Articles Posted in Investigations

Recently, the Securities and Exchange Commission released a statement concerning its continued efforts to minimize the risk of incidents of microcap stock fraud. Since its inception in 2012, the SEC’s fraud-fighting initiative, Operation Shell-Expel, has made strides toward ensuring that microcap fraud is reduced to the greatest degree possible. One way the SEC is working to this end is by forming the Microcap Fraud Task Force in 2013. The primary purpose of this task force is to focus on attorneys, brokers, and others who tend to be serial offenders of microcap scams. Also of grave concern to the SEC is that often times these dormant shell companies are attractive opportunities for organized crime to capitalize on these shell companies.

One recent major effort to crack down on this particular type of fraud is the SEC’s Enforcement Division’s Office of Market Intelligence suspension of trading in 255 dormant companies that they believe are a high risk for over-the-counter market fraud. This suspension in trading prevents those who commit fraud from manipulating these shell companies.

Microcap stocks differ from other stocks in that they are generally defined as those with a market capitalization of under $250 million. Usually the smaller a company is, the greater the risk when investing in them. These companies usually don’t meet the requirements of traditional stock exchanges therefore they are usually traded through OTC Bulletin Board or the pink sheets. Often these microcap fraud set-ups include the use of the Internet and various types of social media to pull off such schemes.

Western Asset Management to Pay Nearly $21 Million

It has become nearly commonplace to hear about investors losing large sums of money, often in the millions. Although it is rarely shocking, few stories of investment fraud incite others as much as those involving retirees. Such is the case with the recent SEC investigation of Western Asset Management, a subsidiary of Legg Mason. Western Asset Management is a privately owned asset management company which manages many institutional clients. More than 100 of these clients are pension plans that are governed by the Employment Retirement Income Security Act. (ERISA is a law that was enacted in 1974 with the specific purpose of protecting employees who participate in employee benefit plans.)

The Securities and Exchange Committee has sanctioned this Pasadena, CA.- based company for numerous violations. A coding error resulted in the improper allocation of a private investment to ERISA clients. By the time the coding error was revealed, the bottom had fallen out of the private investment; an investment which was prohibited to ERISA plans. Western Asset’s reticence to acknowledge the coding error for nearly two years resulted in significant losses to investors, even though their correction policy requires them to reimburse clients who suffer losses of this nature. Additionally, by the time they revealed the coding error, those securities had been liquidated.

Financial auditing is an attestation of a client’s financial records therefore, it is critical that those auditors remain impartial. KPMG is one of the largest public services companies in the world, and financial auditing is one of the services they provide. Possessing a global impact makes it especially important for a company such as KPMG to behave ethically. Even so, over the last several years, they have appeared in the media regarding several issues pertaining to corporate ethics. Most recently they have been charged by the Securities and Exchange Commission (SEC) with violating the rules mandating the independence of auditors from the companies they are auditing.

In an effort to clarify the rules regarding independence from clients, the SEC issued a report which states that audit firm employees cannot work for clients in a way that could be construed as the staff acting as employees for the client company. The SEC’s investigation determined that KPMG was allowing some of its staff to perform such tasks as bookkeeping to its affiliates for whom they were providing audit services. It was also determined that some of KPMG staff owned stock in the very companies that were their clients. This lack of independence gives the appearance of impropriety and creates a conflict of interest.

“Auditors are vital to the integrity of financial reporting, and the mere appearance that they may be conflicted in exercising independent judgment can undermine public confidence in our markets,” said John T. Dugan, associate director for enforcement in the SEC’s Boston Regional Office. “KPMG compromised its role as an independent audit firm by providing prohibited non-audit services to companies that it was supposed to be auditing without any potential conflicts.”

Some of the Puerto Rico funds being investigated include:

Puerto Rico AAA Portfolio Target Maturity Fund
Puerto Rico GNMA US Government Target Maturity Fund
Puerto Rico Fixed Income Fund
Puerto Rico Fixed Income Fund II
Puerto Rico Fixed Income Fund III
Puerto Rico Fixed Income Fund IV
Puerto Rico Fixed Income Fund V
Tax-Free Puerto Rico Fund, Inc.
Tax-Free Puerto Rico Fund II, Inc.
Tax-Free Puerto Rico Target Maturity Fund, Inc.
Tax Free Puerto Rico Fund
Puerto Rico AAA Portfolio Bond Fund
Puerto Rico AAA Portfolio Bond Fund II
Multi-Select Securities Puerto Rico Fund
Puerto Rico AAA Portfolio Target Maturity Fund, Inc.
Puerto Rico AAA Portfolio Bond Fund
Puerto Rico AAA Portfolio Bond Fund II
Puerto Rico Fixed Income Fund
Puerto Rico Fixed Income Fund II
Puerto Rico Fixed Income Fund III
Puerto Rico Fixed Income Fund IV
Puerto Rico Fixed Income Fund V
Puerto Rico Fixed Income Fund VI
Puerto Rico GNMA & U.S. Government Target Maturity Fund
Puerto Rico Investors Tax-Free Fund
Puerto Rico Investors Tax-Free Fund II
Puerto Rico Investors Tax-Free Fund III
Puerto Rico Investors Tax-Free Fund IV
Puerto Rico Investors Tax-Free Fund V
Puerto Rico Investors Tax-Free Fund VI
Puerto Rico Mortgage-Backed & U.S. Government Securities Fund
Puerto Rico Short Term Investment Fund
Tax-Free Puerto Rico Fund
Tax-Free Puerto Rico Fund II
Tax-Free Puerto Rico Target Maturity Fund
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Blum Law Group has commenced an investigation into the activities of UBS Financial with relation to its clients who purchased stocks or bonds over the past 24 months. Investors who sustained losses at UBS or in their investment accounts should contact Blum Law Group
at 1-877-Stock Law (786-2552) or email us at blum@stockattorneys.com for a free case evaluation.

Blum Law Group has commenced an investigation into the activities of David Lerner and David Lerner Associates, Inc., based in Syosset, New York with relation to its clients who purchased Apple REITs. David Lerner was recently banned from the securities industry for a year and his firm ordered to pay $12 million for misleading investors into buying real estate investment trusts. Investors who sustained losses in David Lerner Associates, Inc. or Apple REIT investment accounts should contact Blum Law Group at 1-877-Stock Law (786-2552) or email blum@stockattorneys.com for a free case evaluation.

Blum Law Group has commenced an investigation into the activities of JW Korth & Company, based in Miami, Florida, with relation to its clients who purchased Banco Cruzeiro do Sul SA bonds. James W. Korth is their Managing Partner. Investors who sustained losses in JW Korth & Company or Banco Cruzeiro do Sul SA investment accounts should contact Blum Law Group at 1-877-Stock Law (786-2552) or email blum@stockattorneys.com for a free case evaluation.

The former chief executive of the failed brokerage firm Peregrine Financial Group (PFG), who last month wrote a note admitting that he had committed a long-ranging investment fraud, pleaded not guilty on Friday to lying to federal regulators. Federal prosecutors charged Russell Wasendorf Sr., the former head of Peregrine, with 31 counts of deceiving regulators about the value of his customers’ accounts. If convicted, he would face a maximum prison sentence of 155 years.

Blum Law Group is representing investors who lost money that was invested at PFG or through their Introducing Brokers, such as Liberty Trading Group. Just because you lost money does not mean you have a case. Rather, the Blum Law Group will provide a free case evaluation to determine if you have a claim worth filing. If you do, our law firm handles cases on a contingency fee so if we do not recover money for you, you will not pay any attorneys fees. Call us ASAP at 1-877-Stock Law (1-877-786-2552) or go to https://www.stockattorneys.com.