securities arbitration

Published on: January 25, 2012

Securities Arbitration May be Only Choice for Defrauded Carlyle Group Shareholders

Earlier this month, a registration statement was filed with the Securities and Exchange Commission stating that The Carlyle Group L.P. shareholder disputes must be settled in securities arbitration proceedings conducted in Delaware. On January 10, 2012, the amended registration statement was filed as part of the company’s plan to raise a public offering this spring amounting to roughly $1 billion.

Securities Arbitration may be Only Choice for Defrauded Carlyle Group Shareholders

In the landmark arbitration ruling by the Supreme Court in AT&T Mobility v. Conception, the decision was made that courts could not refuse to enforce mandatory arbitration provisions in a consumer agreement. This decision was made on the grounds that the Federal Arbitration Act preempts California law, which viewed these agreements as unconscionable. It is not clear how this ruling applies to shareholder litigation, but the Carlyle Group wants to find out.

The Carlyle IPO is a partnership offering limited partner interests for sale. Because of the partnership structure, common unitholders are more limited than normal shareholders. According to the registration document, unitholder disputes must be conducted by three arbitrators in Wilmington Delaware in individual arbitrations. In the event that the amount at issue is under $3 million, only one arbitrator is necessary.

Published on: January 23, 2012

FINRA Ruling: Citigroup Global Markets Fined $725,000

by InvestorLawyers

On January 18, 2012, the Financial Industry Regulatory Authority — the entity which handles securities arbitration on behalf of investors who have been the victims of stock broker fraud — announced its decision to fine Citigroup Global Markets Inc. for failure to disclose conflicts of interest. The conflicts of interest occurred in research reports and research analysts’ public appearances. From January 2007 through March 2010, Citigroup, in some research reports, failed to disclose certain conflicts of interest related to its business relationships. In addition to the failure to make required disclosures in research reports, Citigroup research analysts did not disclose the same potential conflicts in relevant public appearances that mentioned the covered companies.

“Citigroup failed to make required conflict of interest disclosures which prevented investors from being aware of potential biases in its research recommendations,” says FINRA Executive Vice President and Chief of Enforcement Brad Bennett. “Firms need to provide investors with full and accurate information so they will be able to take it into consideration before making an investment decision.”

Conflicts of interest not included in research reports and analysts’ public appearances included the fact that Citigroup and/or Citigroup affiliates co-managed or managed public securities offerings, would make a market in the related securities, received revenue and/or investment banking from the related securities and/or had ownership in covered companies that amounted to 1 percent or more.

Published on: January 20, 2012

Study Explores Connection Between “Overly Optimistic” Disclosures and Investor Claims

by InvestorLawyers

A recent study published in Accounting Review explored whether firms that use “overly optimistic” language in their disclosures are more likely to be sued by investors. While it is unreasonable to expect a firm to deliberately use language that will cost them business, disclosures should always be grounded in reality — and there is a significant difference between “optimistic” and “overly optimistic.” Overly optimistic disclosures that are not grounded in reality are often cited in securities arbitration claims.

Study Explores Connection Between “Overly Optimistic” Disclosures and Investor Claims

The final sample of the study included 165 lawsuits. All the lawsuits were filed between 2003 and 2008. Types of disclosures that could be viewed as “overly optimistic” included SEC filings, earnings announcements, press releases, presentations at conferences and media interviews. Once the researchers controlled for performance-related and other traits, they found that substantially more optimistic language in disclosures was used by firms that had been sued. According to the authors of the study, “These results indicate a strong link between disclosure tone and litigation. The difference in tone between sued and non-sued firms’ disclosures is consistent with plaintiff allegations that managers issued overly optimistic disclosures during the damage period.”

While a significant portion of securities litigation cases cite material misrepresentations as part of the firm or broker misconduct, “a victorious securities lawsuit requires plaintiffs not only to provide evidence of a material misrepresentation but also to prove intent to deceive,” the authors note.

Published on: January 19, 2012

Veolia Environment S.A. Investors May Have Claim

by InvestorLawyers

In the United States District Court for the Southern District Court of New York, a class action has been filed against Veolia Environment S.A. on behalf of its purchasers. The class action is regarding American Depositary Shares (ADSs) for the Class Period of April 27, 2007 through August 4, 2011. Veolia Environment S.A. allegedly violated federal securities laws.

Veolia Environment S.A. Investors may have Claim

According to the complaint, Veolia failed to disclose and/or misrepresented the following facts:
• The company was engaging in improper accounting practices and as a result materially overstated its financial results.
• Veolia could not determine its true financial condition as a result of its inadequate internal controls.
• The company did not record, in a timely manner, an impairment charge for its marine services business in the United States and Southern Europe, environmental services business in Egypt and transport business in Morocco.
• The renewal of some major concession contracts was hampering the company’s revenues.

When the company’s half-year results were announced on August 4, 2011, for the period ending June 30th of that year, Veolia American Depository Shares fell by 22 percent, or $4.66 per share as a result. The shares closed at $16.10 per share. The half-year results showed a consolidated revenue of EUR 16,286.7 million. In addition, defendants reported the operating income for Veolia to be EUR 252.2 million, a significant decline compared to the prior year which had an operating income of EUR 1,100.7 million. The change was due to “non-recurring write-downs amounting to EUR 686M (principally in Italy, Morocco and the United States).” Veolia also stated that it would exit businesses and geographies including for its marine services business in the United States and Southern Europe, environmental services business in Egypt and transport business in Morocco.

Published on: January 16, 2012

Investing with “Friends” Does NOT Protect from Fraud

by InvestorLawyers

Stock broker fraud attorneys are all too familiar with the idea that many people believe that investing with friends or members of their own community protects them against investment fraud. However, this is simply not the case. Investors are often swindled be fraudsters within their own community. They will swindle their family, friends, coworkers — even, as in a recent case emerging following a complaint to the Securities and Exchange Commission, members of their church congregation.

Investing With “Friends” does NOT Protect from Fraud

Wendell and Alan Jacobsen, members of the Church of Jesus Christ of Latter-Day Saints in Salt Lake City, used their membership in the church to gain the trust of around 225 investors and perpetuate a $220 million fraud. The scheme has been in operation since 2008 and was only recently halted by a SEC emergency order.

According to the SEC, victims of the fraud were offered the opportunity to participate in an investment that would receive 5 to 8 percent annual returns, with a guarantee of safety for their principal investment. The investors were told they would be investing in apartment communities that would be purchased at discounted rates and then, within 5 years, would be renovated and sold for a profit. However, the investments suffered losses, which were then covered up by the Jacobsons by using new money collected from investors to pay returns to previous investors. Furthermore, money collected from investments was used to pay personal business expenses and family expenses.

Published on: January 13, 2012

Investment News: “Accredited Investor” Net Worth Standard Definition Modified by SEC

by InvestorLawyers

Investment attorneys would like to make investors aware that the final rule declaring the net worth standard for “accredited investors” has been adopted by the Securities and Exchange Commission. The SEC still had to adjust its rules to the modification despite the fact that the modified definition was effective upon the enacting of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Investment News: “Accredited Investor” Net Worth Standard Definition Modified by SEC

According to the Securities Act of 1933, unless there is an exemption, such as “accredited investor” status, all U.S. securities sales and offers must be registered. Before the Dodd-Frank Act was enacted, an investor’s main residence, along with its fair market value and indebtedness, were included when calculating an investor’s net worth. In order to be an “accredited investor,” one’s net worth must be at least $1 million.

According to the Dodd-Frank Act’s Section 413(a), when determining if an individual is an “accredited investor,” the value of that person’s primary residence cannot be included. Determining if a person is an “accredited investor” is used to identify people who can withstand the economic risk of investing in unregistered securities. Securities that are unregistered for an indefinite timeframe can result in total investment losses. While personal residence cannot be included when determining an investor’s status, per the Dodd-Frank Act, if there is indebtedness associated with the residence, this amount can still lower the net worth of the investor. This rule will lower the number of individuals that receive “accredited investor” status. However, individuals that were previously considered “accredited investors,” but no longer meet the $1 million threshold because of the rule changes, will be given a limited grandfathering that allows them to continue to receive accredited status for certain “follow-on” investments.

Published on: January 11, 2012

Pacific Biosciences of California Investors Seeking Recovery of Losses

by InvestorLawyers

Allegations have been made that Pacific Biosciences of California Inc. (PacBio), as well as some of its officers and directors, knowingly or recklessly failed to disclose information and/or made materially misleading statements. These statements, along with the alleged failure to disclose information, would be in violation of the Securities Exchange Act of 1934 and, as a result, investment attorneys are investigating possible claims on behalf of shareholders.

Pacific Biosciences of California, Inc. Investors Seeking Recovery of Losses

PacBio is based in Menlo Park, California. The company handles the development, manufacturing and marketing of a genetic analysis integrated platform. PacBio commercializes the SMRT — or single molecule, real-time technology — platform, which is used to detect biological events.

A class action lawsuit was filed in the United States District Court for the Northern District of California against PacBio for the class period of October 27, 2010 through September 20, 2011. The lawsuit alleges that for the class period, PacBio misled investors by failing to disclose facts about their operational and financial condition. The company’s condition was a result of significant problems related to its third generation human genome sequencing technology. Furthermore, allegations have been made that PacBio’s stock traded at artificially-inflated prices as a result of the materially false and misleading statements. According to some shareholders, the company’s common stock prices fell 24 percent after an announcement on September 20, 2011, that revealed the truth about PacBio’s business prospects and the related revenue projections. The significant drop in the company’s common stock prices resulted in losses for many investors.

Published on: January 9, 2012

Lloyds Banking Group Investors Could Recover Investment Losses

by InvestorLawyers

Investment attorneys are encouraging individuals who invested with Lloyds Banking Group related to the class action lawsuit filed on November 23, 2011, to explore all possible loss recovery options. The class action lawsuit was filed in the United States District Court of the Southern District of New York and applies to the class period running from October 1, 2008 to February 27, 2009.

Lloyds Banking Group Investors Could Recover Investment Losses

The lawsuit makes allegations related to the acquisition of Halifax Bank of Scotland (HBoS), which occurred on September 18, 2008. The acquisition was reported on Lloyds Banking Group’s SEC 6-K filing.

The class action lawsuit states that, “Unbeknownst to the public, beginning on October 1, 2008, HBoS was insolvent, and had received Emergency Liquidity Assistance (ELA) from the Bank of England.” According to the lawsuit’s allegations, “Defendants had actual knowledge about the HBoS’s financial condition, and in particular, its receipt of the ELA and the circumstances which necessitated the ELA, and their failure to disclose this information rendered their public filings materially false and misleading.”

Published on: January 6, 2012

FINRA Decision: Credit Suisse Fined $1.75 Million

by InvestorLawyers

On December 27, 2011, the Financial Industry Regulatory Authority (FINRA) announced its securities arbitration decision to fine USA-based Credit Suisse Securities LLC $1.75 million. The fine is a result of Credit Suisse’s failure to properly mark sale orders and supervise short sales. These violations resulted in millions of short sales orders that were conducted “without reasonable grounds to believe that the securities could be borrowed and delivered and mismarked thousands of sales orders,” according to the FINRA press release.

FINRA Decision: Credit Sussie Fined $1.75 Million

A short sale occurs when a security is sold that is not owned by the seller. Upon delivery, the security is either purchased or borrowed by the short seller to make the delivery. A broker or dealer must have reasonable grounds to believe the security can be available for delivery in order to perform a short sale order, according to Reg SHO. The “locate” requirement effectively reduces potential failures to deliver, protecting the investment. Furthermore, a broker or dealer must mark the sales as long or short. Failure to do so results in broker misconduct that is potentially dangerous for clients.

FINRA Executive Vice President and Chief of Enforcement Brad Bennett stated that “Credit Suisse’s Reg SHO supervisory and compliance monitoring system was seriously flawed. Millions of short sale orders were being entered in its systems without locates for over four years because the firm did not have adequate Reg SHO technology and procedures in place.”

Published on: January 5, 2012

FINRA Decision: Barclays Capital Fined $3 Million

by InvestorLawyers

A major concern in the investment industry is that investors should be, but often are not, provided with sufficient and accurate information on their investments which will allow them to make informed investment decisions. A recent Financial Industry Regulatory Authority (FINRA) securities arbitration case resulted in Barclays Capital Inc. being fined for failure to adequately supervise the issuance of residential subprime mortgage securitizations, plus misrepresentation of delinquency data. Of the case, FINRA Executive Vice President and Chief of Enforcement Brad Bennett stated, “investors were supplied inaccurate information to assess future performance of RMBS investments.”

FINRA Decision: Barclays Capital Fined $3 Million

According to FINRA, “historical performance information for past securitizations that contain mortgage loans similar to those in the RMBS being offered to investors” must be disclosed by issuers of residential subprime mortgage securitizations. This information is vital to investors’ attempts to determine if the failure of mortgage holders to make payments could disrupt future returns. Therefore, without this information, investors cannot make an adequately informed decision about their investment.

According to FINRA’s investigation, the historical delinquency rates of three subprime RMBS, for which Barclays was underwriter and seller, were misrepresented from March 2007 through December 2010.