 million to settle an allegation that he dumped his investments in auction-rate securities after getting a company e-mail warning that the market was in trouble. As part of the deal, he will give up a $6 million bonus that he had been scheduled to receive from UBS and the money will go to the state instead. He will also pay a $500,000 penalty.

Shareholder Suits Face Uncertainty and Higher Hurdles
The bailouts and bankruptcies of some of Wall Street's most prominent financial firms could hinder the claims of plaintiffs who have filed shareholder lawsuits against those companies. Also, attorneys warn that shareholder actions face much greater difficulty than those filed against Enron and WorldCom. The bankruptcies of Lehman Brothers, AIG and Freddie and Fannie have put a temporary freeze on the dozens of shareholder lawsuits filed in recent months against those companies. While most of the companies have not responded to the suits, which generally allege securities fraud and breach of fiduciary duties, many defense attorneys anticipate that plaintiffs could have a difficult time blaming specific companies and their individual directors and officers for what could be interpreted as uncontrollable economic forces that caused the unprecedented collapse of so many firms.

Fidelity to Buy Back $300 Million in Auction-Rate Securities
Fidelity Investments will buy back $300 million worth of auction-rate securities from its customers, becoming the first major retail brokerage to make restitution in a wide-ranging investigation. Fidelity is the first so-called "downstream" distributor to settle an auction-rate securities probe. Fidelity has agreed to buy back the securities from any of its customers including individuals, businesses and charities. The securities were marketed as being as safe as cash until the market froze up.

Former UnitedHealth Group CEO to Pay $30 Million to Settle Options Lawsuit
The former chief executive of UnitedHealth Group will pay $30 million and return stock options representing more than 3 million shares to settle a class action lawsuit. The $30 million will be added to the $895 million UnitedHealth agreed to pay earlier this year to settle the lawsuit. The securities class action accused company executives of wrongdoing over the backdating of stock options.

Bank of America in $4.5 Billion Auction-Rate Settlement
Bank of America Securities will buy back $4.5 billion in auction-rate securities form customers who purchased the flawed investment instruments in a settlement. The deal settles another in a series of investigations into various financial services firms' marketing of what had been touted as a safe investment bet but proved virtually useless when the market for them collapsed. The settlement's terms call for Bank of America to buy the securities back from retail and small business customers holding up to $10 million worth of them and from charitable organizations holding up to $25 million worth.

Apple to Settle Backdating Case for $14 Million
Apple Inc. and several of its officers and directors, including chief executive Steve Jobs, have agreed to settle a stock options backdating case for $14 million, plus attorney fees and costs. Apple also agreed to pay $7.3 million in attorney fees and $300,000 to plaintiffs in the federal actions, as well as $1.2 million in attorney fees and $50,000 in expenses to plaintiffs in the state cases.

SEC Takes Notice After Company Ignores Lawyers' Advice on Backdating
In 2004, lawyers told the chief financial officer at Embarcadero Technologies Inc. that stock options should "absolutely not" be granted "retroactively." However, the technology company did not heed their lawyers' advice, and were charged by the San Francisco Securities and Exchange Commission with backdating stock options from 2000 to 2005.

Judge Green Lights Most of Option Backdating Suit
A California judge has compounded the stock option backdating woes of Maxim Integrated Products by allowing investors to proceed with most of their suit against officers and directors of the beleaguered company for illegal options manipulation. The judge said that most of the plaintiffs' securities fraud and breach-of-duty claims in the consolidated suit contained enough specifics to survive a motion to dismiss. The ruling is significant because few shareholder stock-option-backdating actions have cleared a threshold test required of all suits brought in the name of the company and because closely watched actions filed against Maxim in several courts have generated numerous important decisions.

Two Brokers Accused of $1 Billion Subprime Fraud
Federal prosecutors and regulators accused two former Wall Street brokers of defrauding customers by making more than $1 billion in unauthorized purchases of securities tied to subprime mortgages. The two former Credit Suisse Securities brokers were charged with deceiving customers in a bid to pump up their sales commissions.

Hedge Fund Founder to Pay Nearly $300 Million
A federal court ordered the former president and founder of a hedge fund to pay nearly $300 million for defrauding clients. The government claims the president stole $200 million from clients between 2001 through 2005. The government also accused him of creating false account statements, hiking management fees based on false profits and transferring clients' money to himself.

GM and Auditor to Pay $303 Million to Settle Shareholder Suits
General Motors and its auditor have agreed to pay $303 million to settle shareholder charges that for seven years GM's officers and directors used accounting tricks and misinformation to hide the auto giant's declining fiscal health from investors. The suits said investors lost billions of dollars because GM's officers and directors repeatedly inflated the company's stock value with improper accounting practices and misleading fiscal statements beginning in 2000 and that auditor Deloitte & Touche failed to raise a red flagon the fraud.

JP Morgan and Morgan Stanley Settle Auction-Rate Securities Probes
JP Morgan Chase & Co. and Morgan Stanley will spend more than $7 billion to buy back auction-rate securities in a settlement with New York's attorney general and the SEC Enforcement Division. The deal ends investigations by the SEC and several states' attorneys general into false claims made by the two firms in marketing auction-rate securities. At issue was the firms' continuing effort to bill the securities as a safe investment even after the unraveling credit markets made them risky, less easily liquidated bets.

New York Attorney General Settles for $7 Billion with Citigroup
The New York attorney general has reached a settlement worth more than $7 billion with Citigroup that requires the company to buy back auction-rate securities from about 40,000 customers nationwide. The company agreed to the settlement after the attorney general threatened to charge Citigroup with fraudulent sales of auction-rate securities and with the destruction of key documents.

Judge Tosses $277 Million Jury Verdict in Securities Class Action
In January, a jury ordered Apollo Group to pay $277 million in compensatory damages for misling their investors and not disclosing that they were being investigated by the U.S. Department of Education for violating federal law in the way it compensated its college recruits. However, a judge recently overturned the jury's verdict, ruling that investors did not prove that the original disclosure of the Education Department review was the reason Apollo Group stock dropped.

Prosecutors Recommend One Year of Probation for Milberg Kickback Defendant
Federal prosecutors in the criminal kickback case against securities firm Milberg are recommending that Richard Purtich, a Los Angeles lawyer who was one of the first to plead guilty in the case, be sentenced to one year of probation. Two Milberg partners were indicted in 2006 with obtaining more than $200 million in attorney fees by paying kickbacks to lead plaintiffs in their cases.

SEC Files Fraud Actions Against Fuel and Wireless Firms
The Securities and Exchange Commission has filed fraud actions against two Southeastern companies, alleging that they engaged in "pump and dump" schemes in which companies distribute bogus information to pump up share prices, only to dump the stock and leave investors with huge losses. One company is a Georgia-based wireless firm and the other is Mississippi-based energy corporation that produces biofuel from soybeans.

Coke Settles Fraud Suit for $137.5 Million
The Coca-Cola Co. will pay $137.5 million in cash to settle a securities fraud suit originally brought in 2000 by Coke shareholders. The suit alleged that former Coke executives in the late 1990s engaged in a massive securities fraud based on a practice known as "channel-stuffing". The practice allegedly involved pressuring soft drink bottlers, who bought concentrated syrup from Coke, into buying at least $600 million worth of excess concentrate to bolster sales artificially. The goal was to mask faltering Coke revenues and persuade Wall Street that Coke stock could sustain an annual 8 percent to 10 percent increase in sales despite fundamental changes in the bottled drink market that were actually driving sales downward.

Backdating Pays Big with UnitedHealth's $895 Million Settlement
UnitedHealth has announced that it would pay a whopping $895 million to settle a securities class action over stock option backdating. The settlement amount dwarfs a recent $160 million Brocade deal, which until recently had been the previous backdating record holder. The amount was compounded because UnitedHealth's CEO continued to make misleading statements even after the backdating was disclosed.

If you think you may have a Stockbroker Litigation case, we can help.  Contact us today.