Investment Fraud Blog

According to recent reports, Berkshire Hathaway is continuing to pay for David Sokol's securities fraud lawyers to the tune of $150,000-$200,000 per month for his alleged insider trading activities.

Berkshire Hathaway's David Sokol was more than a securities trading star. Highly expected to inherit Warren Buffett's throne, he lost it all amid allegations that he violated the company's own ethics policies regarding insider trading. The fact that the company policies set a higher standard of conduct than the legal standard for insider trading means that Sokol faces no criminal charges right now, despite an ongoing Securities Exchage Commission (SEC) investigation.

The Department of Labor's Employee Benefits Security Administration (EBSA) recently fined Morgan Keegan for violating its fiduciary obligations in recommending certain hedge funds of funds to ERISA pension plans in return for improper revenue sharing payments. Morgan Keegan, which has been the subject of numerous FINRA arbitrations and regulatory proceedings over the past several years recently was acquired by Raymond James. In our view, this type of wide-scale brokerage firm misconduct is reflective of the type of high-level wrongdoing that has hurt investors nationwide.

On April 25, 2012, the Securities and Exchange Commission ("SEC") charged a former Morgan Stanley executive with violating the Foreign Corrupt Practices Act (FCPA) as well as securities laws. The SEC has alleged that the Morgan Stanley executive secretly acquired millions of dollars worth of real estate investments an influential Chinese official who in turn steered business to Morgan Stanley's funds.

The Financial Industry Regulatory Authority ("FINRA") announced on May 1, 2012 that it ordered brokerage firms Citigroup Inc. (C), Morgan Stanley (MS), UBS AG (UBS) and Wells Fargo & Co. (WFC) to pay a combined $9.1 million for allegedly improper sales of leveraged and inverse exchange-traded funds ("ETFs"). FINRA fined the brokerage firms a total of more than $7.3 million and also ordered them to pay $1.8 million in restitution to investors who bought the ETFs. This could be the tip of the iceberg in holding brokerage firms responsible for ETF investment losses.

In 2010, Matthew Hutcheson testified to congress that investment professionals should be held to a fiduciary standard. He now faces 31 counts of theft and wire fraud after being indicted on federal charges that he used retirement plan funds for home renovations and to buy an interest in a ski and golf resort. He was arrested in Idaho and indicted on 17 counts of wire fraud and 14 counts of theft. This is yet another in a long line of apparent investment frauds that have harmed investors.

Dimond Kaplan & Rothstein, P.A. recently prevailed in a FINRA securities arbitration against Los Angeles-based brokerage firm Wedbush Securities. The arbitration hearing, which took place in Los Angeles, California, involved claims that the brokerage firm recommended and sold a fraudulent investment, Provident/Shale Royalties 8, to our client. More specifically, we argued that Wedbush: (a) negligently approved the fraudulent product for sale to customers; (b) failed to disclose numerous material risks about Provident/Shale Royalties; and (c) negligently supervised its broker, who began recommending and selling the fraudulent investment even before Wedbush negligently approved the product.

A Barclays Plc exchange-traded note ("ETN") that traded more than 130% above the value of the natural-gas index to which it is linked, lost 42% of the premium in only 3 days. The iPath Dow Jones-UBS Natural Gas Total Return Sub-Index ETN, which traded in excess of a 100% premium for nearly three weeks beginning March 5, began dropping on March 20, the day after its price ascended to 134% more than its affiliated index.

The crash of an exchange-traded note ("ETN") backed by Credit Suisse Group shows the increasing risks for investors in Wall Street's highly complex exchange-traded products. The VelocityShares Daily 2x VIX Short-Terms ETN (TVIX), which is supposed to provide twice the daily return of the VIX volatility index, fell 30 percent on March 23 after Credit Suisse said it would be issuing new shares. Credit Suisse had stopped creating shares a month ago, unhinging the fund's price from the index and leading to a premium over the indicative value that reached as high as 89% on March 21 before plunging to roughly 7% two days later.