FinancialCounsel

Rydex, Direxion And ProShares Subject To Regulators' Probe As To Sales Practices For Leveraged ETFs

The Massachusetts Secretary of State is investigating the sales practices of leveraged exchange-traded funds, or ETFs.  William Galvin is looking into the sales materials of Rydex Investments, Direxion Funds and ProShares.

Galvin is assessing what these firms tell brokers to sell to customers in selling the products.  FINRA, the Financial Industry Regulatory Authority, previously has cautioned its members over leveraged ETFs and that has been covered on this site.

Investors beware.

SNSFE Investigates Gregory Bell And Lancelot Management As The SEC Files Fraud Charges Alleging A $2 Billion Feeder Fraud

The SEC announced fraud charges and an asset freeze against a Highland Park, IL-based hedge fund manager and his firm for facilitating a multi-billion dollar Ponzi scheme operated by Minnesota businessman Thomas Petters.  The SEC's complaint, filed in U.S. District Court for the District of Minnesota, alleges that Gregory Bell and Lancelot Management LLC invested more than $2 billion in hedge funds assets with Petters and pocketed millions of dollars in fraudulent fees at the expense of investors in the funds.  The SEC's complaint also charges Petters with fraud for perpetrating the massive Ponzi scheme through the sale of notes related to consumer electronics.  When Petters's scheme began to unravel, Bell participated in a series of sham transactions to conceal that Petters owed more than $130 million in investor payments on the notes.

According to the SEC's complaint, Petters carried out his Ponzi scheme from as early as 1995 through September 2008, promising investors that proceeds from the notes they were sold would be used to finance the purchase of vast amounts of consumer electronics by vendors who then re-sold the merchandise to "Big Box" retailers including such well-known chains as Wal-Mart and Costco. Instead, the "purchase order inventory financing" business was a complete sham, and the vendors secretly returned most investor money back to Petters, who diverted billions of dollars for his own purposes. 

SNSFE continues to investigate Petters as well as the role of feeders such as Lancelot Management. 

Source:  SEC Press Release 2009-156

Securities Regulator Issues Warning Relating To Leveraged And Inverse ETFs

FINRA (the Financial Industry Regulatory Authority) has warned financial services firms that non-traditional exchange-traded funds (ETFs) are unsuitable for retail investors who plan to hold them for more than one day (a trading session), particularly in volatile markets.  Let's examine why FINRA has taken an interest in leveraged and inverse ETFs.

Continue...

Ameriprise Financial Nailed In Fraudulent Scheme To Obtain And To Conceal Undisclosed Compensation For Selling REITs To Customers

The SEC announced an enforcement action against Minneapolis-based broker-dealer Ameriprise Financial Services, for receiving millions of dollars in undisclosed compensation as a condition for offering and selling certain real estate investment trusts (REITs) to its brokerage customers.  Ameriprise has agreed to pay $17.3 million to settle SEC's charges.

The SEC's order finds that neither Ameriprise nor the REITs disclosed to investors that additional payments were being made in connection with the sale of REIT shares, or the conflicts of interest these additional payments created.  The SEC's order also finds that Ameriprise issued a variety of mislabeled invoices to the REITs as a means of collecting the undisclosed revenue sharing payments that appeared to be legitimate reimbursements for services provided by Ameriprise.

Source:  SEC Press Release 2009-155

SNSFE Investigating Provident Royalties Fraud And Brokerage Firms That Sold Those Securities As SEC Obtains Asset Freeze

SNSFE attorneys are investigating Provident Royalties, LLC after the Securities and Exchange Commission obtained an emergency asset freeze.  The SEC alleges a $485 million offering fraud and Ponzi scheme orchestrated by three Dallas businessmen through Provident Royalties.

The SEC alleges that from at least June 2006 through January 2009, Provident made a series of fraudulent securities offerings involving oil and gas assets through 21 affiliated entities to more than 7,700 investors throughout the United States.  Provident's entities made some direct retail sales of securities, but primarily solicited retail broker-dealers to enter into placement agreements for each offering, and those retail broker-dealers sold the stock to retail investors nationwide.

It is against those retail broker-dealers that SNSFE is investigating.

According to the SEC's complaint filed in the U.S. District Court for the Northern District of Texas, Provident falsely promised yearly returns of up to 18 percent and misrepresented to investors that 85 percent of the funds raised through the offerings would be used to purchase interests in oil and gas real estate, leases, mineral rights, and interests, exploration and development. In fact, the SEC alleges that less than 50 percent of investor funds were used for their stated purpose, and the proceeds from later offerings were used to pay expenses related to earlier offerings and returns to investors in those offerings.

Source: SEC Press Release 2009-151

SEC Informs State Street Bank And Trust Co. That It Could Face Charges For Securities Violations Tied To Investments In Sub-Prime Mortgages

State Street Corp. disclosed on Monday in a regulatory filing that the Securities and Exchange Commission could bring civil charges against its main subsidiary for possible securities violations tied to past investments in subprime mortgages.

State Street Bank and Trust Co. received a so-called "Wells" notice from the SEC tied to the ongoing investigation by the SEC into disclosures and management of the bank's fixed-income investments during 2007 and earlier periods.

In 2007, ahead of the collapse of the housing market, State Street's fixed-income investment unit increasingly invested in securities and bonds backed by subprime mortgages -- loans given to customers with poor credit history.  As the housing market unraveled in late 2007 and defaults on mortgages began to skyrocket, the value of those investments plummeted leading to losses in the investment funds.

The losses led some investors to file lawsuits, questioning whether State Street's investments fit strategies consistent with those of more traditional fixed-income funds.  During the fourth quarter of 2007, State Street established a reserve fund of $625 million to settle claims.

About two-thirds of the fund has been spent settling claims since then.  As of March 31, there was about $207 million remaining in the reserve fund.

The Wells notice indicates the possibility of an enforcement action and allows for the trust bank to provide its perspective on the investigation before any formal proceedings begin.

Source:  AP