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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 InvestorsWhile 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:
- Bear, Stearns & Co., Inc.
Ancor Communications, Inc.
Agilent Technologies, Inc.
Andrx Corp.
Cacheflow, Inc.
CAIS Internet, Inc.
Digital River, Inc.
IPET
JNI Corp.
MUSE
Packateer, Inc.
Sonic Wall, Inc.
Vixel Corp.
- Credit Suisse First Boston, LLC
Aether Systems, Inc.
Agilent Technologies, Inc.
Allaire Corp.
Digital Impact, Inc.
E-Greetings
El Sitio
Gemstar
IPrint.com
Next Level Communications
Numerical Technologies, Inc.
Phone.com
Razorfish, Inc.
Synopsis, Inc.
Winstar Communications, Inc.
- Goldman, Sachs & Co.
360 Networks
Amazon.com
Equinix
Exodus
Global Crossing
Level3 Communications
MFNX
MPower
Net2000
RSL Communications
Storage Networks
Time Warner Telecom
WebEx.
WorldCom
- J.P. Morgan Securities, Inc.
International Rectifier
Epicor Software Corp.
- Lehman Brothers, Inc.
Broadwing, Inc.
CPQ
DDI Corp.
Delta Three Communications
Global Crossing
Razorfish, Inc.
Real Networks, Inc.
RSL Communications
- UBS Paine Webber, Inc.; UBS Warburg, LLC
Atmel, Inc.
Espeed, Inc.
Flextronics International, Ltd.
Interspeed
Netopia, Inc.
Triangle Pharmaceuticals
- Morgan Stanley & Co., Inc.
Agile Software Corp.
Akamai
Amtel Corp.
Ask Jeeves
CNET
Chemdex (Ventro)
Convergys Corp.
Drugstore.com
FreeMarkets
Homestore.com
IBeam Broadcasting Corp.
Inktomi
Loudcloud, Inc.
Marimba
Priceline.com
Transmeta Corp.
Verisign
Veritas Software Corp.
Vignette
Women.com
- Citigroup Global Markets, Inc./Soloman Smith Barney, Inc.
ACTV, Inc.
Adelphia Business Solutions
AirNet Communications Corp.
Allegiance Telecom, Inc.
American Tower Corp.
AT&T
AT&T Wireless/Bell South
BCE, Inc.
Broadwing, Inc.
Centillium Communications
Centurytel
Citizens Communications Corp.
Crown Castle International
Deutsche Telecome AG
Digex, Inc.
Dobson Communications Corp.
Ectel, Ltd./Ectel Telecom, Ltd.
Equinix, Inc.
Ericcson
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.
Verizon
Viatel, Inc.
Western Multiplex Corp.
Western Wireless
Williams Communications Group
Winstar Communcations, Inc.
WorldCom
XM Satellite Radio Holding, Inc.
XO Communications
- Merrill, Lynch, Pierce, Fenner & Smith, Inc.
24/7 Media
Aether Systems
Amazon.com
AOL
ARIBA
Barnes & Noble.com
Buy.com
Doubleclick
EBay
E-Toys
Excite@Home
Exodus
Global Crossings
Go2Net
GoTo.com (Now Overture Services, Inc.)
InfoSpace
Inktomi
Interliant
Internet Capital Group, Inc.
IVillage
Lifeminders
Lycos
Merrill Lynch Focus 20
Merrill Lynch Internet Infrastructure Holders/SM Trust
Mypoints.com
Pets.com
Priceline.com
Quokka Sports
Real Networks
Webvan
Yahoo
- 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
TheraSense
Triton Network Systems
If you or a loved one has suffered an injury, illness or death, that seems
to have been someone else’s fault, call VanDerGinst Law
at 1-866-843-7367 or click here
for a FREE online case evaluation. The initial consultation
is free of charge. If we agree to handle your injury case, we will work on a
contingency fee basis, which means we get paid for our services only if, and
when, there is a money recovery for you. In many cases a lawsuit must be filed
before an applicable expiration date, known as a statute of limitations. So
please call right away to ensure that you do not waive your right to possible
compensation.
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