Investors Topics

Drawing Outside the Lines: Contrasts in Evolving Definitions of “Insider Trading”

August 8, 2012 | Nick Curley

Professor of economics Peter J. Henning wrote July 30th for the New York Times of the ever-changing definition of what classifies as “insider trading” in today’s market. Henning’s approach is at once streamlined and nuanced, walking us through a user-friendly tutorial of how and why fiduciary duties are upheld. Because insider trading holds no set definition within federal law, proving it within legal confines can be a hazy process. Henning illustrates this flexibility by profiling two recent cases filed by the U.S. Securities and Exchange Commission (“SEC”). For a detailed definition of fiduciary duty and its effects on one’s securities, visit the Investors page of our firm’s website.

Likely the most common claim cited within insider trading cases is violation of the SEC’s “Rule 10b-5” – subtitled “Employment of Manipulative and Deceptive Devices” – which bans “any device, scheme, or artifice [used] to defraud” investors. Simply put, insider trading violates an investor’s rights when a financial representative takes confidential information and uses it for their own gains. Rule 10b-5 was created in 1942, after the SEC allegedly got word of a company’s president who lied to shareholders, claiming the company was doing poorly and then buying investors’ shares, when in fact their stock was booming. Henning writes that incredibly, until the inception of Rule 10b-5, such fraud was not explicitly prohibited.

Often insider trading violations amount to “jumping the gun” with regard to the exchange of information leading directly to trades of stock or other securities. Earlier this year, trader Larry Schvacho allegedly made over $500,000 from stock in Atlanta tech firm Comsys IT Partners. Last week the SEC set out to prove through civil action that Schvacho had been given non-public information as to the stock’s value by Larry Enterline, a close friend of Schvacho’s and chief executive at Comsys. Proving insider trading in this instance would likely require not only proof of possession of non-public information, but a determination that Schvacho breached the trust of his longtime confidante.

FINRA Fines Brookstone Securities $1 Million Dollars and Permanently Bars Two Individuals for Fraudulent Sales of CMOs

June 6, 2012 | Malecki Law Team

The Financial Industry Regulatory Authority (“FINRA”), issued a news release on June 4, 2012 announcing that a FINRA hearing panel fined Brookstone Securities $1 million for the fraudulent sales of Collateralized Mortgage Obligations to elderly investors. In addition, FINRA ordered restitution from the firm and the individuals involved and permanently barred the firm’s Owner/CEO and one of the firm’s brokers from the securities industry. The firm’s Chief Compliance Officer was suspended by FINRA for two years.

FINRA found that from 2005-2007, Brookstone, through its employees, “made fraudulent misrepresentations and omissions to elderly and unsophisticated customers regarding the risks associated with investing in CMOs.” Many of the alleged defrauded customers were senior citizens, including two women who were recently widowed. The customers allegedly feared losing their assets and relied on Brookville to keep their retirement funds safe. However, CMOs were apparently actually high-risk investments that were unsuitable for senior investors seeking income and principal protection.

Unfortunately, all too often brokers sell high-risk investment products like CMOs to elderly investors as safe, secured or guaranteed, typically to get the higher commission that these riskier investments pay. Misrepresenting the risk of an investment to a customer like that is against the law and rules under which these professionals work.

CBS Evening News Will Be Featuring the Lawsuit filed by Malecki Law relating to Alleged Ponzi Schemer Robert Van Zandt

June 5, 2012 | Malecki Law Team

Tonight, June 5, 2012, on the 6 O’Clock Evening News on CBS 2 New York, the lawsuit filed by Malecki Law on behalf of forty-three investors in the alleged Ponzi scheme run by Robert Van Zandt will be featured.

This past December, Malecki Law announced the filing of a civil arbitration complaint with the Financial Industry Regulatory Authority against MetLife Securities for more than $4 million on behalf of twenty-four investors. In March, Malecki Law announced that the complaint had been amended to include additional nineteen investors totaling roughly $9.2 million in claims.

The attorneys at Malecki Law continue to take calls and anticipate either adding future victims to the existing claim or commencing a second action, if necessary. We urge anyone with knowledge about the Van Zandt Agency or MetLife Securities supervision (or lack thereof) over the office to contact us. Investors or employees with knowledge of the events at the Van Zandt Agency who seek further information or want to explore their rights should contact Malecki Law by e-mail or phone. Malecki Law has a uniquely diverse background with significant experience representing clients in securities and investment fraud issues and is “AV Rated” by Martindale-Hubbell. Malecki Law hosts a website providing information and resources dedicated to the securities industry: www.AboutSecuritiesLaw.com. Please contact Jenice L. Malecki, Esq., MALECKI LAW, 11 Broadway, Suite 715, New York, NY 10004, Telephone: (212) 943-1233, Facsimile: (212) 943-1238, E-Mail: Jenice@MaleckiLaw.com.

Fixed Leaks: Insider Trading and How It Affects Your Investment Strategies

May 31, 2012 | Nick Curley

A headline of the New York Times’ Sunday Business section published May 19th, Gretchen Morgenson asks “Is Insider Trading Part of the Fabric?“, raising a potentially distressing question for regulators and market analysts alike. Morgenson profiles the woes of one Ted Parmigiani, a Lehman Brothers investment analyst whose career was apparently placed in peril in 2004, when his research was allegedly leaked by a colleague in his research department. Parmigiani was then planning to raise his assessment of computer chip producers Amkor Technology. The leak was apparently discovered by Parmigiani on the planned date of his announcement, when Amkor’s price quickly shot up that morning, an hour before his new assessment was to be broadcast. Such are the dangers those working in investment too often face, and therein lies the potential for such figures to become brave whistleblowers. Visit the Practice Areas section of Malecki Law’s website to learn more about the firm’s work in aiding whistleblowers of fraud and further financial corruption.

Parmigiani responded by spending years providing information to the Securities and Exchange Commission (SEC) about the trading and research climate at Lehman, where suspicious trades were all too common, and sales reps and analysts illegally shared both office space and data. As part of 1.4 billion collective settlement paid by Lehman and nine other firms following an Eliot Spitzer-induced inquiry into insider trading, Lehman agreed to separate analysts from sales teams. Parmigiani says he was asked to ignore this supposed divide, write praise for investment banks whether it was merited or not, and explicitly told not to make negative comments about Lehman-favored companies and executives.

Parmigiani alleged that Lehman traders were often advised of changes to analysts’ company ratings before the revisions were publicly announced, and that traders were tipped off by analysts so that they would make hedge bets with Lehman’s own money. According to reports, announcement of Parmigiani’s recommendations were delayed by sales management for days at a time for no justified reason. In the Times article Parmigiani compares his actions to his time in the U.S. military, where the duty to disobey unlawful orders was instilled. Following his outrage over the Amkor incident, Parmigiani was fired from Lehman and found himself unable to find work at comparable Wall Street firms.

New York Attorney General Announces Civil Suit Against Van Zandt to Recover Funds for Investors

May 21, 2012 | Malecki Law Team

On Thursday May 17, 2012, the New York Attorney General Eric Schneiderman issued a press release announcing the filing of a summons and complaint to recover funds for investors. The filing coincided with an earlier press release disclosing that Mr. Robert (Bob) H. Van Zandt had been indicted and arrested for criminal charges stemming from some of the same activity that formed the factual basis for the civil filing.

The New York Attorney General’s civil filing noted that Mr. Van Zandt issued promissory notes totaling over $35 million to over 250 investors, most of whom were unsophisticated and invested the bulk of their life savings in the scheme. The filing alleged that these promissory notes were securities sales that were not properly registered with the requisite governmental offices in New York State and, while stated to be suitable for self-directed IRAs, were at best “highly speculative.”

The civil filing also alleged that while the Van Zandt Agency, by Mr. Van Zandt, sold the promissory notes with the understanding that the money collected would be used to fund real estate purchases and real estate development, in reality bank loans were used to fund certain purchases and construction, while other projects were never even commenced. The civil filing further alleged that no investors received security in the form of mortgages or otherwise, and that the money was converted for personal use or used to pay interest claims of other investors, essentially a Ponzi scheme.

New York Attorney General Announces the Arrest of Robert Van Zandt

May 14, 2012 | Malecki Law Team

The New York Attorney General Eric T. Schneiderman announced today the unsealing of a 35-count indictment of and the arrest of Robert H. Van Zandt, a Bronx tax preparer who for years sold promissory notes in alleged real estate investments “guaranteeing” high rates of interest return. He sold these promissory notes out of his tax preparation business, the Van Zandt Agency, while he was licensed by various broker-dealers to sell securities.

Malecki Law currently represents a large group of investors who purchased promissory notes totaling almost $10 million in aggregate from Mr. Van Zandt in an arbitration before the Financial Industry Regulatory Authority (“FINRA“), the independent regulator of securities companies. The arbitration is pending against MetLife Securities, Inc., a broker-dealer who employed Mr. Van Zandt during a period in his career. While investors purchased the promissory notes directly from Robert Van Zandt and through the Van Zandt Agency, he was then licensed by MetLife Securities, Inc. to sell securities, and MetLife was required to perform certain supervisory and audit duties as a result of that employment relationship.

Malecki Law is also investigating the potential for other actions against other broker-dealers arising from Mr. Van Zandt’s alleged real estate investments.

Malecki Law Investigates Unsupervised Sales of Leveraged and Inverse ETFs

May 2, 2012 | Malecki Law Team

Malecki Law is currently investigating whether investors were improperly sold Leveraged and Inverse Exchange-Traded Funds (ETFs) by any of the following Broker-Dealers: Citigroup Global Markets, Inc., Morgan Stanley & Co, LLC, UBS Financial Services, and Wells Fargo Advisors, LLC.

The Financial Industry Regulatory Authority (FINRA) announced that they had fined the above firms for selling leveraged and inverse ETFs without proper supervision.

Any investors who purchased a leveraged or inverse ETF from any of these firms and believe the products were unsuitable for then should contact an attorney at Malecki Law to explore their legal rights.

Malecki Law Announces Investigation Into the Unsuitable Sale of KBS Property Trust REIT to Investors

April 2, 2012 | Malecki Law Team

Malecki Law is investigating possible unsuitability claims against stock brokers and financial advisors who sold shares of KBS REIT I to investors. REITs are illiquid real estate investments, which may be unsuitable for both unsophisticated and elderly customers.

Just recently, KBS informed investors that it would be dropping its share price a whopping 29% from $7.32 to $5.16. This represents a nearly 50% drop from its original sale price of $10. For investors who bought shares of KBS REIT I as part of their retirement savings, this drop may be too much to handle.

In addition to the drop in share price, KBS has also informed investors that it will cease payment of its dividend. Since, many financial advisors sell REITs like KBS REIT I to retired customers as a way to obtain steady income, this announcement has to potential to be devastating to a retiree depending on that income.

Malecki Law Announces Investigation Into Credit Suisse’s TVIX Exchange Traded Notes

March 23, 2012 | Nick Curley

Malecki Law is currently investigating the potential for recovery of losses from VelocityShares Daily 2x VIX Short-Term ETNb (TVIX), an exchange-traded note issued by Credit Suisse. The product is typically utilized to hedge against market decline, or as a presumptive bet on the decline of stocks. It appear that Credit Suisse ceased creation of new units in February, 2012, until March 22nd, when the company announced a reopened limited issuance of the product. Prior to this reopening, it seems demand for the product greatly outweighed supply. Many market observers predicted that this reopening would cause the value of the notes to plummet, causing TVIX’s premium to fade. It looks as though shares of TVIX had lost as much as 50% of their value in less than two days following Suisse’s announced reopening.

While Credit Suisse cited internal limits to the size of the product as the reason for its initial closure, many have speculated that the action of short sellers also played a role, as well as something that may have changed within the company as to how Suisse markets and packages the product. “Short sellers may be accelerating bets against TVIX today on speculation Credit Suisse will permit issuance of more shares,” said WallachBeth Capital’s Chris Hempstead.

It is the right of any and all investors who believe they may have suffered losses as a result of recommendations of their financial advisor to contact our offices to explore their legal rights and options. If you or a family member invested in TVIX exchange traded notes issued by Credit Suisse, contact the securities fraud lawyers at Malecki Law for a free consultation and case evaluation at (212) 943-1233.

Malecki Law Announces an Amendment to the Civil Complaint with FINRA Against MetLife Securities, Inc. in Connection with Alleged Ponzi Schemer Robert H. Van Zandt

March 7, 2012 | Malecki Law Team

Malecki Law announces the filing of an Amended Statement of Claim against MetLife Securities in connection with the real estate investments solicited by Robert H. Van Zandt of The Van Zandt Agency in the Bronx, NY as part of an alleged Ponzi scheme currently under investigation by the New York State Attorney General’s Office.

This past December, Malecki Law announced the filing of a civil arbitration complaint with the Financial Industry Regulatory Authority against MetLife Securities for more than $4 million on behalf of twenty-four investors. The attorneys at Malecki Law continue to take calls and anticipate either adding future victims to the existing claim or commencing a second action, if necessary.

In the following months, many more investors contacted the attorneys at Malecki Law requesting to be part of that action. So, on March 5, 2012, Malecki Law amended their complaint with FINRA to add an additional nineteen investors to the action. In total, Malecki Law’s forty-three clients have suffered losses of over $9.2 million as a result of their investments through Mr. Van Zandt and the Van Zandt Agency.