UBS Willow Fund's use of Credit Default Swaps Causes Investor Loss

The UBS Willow Fund, ostensibly a distressed debt fund, was a closed-ended fund recommended and sold by UBS to its clients.  This product utilized credit default swaps (“CDS”), which are essentially contracts whereby one party shifts the risk of a default onto the CDS seller in exchange for an agreed upon premium.  These are highly speculative investments.  Unfortunately for the Willow Fund, it invested in CDS involving European sovereign debt.  This gamble by UBS did not pay off, and investors are now paying the price. 

Last October, investors found out the Willow Fund, which was valued in 2006 at $500 million, was being liquidated.  As reported by the New York Times, the Willow Fund suffered losses of almost 80 percent in the first three quarters of 2012, and as a result, drastically switched investment strategy away from distressed debt, and into highly speculative CDS. 

Some UBS investors were unaware they held investments in such a speculative product, and now investors are out millions of dollars.  Investment fraud may be found on a variety of grounds, including that these investments were unsuitable for certain investors.  If you held UBS Willow Fund and believe you may have lost value in your investment due to securities fraud, please contact Block & Landsman to discuss how we may be able to assist you in recovering your assets.

Mamtek CEO Posts Bail in Missouri

Today former Mamtek CEO, Bruce Cole, was released on bail from jail in Randolph County, Missouri pending his trial on theft and securities fraud charges related to a failed artificial sweetener facility in Moberly, Missouri.  Cole was released after a $10,000 bail was paid on a $100,000 bond.

The city of Moberly issued $39 million in industrial development bonds to fund construction of a sucralose plant that was to be operated by Cole’s company, Mamtek.  Cole allegedly misappropriated around $700,000 of that money and used investor funds to avoid foreclosure of his Beverly Hills, California home.  This allegation makes up part of the securities fraud case against him.  The project was derailed when the first principal payment on the bond was missed.  Now the incomplete factory serves as a reminder of the 600 jobs that never materialized, and a loss for investors all of the U.S. 

The failed project made headlines last year when Mamtek CEO Bruce Cole was charged with securities fraud by the Securities and Exchange Commission (“SEC”). These charges are in addition to the criminal charges Cole faces in Missouri.

SEC Charges Houston-Based John Thomas Capital Management Group with Fraud

The Securities and Exchange Commission (“SEC”) instituted a cease-and-desist proceeding against John Thomas Capital Management Group, George Jarkesy Jr., John Thomas Financial (“JTF”), and Anastasios “Tommy” Belesis.  The case centers on Jarkesy, who is accused of fraudulent conduct while managing two hedge funds – John Thomas Bridge and Opportunity Fund LP I, and John Thomas Bridge and Opportunity Fund LP II.  In addition to fraudulent actions in connection with these two funds, Jarkesy is accused of funneling Fund money into JTF and Belesis in the form of bloated funds to the broker-dealer.

The Funds, which had assets over $30 million at their peak, were also known as Patriot Bridge and Opportunity Fund LP I and LP II, and the advisers were known as Patriot28 LLC. 

Belesis is accused of demanding and obtaining de facto control over investment decisions at the Funds, despite representations Jarkesy was responsible for all investment decisions.  It is alleged this sham was perpetrated to insulate Belesis from liability.  Further, it is alleged Jarkesy and John Thomas Capital Management breached their fiduciary duty by diverting a large amount of fees to JTF and Belesis from the Funds via borrowing companies.

In a particularly egregious email sent from Jarkesy to Belesis after Belesis had berated Jarkesy for not delivering enough fees, Jarkesy responded, “We will never retreat we will never surrender and we will always try to get you as much [fees] as possible, Everytime [sic] without exception!” 

The SEC Order, which can be viewed here, alleges Jarkesy incorrectly valued the Funds’ holdings on multiple occasions and in multiple different assets.  Further, it alleges John Thomas Capital Management’s sales material contained multiple misrepresentations designed to make the Funds appear legitimate. 

If you were the victim of this allegedly fraudulent scheme, please contact the securities fraud attorneys at Block & Landsman to discuss your matter.

Ameriprise and Affiliated Clearing Firm Fined for Failing to Supervise Transfer of Customer Funds

The Financial Industry Regulatory Authority (“FINRA”) announced a fine of $750,000 against Ameriprise Financial Services, Inc (“Ameriprise”) and its affiliated clearing firm, Ameriprise Enterprise Investment Services, Inc. (“AEIS”).  The fine was levied against the firms “for failing to have reasonable supervisory systems in place to monitor wire transfer request.”   Though the fine relates to a compliance issue, the circumstances uncovering the supervisory issues involved an investment fraud perpetrated by an Ameriprise representative, Jennifer Guelinas. 

Guelinas, who is now barred from the securities industry (click here for more info), defrauded investors through a series of fraudulent transfers from clients’ accounts to accounts controlled by her.  This scheme took place from December of 2006 until October of 2010, during which time Guelinas converted over $500,000 from clients’ brokerage accounts.  Sadly, the three clients involved in this securities fraud were senior citizens. 

While neither affirming nor denying the charges, Ameriprise and AEIS consented to FINRA’s finding of failure at the firms to detect multiple red flags concerning Guelinas.  As stated by Brad Bennett, Executive Vice President and Chief of Enforcement at FINRA, "Ameriprise and its affiliated clearing firm missed numerous supervisory red flags, including the fact that two of the wire transfers went to accounts in Guelinas' name. Firms must have robust supervisory systems to monitor and protect the movement of customer funds."

This fraudulent arrangement was only possible because of Ameriprise’s failure to detect this long-operating scheme.  Altogether, Guelinas forged the signatures of her clients over 80 times on wire transfer requests.  This is in addition to forging clients’ signatures on three real estate closing agreements and one promissory note.

Adviser Jeffrey Rubin of Pro Sports Financial Banned from Securities Industry

The Financial Industry Regulatory Authority (“FINRA”) announced yesterday it has barred Jeffrey Rubin, a Florida resident, from selling securities for his unsuitable recommendations to customers. 

Rubin, who operated Pro Sports Financial, a concierge services company for professional athletes, has also been affiliated with Lincoln Financial Advisors and Alterna Capital Corporation.  Starting in at least 2006, Rubin used his position of authority to induce a client, a NFL player, to invest $3.5 million in four high-risk securities.  The largest single investment, $2 million, was invested in an Alabama casino project.  However, what started out with one investor quickly grew to over 30 additional clients of Rubin with investments totaling approximately $40 million in the casino project.

The casino project, however, was mired in regulatory issues, and was effectively shut down shortly after it began operations.  Rubin’s clients who invested in this project, all former and current NFL players, lost millions, while Rubin received a 4% ownership stake and approximately $500,000 from the casino project promoter for his referrals.

In settling the matter, Rubin neither admitted nor denied charges, however, he is barred from the securities industry.  If you believe you have lost money because of the actions of Jeffrey Rubin, please contact Block & Landsman to discuss your potential legal options.

Great Lakes Dredge & Dock Corp May Have Violated Federal Securities Laws

Potential federal securities law violations at Great Lakes Dredge & Dock Corp (Symbol: GLDD) have caused upset at the Oak Brook, Illinois company. After close of trading on March 14, 2013, GLDD announced it would restate its 2012 2Q and 3Q revenues. The adjustment resulted in 2012 2Q revenues being reduced by $3.9 million and 2012 3Q revenues being reduced by $4.3 million. In addition, GLDD announced $5.6 million of 4Q revenues failed to meet revenue recognition standards.

This news came along with the announcement of the company’s President and COO, Bruce J. Biemeck, stepping down, effective March 13, 2012. Biemeck was CFO of the company from 1991 to 1999, returning as a director in 2006. He was then promoted to president and CFO in 2010, before taking his final position with the company as COO in August 2012. Along with the restating of revenue and change of leadership, GLDD’s stock plummeted more than 30% following the news. For more information, see this Bloomberg Businessweek article.

Investors have sustained losses as a result of GLDD’s stock devaluation, and it remains to be seen if regulators will investigate. If you purchased GLDD stock and would like to discuss legal options to potentially recoup your investment, please contact Block & Landsman.

SEC Uncovers Deficiencies in how Investment Advisers Handle Custody of Clients' Assets

The Securities and Exchange Commission (“SEC”) recently published a new Risk Alert and Investor Bulletin regarding investment advisers’ handling custody of their clients’ assets.

According to the SEC, there are significant deficiencies in how investments advisers handle the custody of clients’ assets. Recent examinations of investment advisers have uncovered custody related issues in one out of three firms inspected. The SEC highlighted three areas of particular concern:

1) “Failure to recognize that they [investment advisers] have custody, such as situations where the adviser serves as trustee, is authorized to write or sign checks for clients, or is authorized to make withdrawals from a client’s account as part of bill-paying services;”
2) “Failure to meet the custody rule’s surprise examination requirement;” and
3) “Failure to satisfy the custody rule’s qualified custodian requirements, for instance, by commingling client, proprietary, and employee assets in a single account, or by lacking a reasonable basis to believe that a qualified custodian is sending quarterly account statements to the client.”

The investment advisers found to be deficient in the aforementioned areas were required by the SEC to change their compliance policies and modify their business practices. These are serious issues and serve to remind investors to remain vigilant in overseeing their investment accounts.