Securities Fraud

Securities investing and trading is carefully regulated by rules and laws for the protection of public investors. The violation of these rules, particularly through various deceptive actions and schemes to cheat or take advantage of investors, is commonly known as securities fraud. Securities fraud may be committed by:

  • Brokers-dealers (misleading clients or advising based on inside information)
  • Financial advisors or analysts (purposefully offering poor advice or inside information)
  • Corporations (hiding or distorting information)
  • Private investors (acting on inside information) Most investment losses are the result of market forces, trends and factors which have nothing to do with securities fraud

The majority of investment advisors and stockbrokers are honest, decent individuals who follow the rules of the securities industry and provide a valuable service to the public. Unfortunately there are some unethical and dishonest investment advisors and there are some brokerage firms that do not supervise their brokers and accounts as carefully as they are required. If you invest in securities (stocks, bonds, options, limited partnerships, mutual funds, certain commodities, etc.) and you have experienced problems with your investments, your stockbroker or investment advisor, you may be a victim of securities fraud. Most investors who have been defrauded do not know what happened to their investments until it is too late. But even after the losses have occurred, you have certain rights of recourse which you should be aware of which may provide you an opportunity to recover your losses from a stockbroker or brokerage firm. You may also be entitled to compensation for the loss of income that their investments should have been generating, interest on the losses and legal fees.If you can answer yes to any of the following questions, you may have been a victim of securities fraud:

  • Have you been the victim of bad investment advice?
  • Did your stockbroker recommend risky investments without explaining the risks?
  • Did your stockbroker make trades without your understanding or authorization?
  • Did your stockbroker excessively trade your account?

Landmark Enforcement Action Paves the Way for Sweeping Investment Reform

In April 2002, a joint investigation was coordinated by three major investment firms for fraud. Those firms were Citigroup’s Salomon Smith Barney, Merrill Lynch, and Credit Suisse First Boston. When the joint investigation had been completed, it was found that for the approximate period of mid-1999 through mid-2001 or later, a total of ten investment firms and two well-known stock analysts had engaged in acts and practices that created or maintained inappropriate influence by investment banking over research analysts, thereby imposing conflicts of interest on research analysts that the firms failed to manage in an adequate or appropriate manner. In addition, the regulators found supervisory deficiencies at every firm. An landmark global settlement of $1.4 billion was made in December 2002 but was not finalized until April 28, 2003. Following the standard practice in resolving such disputes with the commission, the firms and the research analysts neither admitted nor denied the allegations. Dramatic changes are now underway to reform future practices in the investment industry, including separating the research and investment banking departments at the firms, how research is reviewed and supervised, and making independent research available to investors.

The ten firms in the global settlement are:

  • Bear, Stearns & Co. Inc. (Bear Stearns)
  • Credit Suisse First Boston LLC (CSFB)
  • Goldman, Sachs & Co. (Goldman)
  • Lehman Brothers Inc. (Lehman)
  • J.P. Morgan Securities Inc. (J.P. Morgan)
  • Merrill Lynch, Pierce, Fenner & Smith, Incorporated (Merrill Lynch)
  • Morgan Stanley & Co. Incorporated (Morgan Stanley)
  • Citigroup Global Markets Inc. f/k/a Salomon Smith Barney Inc. (SSB)
  • UBS Warburg LLC (UBS Warburg)
  • U.S. Bancorp Piper Jaffray Inc. (Piper Jaffray)

The two stock analysts are:

  • Jack Grubman, former managing director of Salomon Smith Barney, Inc. (SSB), lead research analyst for SSB’s telecommunications (telecom) subdivision, and the anchor for SSB's investment banking efforts in the telecom sector.

    A coordinated investigation of the SEC, New York Attorney General’s Office, the NASD, and the NYSE charged that Mr. Grubman issued fraudulent, misleading, and otherwise flawed research reports under SSB's name. As a result, Grubman aided and abetted SSB's violations of antifraud provisions of the federal securities laws and violated NASD and NYSE rules, as well as New York State law.

  • Henry Blodget, a former managing director at Merrill Lynch, Pierce, Fenner & Smith, Inc., and the senior research analyst and group head for the Merrill Lynch Internet sector.

    A coordinated investigation of the SEC, New York Attorney General’s Office, the NASD, and the NYSE charged that Mr. Blodget, among other things, issued fraudulent research under Merrill Lynch's name, as well as research in which he expressed views that were inconsistent with privately expressed negative views. Mr. Blodget's conduct constituted violations of the federal securities laws and NASD and NYSE rules, which require that, among other things, published research reports have a reasonable basis, present a fair picture of the investment risks and benefits, and not make exaggerated or unwarranted claims.

In the final settlement, the firms agreed to pay $487.5 million in penalties, $432.5 million for independent research, $80 million for investor education, and $375.5 million in restitution for investors; Mr. Blodget agreed to pay $4 million and Mr. Grubman $15 million to settle the charges against them.

The fines, restitution and other penalties were divided as follows:

  • Citigroup (SSB) $400 million
  • Credit Suisse $200 million
  • Merrill Lynch $200 million which includes an earlier Merrill settlement of $100 million
  • Morgan Stanley $125 million
  • Goldman Sachs $110 million
  • Bear Stearns $80 million
  • J.P. Morgan $80 million
  • UBS Warburg $80 million
  • Piper Jaffrey $32.5 million

The companies will bear the brunt of the penalties. Under tax law, none of the $487.5 million in penalties is deductible and the firms agreed not to seek reimbursement under their insurance policies. Prosecutors also inserted a clause in the settlement that might make it harder for the firms to try to deduct any of the $512.5 million in independent research and investor education.

Recourse for Individual Investors, while providing $375.5 million in restitution that can be sought by investors, how much individual investors might actually recoup of their losses is still unknown. Federal and state officials have said that one aim of the settlement was to provide evidence to assist shareholders in private lawsuits and arbitration efforts and Wall Street executives have acknowledged that the findings of the regulators would probably draw more lawsuits against their firms.

Following is a list of stocks which were included in the various settlement agreements:

  1. Bear, Stearns & Co., Inc.
    Ancor Communications, Inc.
    Agilent Technologies, Inc.
    Andrx Corp.
    Cacheflow, Inc.
    CAIS Internet, Inc.
    Digital River, Inc.
    JNI Corp.
    Packateer, Inc.
    Sonic Wall, Inc.
    Vixel Corp.

  2. Credit Suisse First Boston, LLC
    Aether Systems, Inc.
    Agilent Technologies, Inc.
    Allaire Corp.
    Digital Impact, Inc.
    El Sitio
    Next Level Communications
    Numerical Technologies, Inc.
    Razorfish, Inc.
    Synopsis, Inc.
    Winstar Communications, Inc.

  3. Goldman, Sachs & Co.
    360 Networks
    Global Crossing
    Level3 Communications
    RSL Communications
    Storage Networks
    Time Warner Telecom

  4. J.P. Morgan Securities, Inc.
    International Rectifier
    Epicor Software Corp.

  5. Lehman Brothers, Inc.
    Broadwing, Inc.
    DDI Corp.
    Delta Three Communications
    Global Crossing
    Razorfish, Inc.
    Real Networks, Inc.
    RSL Communications

  6. UBS Paine Webber, Inc.; UBS Warburg, LLC
    Atmel, Inc.
    Espeed, Inc.
    Flextronics International, Ltd.
    Netopia, Inc.
    Triangle Pharmaceuticals

  7. Morgan Stanley & Co., Inc.
    Agile Software Corp.
    Amtel Corp.
    Ask Jeeves
    Chemdex (Ventro)
    Convergys Corp.
    IBeam Broadcasting Corp.
    Loudcloud, Inc.
    Transmeta Corp.
    Veritas Software Corp.

  8. Citigroup Global Markets, Inc./Soloman Smith Barney, Inc.
    ACTV, Inc.
    Adelphia Business Solutions
    AirNet Communications Corp.
    Allegiance Telecom, Inc.
    American Tower Corp.
    AT&T Wireless/Bell South
    BCE, Inc.
    Broadwing, Inc.
    Centillium Communications
    Citizens Communications Corp.
    Crown Castle International
    Deutsche Telecome AG
    Digex, Inc.
    Dobson Communications Corp.
    Ectel, Ltd./Ectel Telecom, Ltd.
    Equinix, Inc.
    Evoke Communications
    Fical Communications
    Flag Telecom
    Focal Communications Corp.
    Gilat Communications, Ltd.
    Gilat Satellite Networks, Ltd.
    Global Crossing
    Hyperion Telecommunications
    ICO Global Communications
    Infonet Services Corp.
    Interwave Communications
    Intrange Technologies Corp.
    Iridium World Communications
    Korea Communications BHD
    Korea Telecom Corp.
    Level 3 Communications
    Maxis Communications BHD
    McLeod USA
    Metawave Communications
    Metricon, Inc.
    Metromedia Fiber Network
    Metronet Communications Corp.
    MPower Communications Corp.
    NextLink Communications, Inc.
    Nippon Telegraph & Telephone
    NTT Mobile Communication Network, Inc.
    Omnisky Corp.
    Orckit Communications, Ltd.
    Pinnacle Holdings, Inc.
    Plantronics, Inc.
    Qwest Communications
    RCN Communications
    Reltee Corp.
    Rhythm NetConnections
    SBA Communications
    Spectrasite Holdings, Inc.
    Sprint Corp.
    Sprint PCS
    STET Hellas Telecommunications
    Telecommunications Systems, Inc.
    Telecorp PCS, Inc.
    Telefonos de Mexico SA De CV
    Teligent, Inc.
    Tellenic Telecommunications, SA
    Telstra Corp., Ltd.
    Terayone Communication Systems
    Thomson Finanancial Securities Data
    Triton PCS Holding, Inc.
    TUT Systems, inc.
    Tycom, Ltd.
    US LEC Corp.
    Viatel, Inc.
    Western Multiplex Corp.
    Western Wireless
    Williams Communications Group
    Winstar Communcations, Inc.
    XM Satellite Radio Holding, Inc.
    XO Communications

  9. Merrill, Lynch, Pierce, Fenner & Smith, Inc.
    24/7 Media
    Aether Systems
    Barnes &
    Global Crossings
    Go2Net (Now Overture Services, Inc.)
    Internet Capital Group, Inc.
    Merrill Lynch Focus 20
    Merrill Lynch Internet Infrastructure Holders/SM Trust
    Quokka Sports
    Real Networks

  10. U.S. Bancorp Piper Jaffray, Inc.
    Buca, Inc.
    Comverse Technology, Inc.
    Esperion Therapeutics, Inc.
    Genta, Inc.
    JDS Uniphase Corp.
    Just for Feet
    Metromedia Fiber Network
    Natural Microsystems
    Onyx Pharmaceuticals
    Triton Network Systems

Robert Boyd and Associates serves the entire state of Mississippi, such as the following cities: Jackson, Clinton, Byram, Raymond, Terry, Bolton, Edwards, Brandon, Pearl, Brookhaven, Canton, Crystal Springs, Fayette, Florence, Hazlehurst, Lexington, Marion, Newton, Port Gibson, Richland, Madison, Ridgeland, McComb, Summit, Vicksburg, Wesson, Woodville, Yazoo City, Biloxi, Gulfport, Long Beach, Ocean Springs, Pascagoula, Moss Point, Pass Christian, Waveland, Clarksdale, Cleveland, Columbus, Columbia, Corinth, Greenville, Greenwood, Grenada, Hattiesburg, Magee, Tylertown, Laurel, Lucedale, Meridian, Natchez, Olive Branch, Southaven, Oxford, Philadelphia, Picayune, Starkville, Tupelo, Batesville, Aberdeen, Belzoni, Bentonia, Carthage, Kosciusko, Louisville, Cleveland, Leland, Clarksdale, Durant, Lexington, Ellisville, Florence, Flowood, Forest, Flora, Hollandale, Holly Springs, Horn Lake, Houston, Indianola, New Albany, Senatobia, Raleigh, Waynesboro, Wiggins, and Winona.

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