Archive for the ‘Business Disputes’ Category

Forex Trading Fraud: SEC tackles $80 million Ponzi Scheme

Thursday, February 25th, 2010

Today, the SEC charged Peter C. Son and Jin K. Chung guilty of conducting an 80 million dollar Ponzi Scheme that involved nearly 500 investors.  The scheme targeted Korean-American investors with the false promises of giant returns from forex (foreign currency) trading.

The investment scheme was a classic example of the Ponzi scheme. The funds that were supposed to be invested in foreign currency exchange were used to pay “returns” to select investors. Investor money was also used for the Son’s personal expenditures, including mortgage payments on a multi-million dollar house. The money also provided Son’s wife a salary she did not work for.

SNC Asset Management, Inc. (SNCA) and SNC Investments, Inc. (SNCI), were the two companies that Son and Chung coordinated to get the attention of investors. Manipulated profits and fabricated annual returns attracted many investors. The forex trading profits were fabricated and investors had monthly account statements with fake returns.

As the Ponzi scheme collapsed, Son and Chung drained the money out of these two companies and transfered investor funds into accounts overseas. The SEC is taking court orders to prevent these men and their companies from violating laws in the future and is also taking steps to provide emergency relief for investors. The Commodity Futures Trading Commission has announced civil fraud charges against Son, Chung, SNCA, and SNCI.

For more on the story, click here.

Auction Rate Securities: SEC finalizes settlements with Bank of America, Deutsche Bank and RBC

Thursday, February 25th, 2010

Following Merrill Lynch, Citigroup,  UBS, and Wachovia it is now BofA, Deutsche Bank and RBC’s turn to settle their potentially huge Auction Rate Securities settlements with the SEC as they did on June 3rd.  The SEC claims that more than $50 billion in liquidity are being made available to customers of those organizations who have invested in auction rate securities.  The SEC is taking action due to the false promises made by these three financial groups regarding the viability of Auction Rate Securities as a form of investment.  These groups quickly stopped supporting the market in early 2008, which left these securities completely illiquid.  These settlements, supposedly made in the interest of wronged investors, “will restore approximately $4.5 billion in liquidity to Bank of America customers, $800 million in liquidity to RBC customers, and $1.3 billion in liquidity to Deutsche Bank customers.” In order to avoid getting caught up in significant broker-dealer fraud problems with the SEC, these entities have agreed to:

  • Each firm will offer to purchase ARS at par from individuals, charities, and small or medium businesses that purchased those ARS from the firm, even if those customers moved their accounts.
  • Each firm will use its best efforts to provide liquidity solutions for institutional and other customers and will not take advantage of liquidity solutions for its own inventory before making those solutions available to these customers.
  • Each firm will pay eligible customers who sold their ARS below par the difference between par and the sale price of the ARS.

The SEC is clearly trying to do its job by increasing accountability especially in these difficult financial times.  But as the economic outlook looks brighter for the coming years, the propensity of fraud is only going to increase.

It is an unfortunate set of circumstances that permitted these ARS ‘markets’ to exist for such a long time when at any point the broker/dealers that sustained the markets could back away causing exactly what happened.  If perhaps the SEC had had the true authority and legislative/executive mandate in years past they could have intervened to create a more ordered dismantling of the

Quotations/information on this event was obtained from the SEC’s website, linked here.

Madoff Fallout: Bank Medici Loses License

Thursday, February 25th, 2010

Bank Medici AG lost it’s banking license this past Thursday.  The financial banking authority of Austria, the Financial Market Authority, took action because the bank’s starting capital mark dropped below the 5 million Euro requirement.  Bank Medici claimed that it suffered huge losses due to Madoff’s massive Ponzi scheme.  The bank noted on its website that it will still fight in the interest of its clients and make its decisions accordingly.

Read the full story here.

Stanford Group Follow-Up (and shocker!)

Thursday, February 25th, 2010

Another shocker:  Nigel Hamilton-Smith, the Antiguan liquidator of the Stanford Group’s offshore bank testified that Stanford used client funds to fuel his conspicuous consumption.

The Texas financier has been accused by U.S. regulators of a $8.5 billion fraud.

For more on the ongoing case, click here and/or see my earlier post.

Interesting Twist In Hedge Fund Manager Stock Fraud Charges

Thursday, February 25th, 2010

The twist is not soo much that he got caught with his hand in the proverbial cookie jar.

Mark Bloom, the former manager of the North Hills Management hedge fund based out of New York, was able to start and operate North Hills separately while he was working for another money manager (which, by the way, is also involved in a $500+ million fraud complaint).  Bloom claims that he will be using a public defender to defend the stock fraud charges against him.  After one of the biggest investors in North Hills Management demanded redemptions and Bloom evaded those request, the investor, a charity, sued because the charity believed that Bloom was using hedge fund money for personal conspicuous consumption.

For more on the story, click here.

Madoff ‘Feeder Funds’ Suing Mad – And Playing Offensive Defense

Thursday, February 25th, 2010

Now more ‘feeder fund’ investors are suing Madoff along with others.  These two feeder funds are looking to recoup approximately $3.5 billion in alleged losses.  Kingate Global Fund Ltd. and Kingate Euro Fund Ltd. filed their lawsuit in US District Court in Manhattan this week.

The lawsuit alleges that “[r]eportedly, over $3 billion was invested in Kingate Global and Kingate Euro, and virtually all of those moneys were funneled to Madoff.”  A few months ago these two Kingate funds were sued by the trustee of Madoff’s investment company.  The trusteee, Irving Picard sued to recover $255 million withdrawn from Madoff’s firm between October and November 2008.  Picard’s lawsuit named fund manager Kingate Management Ltd.; Grosso’s FIM Advisers LLP, which acted as a consultant to the funds; and others as defendants.

The feeder fund lawsuit is an attempt to deflect the allegations made by the Madoff investment firm trustee Irving Picard that these two funds illegally profited from their association with Madoff.

The feeder funds will try to defend by saying they were victims too.

Time will tell, but if these money managers are half as astute as they (used to) like the public to believe I am not sure they will make a strong case.

NY Investment Adviser Charged for Stealing Client Funds

Thursday, February 25th, 2010

The Securities and Exchange Commission charged an investment adviser in Armonk, N.Y  for stealing more than $6 million in investor funds for himself.  He exploited clients that were mentally ill and handicapped, the SEC reports.

Matthew D. Weitzman used clients money for his own personal use by selling securities through clients’ accounts and transferring their money to a personal bank account.  Clients received false account statements, often showing false account balances and inflated securities.  Weitzman also engaged in broker-dealer foul play as letters would be fabricated by Weitzman on behalf of his clients to complete money transfers.

Weitzman also took money from his clients’ Individual Retirement Accounts (IRAs) in order to maintain a minimum amount of cash to engage in the unauthorized transfers.  Weitzman chose clients from AFW Asset Management, the company that he co-founded based in Purchase, N.Y, to exploit.  He targeted clients that were less likely to check their account statements, like $430,000 total transfers from a client that was terminally ill.  He took $85,000 from said client in two unauthorized transfers from the widow of the client.

Weitzman has been accused violating many industry rules click for more detail here.

An Exit Strategy

Thursday, February 25th, 2010

Any intervention by the government in our world economy will inevitably end.  As such the Fed’s (and other central banks) plan to exit their intervention in this financial mess has come to fruition, amidst the scrutiny of many high-ranking officials.

Angela Merkel, the German chancellor, attacked the Fed along with the European Central Bank and the Bank of England for their “loose” policies.  The Fed has done the best it can to quell long-term interest rates, which has unfortunately failed.  It has failed because although interest rates were lowered temporarily, in that time, the public bought up assets (regardless of risk) , which flows money out of the treasuries and makes bond yields increase.  These bond yields are also an enemy to economic equilibrium, so the Fed creates money in order to balance out these yields.  Now the increase of the quantity of currency in the market itself makes investors nervous about inflation.  To which the Fed reacts by printing more money to reduce bonds. Keeping this cyclical nature of how the Fed operates, how viable is the Fed’s exit strategy.  Because it began the action of reducing interest rates the way it did, it is hard to believe that the Fed will get out of this crisis without leaving some kind of inflationary effect.

For more on the article from the Economist.com, click on this link.

Madoff Trustee Thinks He Found More Illegal Profits

Thursday, February 25th, 2010

The Fairfield Greenwich Group is the latest target of the trustee’s clawback lawsuits. This time he is looking to get back $3.2 billion from the fund which was one of the biggest investors in the Madoff ponzi with more than $7 billion.

http://www.nytimes.com/2009/05/19/business/19madoff.html?ref=business

Stanford Group’s Chief Investment Officer Indicted

Thursday, February 25th, 2010

Well, another supposedly strong and trustworthy company is being revealed as a ponzi scheme. This one ‘only’ involved about $8 billion and she was ‘only’ indicted for conspiracy and obstruction of justice. Is it just me or does it seem like the ones you should be able to trust in the financial markets you can’t trust.