Archive for the ‘Consumer Protection’ Category

Another attack on our senior citizens!

Thursday, March 11th, 2010

The SEC seems to be busy these days catching bad guys all across the United States trying to scam groups using Ponzi schemes.  I don’t know if we are all, including the authorities, sensitized to these Madoff-type frauds but there sure seem to be a bunch of them.

This latest one preyed upon retirees in California and Illinois and their fears about retirement funding.  The fraudsters lured in their victims to an ‘estate planning’ seminar and then, after gaining the retirees’ confidence would convince them to purchase promissory notes linked to what they termed “Turkish Eurobonds.”  Needless to say no such investments were made and the fraudsters simply used the money to finance lavish lifestyles.

Be on the lookout for these deals that may sound too good to be true or are for investments that you have never heard of before.  Always be wary of salesmen who try to push a quick investment because ‘this won’t last’ – almost always a sure sign of a scam.

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.

Countrywide’s Ex-Chief Charged with Securities Fraud?! Gasp!

Thursday, February 25th, 2010

Well said by the SEC’s enforcement director when he said it was a ‘tale of two companies.’ Apparently Angelo Mozilo was sending e-mail messages describing Countrywide loan products as “toxic” and “poison” at the same time as he was, guess what? Wait for it. Right, he was telling the public that Countrywide was underwriting mainly prime-quality mortgage and using strong underwriting protocols.

Countrywide did not reveal to shareholders that in fact it was, according to the SEC, “an increasingly reckless lender assuming greater and greater risk.”

But at least Mozilo did not make too much profit. Oh, wait, yes he did! He made a nice tidy little sum of $140 million in profits by selling stock in the company. At least that’s what the S.E.C. says, but what do they know?  And other top Countrywide execs involved in the company at the relevant time are named in the allegations too.

I again ask the question – did any of these very well compensated executives do any of it legitimately? More evidence here that the answer is, emphatically, no.

The Global Trend of Regulation…And how Current Regulators Are Opposing the Trend

Thursday, February 25th, 2010

Tim Geithner, America’s treasury secretary, promises a complex regulatory overhaul by mid-June and Europe is not wasting any time either.

The European Commission announced the formation of two institutions, the European Systemic Risk Council (ESRC) and the European System of Financial Supervisors (ESFS).  These organizations, it is hoped, will rectify the trans-national banking problem that occurs only in Europe.  The problem is that European banks are allowed to operate across any border, but the home country is saddled with the responsibility of supervising the banks in whatever country the bank operates.  Thus, it takes only one country to disrupt the economic equilibrium in the European Union, as this financial crisis has revealed.

Some think that the ESRC and ESFS may not be as effective as hoped.  There are those who argue that fundamental issues such as funding and governance was not adequately addressed in the establishment of these organizations.  The argument goes further to hold that the European Commission is being too hasty in the formation of these noble organizations.  They may be correct because it is hard for any organization to make much of a contribution if it is not funded and/or goverened.  And funding and governance are always areas ripe for debilitating debates and arguments among the countries comprising the EU.

In America, the big banks will grudgingly accept further regulation if greater stability is provided.  However, in the nation’s capital, regulators and Congress leaders squabble over ideology.  Sheila Bair of the FDIC and John Dugan of the Comptroller of Currency are at odds at what the FDIC should be allowed to do.  Bair favors the FDIC’s role as a liquidator of non-banks as well as banks, an idea which Dugan strongly opposes.  There is no clear plan for what would be a systemic regulator in the U.S economy either.  The existing regulators, involved with government agencies in desperate need of modernization, are understandably very concerned and very vigilante about any immediate changes to their status quo.  In short, the perfect storm of partisan politics and the lobbyists of the existing regulators, will most likely make 2009 a year that sees fewer regulatory changes.

So, while there seems to be a demand for regulation on a grander scale for the banks/financial companies the regulators are already tearing apart that idea.  I think that some form of consolidated regulation on a (hopefully) temporary basis could be just what the world needs.  Whether the world gets it is another question altogether.

To view more info/ipinion on this issue, click here.

Five Ways to Guard Your Money

Thursday, February 25th, 2010

It is always a good idea to keep an eye on your money, especially these days and there are many simple ways to guard your money, including these tips from the Wall Street Journal.

1. “Do your homework when picking a financial adviser.”

2. “Ask tough questions to identify potential conflicts of interest.”

3. “Ask tough questions about risk factors.”

4. “Check whether the fund manager’s interests are aligned with yours.”

5. “Check whether the fund firm ’s interests are aligned with yours.”

These steps seems fairly intuitive, but they do definitely merit Post-it or checklist worthy status for any investor.

For more on the details and rationale behind each step, click 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.

Foreclosure Filings Fall in May

Thursday, February 25th, 2010

Data from RealtyTrac indicated that May foreclosures were way down  compared to April.  Hold the party hats and noise-makers because even this bit of good news, May was the third straight month with foreclosures exceeding 300,000 with Nevada and Arizona leading the pack.

A “normal” market typically sees less than 100,000 foreclosures per month.  RealtyTrac estimates the number of filings to increase over the next few months as we see the impact of the end of the various foreclosure moratoriums implemented by various lenders and states.

As foreclosure filings remain high, there remains the ever-growing chance of foul play by law firms that handle foreclosures.  For these law firms, business can be very profitable in dire economic times.  It would be very tempting for some law firms to take up a large load of foreclosure filings and unlawfully handle them, for example, consider the investigation the Connecticut AG is conducting right now – which we blogged on earlier this month.

For more on the statistics, click here.