Securities Law Blog

The 1980s star of the hit show “Dallas” has won an $11.5 million arbitration claim against Citigroup Global Markets Inc. Larry Hagman filed the claim with the Financial Industry Regulatory Authority (FINRA) in May 2009 alleging a breach of fiduciary duty and breach of contract, fraud by misrepresentation and omission, and a failure to supervise.

According to the arbitration award, Hagman’s claim stemmed from unspecified securities held in Citigroup accounts, and the purchase of a life insurance policy. The three member FINRA panel found that Citigroup Global Markets “engaged in serious misconduct.”

The FINRA panel awarded Hagman, two trusts in his name and two retirement accounts in his name $1.1 million in compensatory damages, $440,000 in legal fees and $10 million in punitive damages to a charity of his choice.

The host of the internationally-syndicated radio show MoneyDots and former president of APS Funding, Barbra Alexander, has been charged by the Securities and Exchange Commission (SEC) for her role in a $7 million securities fraud scheme.

With the help of APS’s secretary/chief financial officer Beth Piña and vice president Michael E. Swanson, Alexander allegedly used her status to lure investors who thought their money would be secured in real estate financing, according to the SEC complaint. The fifty investors in the two funds managed by APS Funding were told the funds would make short-term secured loans to homeowners and yield 12 percent annual returns to investors.

The SEC alleges that Alexander, Piña, and Swanson furthered the fraudulent scheme by sending monthly account statements to investors reflecting fictitious profits and paying out purported returns that actually came from new investors.

Of the $7 million raised from the alleged California-based Ponzi scheme, $1.2 million purportedly went directly to Alexander, Piña, and Swanson for personal use, and $1.3 million was used to finance other businesses owned by Alexander and APS Funding, including MoneyDots. The SEC’s complaint also states that Alexander used $200,000 of investor funds to remodel her kitchen.

APS Funding and the three individuals are being charged by the SEC with violating the antifraud provisions of the federal securities laws. Alexander, Piña, and Swanson are also being charged with the unregistered sale of securities.

A federal judge in the Southern District of Florida ruled in favor of the Securities and Exchange Commission (SEC) in their case against U.S. Pension Trust Corp. and U.S. College Trust Corp., and three owners for defrauding roughly 14,000 investors in a 13-year scheme.

The SEC alleged that the two Miami-based companies and their three owners, Iliana Maceiras, Leonardo Maceiras Jr., and Nildo Verdja, fraudulently siphoned investor money through excessive, undisclosed commissions and fees in the sale of mutual funds. The court found that from 1995 until 2007, U.S. Pension Trust and U.S. College Trust solicited investments from mostly foreign investors in multi-year investment plans consisting of U.S. mutual funds and insurance products.

The court found that there were numerous misrepresentations made to investors. Both in written and verbal communications with investors, the sales agents and companies omitted disclosing the exorbitant fees. According to court findings, the companies and individuals misrepresented that their products were registered and regulated by the SEC, the Federal Reserve Bank, and the Office of the Comptroller of the Currency. The defendants also acted as registered broker-dealers in selling their products.

“Under the federal securities laws, investors are entitled to full disclosure so they know how much of their investment is going toward commission and fees,” said Eric I. Bustillo, Director of the SEC’s Miami Regional Office.

The two companies were ordered to disgorge $62.6 million and pay a $50 million penalty. Each individual has been ordered to disgorge their salaries during that time as well as a $200,000 penalty. In addition to the disgorgement and penalties, the court entered permanent injunctions against both companies and all three individuals against future violations of the securities laws.

Two State Street employees have been charged by the Securities and Exchange Commission (SEC) for their alleged role in misleading investors about their exposure to subprime investments. State Street Bank and Trust Company settled SEC charges earlier this year in a related case by agreeing to pay more than $300 million to investors who lost money. As part of the settlement agreement State Street also agreed to provide information to enable the SEC to assess the potential liability of individuals involved with State Street’s investor communications for the Limited Duration Bond Fund.

According to the SEC, “John P. Flannery and James D. Hopkins marketed State Street’s Limited Duration Bond Fund as an ‘enhanced cash’ investment strategy that was an alternative to a money market fund for certain types of investors.” Despite the fund being almost entirely invested in subprime residential mortgage-backed securities and derivatives by 2007, the pair continued to draft misleading communications to investors. Flannery and Hopkins allegedly described the fund as less risky than a typical money market fund and did not disclose to investors the extent of its concentration in subprime investments.

The SEC’s complaint against State Street alleged that clients of the firm’s internal advisory groups were better notified with more complete information about the fund’s concentration in subprime investments. One of State Street’s internal advisory groups, which directly reported to Flannery, purportedly decided to recommend that all their clients redeem shares in the fund (and related funds). As a result, the fund’s most liquid holdings were sold to meet the redemption demands of the better informed investors, leaving mostly illiquid holdings for the fund’s remaining investors.

The SEC is said to have begun administrative proceedings against Hopkins and Flannery for their role in harming investors through subprime investments.

Two Florida-based companies and their CEOs have been charged by the Securities and Exchange Commission (SEC) for orchestrating two separate pump-and-dump schemes.

CEO Jaime Santiago Gomez allegedly issued misleading press releases for several months in 2009 falsely stating that his company, Quri Resources, Inc., was about to begin drilling on a mining project in Ecuador with a probable gold reserve worth more than $1 billion.

The SEC alleges that Gomez repeatedly sold Quri stock in unregistered transactions as the press releases were being issued. Gomez purportedly collected approximately $17,500 in dumping the stock.

In a separate matter, the SEC filed a complaint in federal court in Miami against Atlantis Technology Group and its CEO Christopher Dubeau. Dubeau allegedly circulated press releases from August 2009 until April 2010 filled with phony information regarding Atlantis’s business relationships with television networks to offer Internet protocol television (IPTV) to customers. According to the SEC, Dubeau knew that Atlantis did not have to capabilities or business relationships that his deceptive press releases claimed.

The SEC alleges that Dubeau sold more than 60 million shares of Atlantis stock while netting about $240,000 and an additional $77,000 of the proceeds from an associate’s sale of more than 16 million shares sale of the stock.

According to Director of the SEC’s Miami Regional Office, Eric I. Bustillo, investors were duped into believing that Quri Resources and Atlantis were successful companies as a result of the exaggerated claims made by senior executives who were simultaneously illegally dumping shares into the market.