On Tuesday, October 2, 2012, several former employees of Bernard L. Madoff Investment Services LLC ("BLMIS") pleaded not guilty to a thirty-three (33) count indictment. The group of former employees who pleaded not guilty on October 2nd included Daniel Bonventre, a former back office employee, Annette Bongiorno, BLMIS's former supervisor and account manager, Joann "Jodi" Crupi, and Jerome O'Hara and George Perez, two (2) former BLMIS computer programmers. Originally, the US Attorney charged the five (5) former employees with seventeen (17) criminal counts in November 2010, and recently added counts of conspiracy, securities fraud and tax evasion for a total of thirty-three (33) counts. Although defense attorneys stated that they will be filing motions to dismiss based upon the newly alleged criminal counts, the case is expected to proceed to trial in October 2013 and will center around the former employees' alleged role in the BLMIS Ponzi scheme. Indeed, the jury selection is set to begin on October 7, 2013 and the presiding Judge will reserve approximately three and one half months to hear the trial. Based upon the trial schedule, it is likely that the criminal trial of these former BLMIS employees will conclude on the 5 year anniversary of Bernard Madoff's guilty plea in December 2008. The trial will take place in the District Court for the Southern District of New York before the honorable Laura Taylor Swain. To date, eight (8) people, including Bernard Madoff, have pleaded guilty to the government's criminal charges. Lax & Neville LLP represents numerous Madoff victims in SIPC Claims and clawback litigation. If you are a defendant in a Madoff clawback litigation, feel free to contact the firm for a free consultation.
Recently, Deutsche Bank reviewed its current pay practices, particularly those regarding executive bonus compensation, in order to bolster profitability and decrease its overall costs by $5.8 billion. After a 100-day evaluation conducted by the firm's new co-chief executive officers, Juergen Fitschen and Anshu Jain, Deutsche Bank is expected to implement changes to its expense management measures. In a statement released on September 11, 2012, Deutsche Bank confirmed that it hopes to revamp its financial plan in which it noted, amongst other schematic changes, its intent to transform its current compensation practices. See the Deutsche Bank 9/11/12 Statement here. Deutsche Bank stated that, in the event of a reduction in profit or an instance of transgression, employee bonuses will be suspended. This policy will apply to chief executives and will amend the current payment schedule for deferred bonus payouts from part-payment throughout the span of three (3) years to payment after five (5) years. There has been a great deal of industry and media attention surrounding this anticipated announcement, since it is a primary concern for the entire investment banking industry and regulators. Indeed, several European banks are being scrutinized by investors, politicians and regulators, most of whom believe that employee accountability for actions resulting in lost profits should be more closely linked to their yearly bonuses. This type of bonus policy was first introduced by UBS Financial Services, Inc. ("UBS") in 2008 after it announced its decision to "clawback" employee bonuses. Such "clawback" provisions allow for the employer to either reduce or fully eliminate the deferred parts of bonuses that have not yet been paid out to employees. A recent example of this growing practice is espoused in JPMorgan's July 2012 announcement that it intends to "clawback" executive bonuses from executives involved in a $5.8 billion loss originating in its London office and related to the London "Whale" blunder. At Lax & Neville LLP, we represent individuals, securities industry employees and securities industry companies seeking representation in employment matters and securities-related and commercial litigation. Please contact our team of attorneys for a consultation at (212) 696-1999.
In response to the mandates imparted by the Dodd-Frank Act of 2010 (the "Act"), the Internal Revenue Service ("IRS"), the Commodity Futures Trading Commission ("CFTC") and the Securities Exchange Commission ("SEC") (collectively referred to as "the Agencies") have implemented agency specific whistleblowing programs. Under the Act, the Agencies are tasked with the oversight and administration of a mandatory reporting regime for tipsters to refer to when reporting potential securities law violations. The success of each agency's respective whistle-blowing program in increasing as evidenced by the number of awards and tips received and reported to each agency. Since the creation of the Office of the Whistleblower last year by the SEC, it has reported the receipt of more than 2,700 tips of securities law violations. The SEC has also reported the issuance of its first award in the amount of $50,000 that resulted from a tip received about a multimillion-dollar fraud. In this case, the SEC opted for the maximum percentage payout to the tipster allowed under the law - thirty percent (30%) of the $150,000 it has collected to date in the case. While the actual amount of each award is deferred to the agency for determination, the Act requires that the award be at least 10 percent (10%), and no more than 30 percent (30%), of the sum amount recovered by the agency as a result of the tip. There are a number of discretionary factors that are generally considered by the agency in making an award determination, namely: (1) the significance of the information provided to the success of an enforcement action; (2) the relevancy of the information to the agency's programmatic interest; and (3) whether an award will increase the agency's ability to enforce the federal securities laws and encourage the submission of high-quality information from whistleblowers. Despite the evident success of the Act's whistle-blowing program, there has been a growing industry-wide debate with regard to whistleblower eligibility. Under the IRS's whistleblower statute, a distinction is drawn between a whistleblower who acted as a participant in the activity at issue, and is therefore eligible to receive an award award, and the coordinator of such activity, who is not. See 26 U.S.C. § 7623(b)(3). This distinction gives even more rise to the necessity of a potential whistleblower's legal advisement in the area of securities law enforcement. At Lax & Neville LLP, we represent individuals, securities industry employees and securities industry companies seeking representation in employment matters and securities-related and commercial litigation. Please contact our team of attorneys for a consultation at (212) 696-1999.
U.S. District Court Confirms $10.2 Million FINRA Award Against Merrill Lynch in a Deferred Compensation Dispute
Earlier today, the United States District Court for the Southern District of Florida ("District Court") denied Bank of America Merrill Lynch's ("Merrill Lynch") petition to vacate a Financial Industry Regulatory Authority, Inc. ("FINRA") arbitration panel award. See Order Denying Petition to Vacate Arbitration Award, Merrill Lynch, Pierce, Fenner & Smith, Inc., vs. Smolchek, et. al., No. 12 Civ. 80355 (S.D.Fla. Sept. 17, 2012). Merrill Lynch had publicly stated it was confident that this arbitration award would be vacated. This is a significant decision and could affect thousands of Merrill Lynch advisors who either left Merrill Lynch recently or who are thinking about leaving in the future. As a result of the District Court's decision, Merrill Lynch will be required to pay $10.2 million to two former financial advisors, both of whom were denied deferred compensation. Similar to many other brokers who left Merrill Lynch after its merger agreement with Bank of America in September 2008, Meri Ramazio and Tamara Smolchek ("Claimants") brought an arbitration claim against Merrill Lynch seeking disbursement of their duly owed deferred compensation. Claimants' request for damages was based on the theory that the acquisition of Merrill Lynch constituted a "good reason" for collecting their deferred pay. The $10.2 million FINRA arbitration award rendered by the panel in April 2012 included a commensurate total of $5,150,000 in compensatory damages for a breach of contract related to the brokers' deferred compensation awards and unpaid wage, as well as a sum total of $5,000,000 in punitive damages on the basis that Merrill Lynch has "intentionally, willfully and deliberately engaged in a systematic and systemic fraudulent scheme to deprive Claimants of their rights and benefits under [Merrill Lynch's] Deferred Compensation Programs." See Tamara Smolchek and Meri Ramazio v. Merrill Lynch, Pierce, Fenner & Smith, Inc., FINRA Case No. 10-04432. After the award was rendered in April, both parties filed competing petitions seeking to confirm and vacate the arbitration award. Merrill Lynch asserted that: (1) the chairwomen's failure to disclose certain facts suggested the possibility of a bias and created an evident partiality; (2) the panel's decision to limit Merrill Lynch's presentation of its case and to impose certain sanctions against it is demonstrative of the panel's misconduct; and (3) the panel exceeded its powers. In its order denying Merrill Lynch's petition to vacate the arbitration award, the District Court concluded that Merrill Lynch "has not sufficiently demonstrated evident partiality on the part of the panel or that the panel engaged in misconduct or exceeded its powers." In addition to the class action brought by nearly 1,400 aggrieved brokers, which was recently purported to settle for $40 million and is currently awaiting approval from a federal court judge in Manhattan, Merrill Lynch also faces more than 1,000 similar claims in the FINRA arbitration forum. See Scott Chambers et al v. Merrill Lynch & Co., Inc., et al, No. 10 Civ. 7109 (S.D.N.Y). If you are a financial advisor who has any issues related to your employment at Merrill Lynch, or if you are thinking of changing your employment, please contact Lax & Neville LLP at (212) 696-1999 to discuss your potential matter. At Lax & Neville LLP, we represent securities industry employees nationwide seeking representation in employment matters.
Bradley Birkenfeld, a former banker and employee of UBS, received a monetary award in the amount of $104 million from the Internal Revenue Service ("IRS") for revealing information relating to UBS's practice of advising and assisting its clients on how to shield their assets from the IRS - a clear violation of the Internal Revenue Code. Birkenfeld's disclosure to the IRS ultimately led to a $780 million settlement between UBS and the federal government, as well as the enrollment of more than 35,000 American taxpayers in IRS amnesty programs, which will allow the repatriation of their offshore accounts. The IRS has stated that it expects to recover an estimated $5 billion as a result of Birkenfeld's disclosure. According to a website maintained by the IRS's Whistleblower Office, which was established as a result of the enactment of the Dodd-Frank Act in 2010, monetary awards will be provided to whistleblowers that provide specific and credible information about violations of the Internal Revenue Code. Anti-retaliation protections are also afforded to those who choose to disclaim such information. In a statement confirming the award, the IRS emphasized the importance of the whistleblower statue and acknowledged it as a "valuable tool to combat tax non-compliance." At Lax & Neville LLP, we represent individuals, securities industry employees and securities industry companies seeking representation in employment matters and securities-related and commercial litigation. Please contact our team of attorneys for a consultation at (212) 696-1999.
In 1986, the British Bankers' Association ("BBA") created the London Interbank Offered Rate ("LIBOR") to assist BBA members to set corporate loan interest rates. LIBOR is an average interest rate that determines the cost of inter-bank lending, sets the average rates banks pay to borrow from one another and is very influential in the marketplace as it establishes the benchmark for interest rates in the financial system. LIBOR is determined by the largest London/Wall Street banks submitting estimated rates. The highest and lowest four estimated rates are disregarded, and the remainder of the rates are averaged which sets the LIBOR. The LIBOR is published daily by Thomson Reuters.
In June 2012, a LIBOR manipulation scandal erupted when it was revealed that the banks were inaccurately inflating and deflating rates in order to generate a bolstered impression of their creditworthiness and generate profits. Several reports began to surface which alleged that LIBOR manipulation had transpired by the largest banks since the early 1990s. On June 27, 2012, Barclays Bank entered into an agreement with the United States Department of Justice and admitted to LIBOR manipulation. Barclays Bank was fined $200 million by the United States Commodity Futures Trading Commission ("CFTC"), as well as $160 million by the Department of Justice for its involvement in the LIBOR manipulation. The Department of Justice stated in its statement of facts that, "the manipulation of the submissions affected the fixed rates on some occasions." See Statement of Facts, United States Department of Justice, June 26, 2012, available a http://www.justice.gov/iso/opa/resources/9312012710173426365941.pdf (last viewed September 10, 2012). Since Barclays Bank has admitted to its wrongdoing, regulators including the CFTC and the Securities and Exchange Commission, have launched investigations into LIBOR rigging with various other financial institutions. Moreover, regulators are contending that the BBA failed to maintain the reliability of LIBOR. Obviously a manipulation involves multiple parties, so many are watching to see what other large financial institutions will be investigated by regulators, and which investigations will result in fines.
Moreover, investors, small lenders, municipalities and hedge funds are beginning to sue various financial institutions alleged to have been involved in the LIBOR manipulation claiming that they suffered losses based upon the rates affecting bonds, loans, derivatives and mortgages. For example, on July 25, 2012, the Berkshire Bank, a small New York based lender, filled a class action lawsuit against the larger banks involved in setting LIBOR, including but not limited to, Bank of America Corporation, Barclays Bank PLC, Citigroup, Inc., Credit Suisse Group AG, Deutsche Bank AG, HSBC Bank PLC, JPMorgan Chase Bank, Royal Bank of Canada and Royal Bank of Scotland. See Index No. 12-cv-5723. The class action complaint alleges that the LIBOR scandal affected interest rate payments to it and several investors, and is seeking an undetermined amount of compensatory and punitive damages. Various other suits have been filed nationwide by small lenders and investors against the larger Wall Street Firms that are heavily involved in setting LIBOR. If you believe that you have suffered losses as a result of the LIBOR scandal, please contact Lax & Neville LLP for a consultation at (212) 696-1999. Our firm has extensive experience and knowledge representing victims of investment fraud nationwide.
The U.S. District Court for the Southern District of California ("U.S. District Court") recently ruled in favor of Waddell & Reed, Inc. ("Waddell & Reed") in a dispute resulting from Waddell & Reed's common practice of classifying its Financial Advisors as independent contractors, rather than as firm employees. (Taylor v. Waddell & Reed, Inc., 2012 U.S. Dist. LEXIS 117258 (S.D. Cal. Aug. 20, 2012).) In December 2009, current and former Financial Advisors of Waddell & Reed, Inc. filed a class action suit against the firm and alleged that the firm's misclassification of their employment status is in direct violation of the Fair Labor Standards Act ("FLSA"), 29 U.S.C. §§ 206-207, the California Labor Code, and California's Unfair Competition Law ("UCL"), Cal. Bus. & Prof. Code § 17200. In making its determination to reject the Financial Advisors' claims, the District Court referred to California's common law test for determining worker status and considered a number of factors including, but not limited to: (1) whether the advisor's work was done under the direction of the principal or by a specialist without supervision; (2) the skill required in the occupation; (3) the length of time for which the services were/are to be performed; (4) the method of payment; (5) whether the work is part of the regular business of the principal; and (6) whether the parties believe they are creating an employment relationship. See S.G. Borello & Sons, Inc. v. Department of Industrial Relations, 48 Cal. 3d 341, 256 Cal. Rptr. 543, 769 P.2d 399 (1989). As was implied in the Taylor decision, the likelihood for the formation of such a relationship is commiserate with the level of autonomy exerted by the Financial Advisors over their clientele, reported earnings, planning services, and the work location. See Taylor v. Waddell & Reed, Inc. After weighing and considering these factors as a whole, the District Court ultimately held that the terms of the employer/employee relationship as evidenced between Waddell & Reed and its Financial Advisors was representative of a true independent contractor relationship. This potentially precedent-setting case serves as a reminder to Financial Advisors throughout the country of the necessity to devise appropriate risk management strategies in order to safeguard against alternative employee classification. At Lax & Neville LLP, we represent individuals, securities industry employees and securities industry companies seeking representation in employment matters and securities-related and commercial litigation. Please contact our team of attorneys for a consultation at (212) 696-1999.
The Securities and Exchange Commission ("SEC") has alleged that MiddleCove Capital LLC, a Connecticut based investment adviser firm, and Noah Myers, its founder, engaged in fraudulent allocation of trades from October 2008 through February 2011 when Myers made block purchases of securities through a master account and waited to allocate those trades until late in the day, or the next day, after he knew whether there was a gain or a loss on the trade. According to the SEC administrative order, Myers would sell a security and allocate that day-trade profit to his personal and business accounts, if the security increased in price the day it was purchased. Pursuant to the SEC order, Myers generally allocated the trade to a client, if the security's price failed to increase the day it was bought. The SEC order stated that "the securities on which Myers was disproportionately making money were the same securities on which his clients were disproportionately losing money." Reportedly, Myers made $460,000 for himself, while losing $2 million for his clients. In addition, the SEC found that the fraud involved the use of leveraged exchange-traded funds ("ETFs"), which are investments that attempt to deliver returns that represent a multiple or inverse of a particular stock index's return. Leveraged ETFs can be volatile and risky and should be used only by sophisticated investors. The fraud was reportedly first detected by an internal program at Charles Schwab & Co. Inc., the custodian for MiddleCove client accounts and for the master account Myers used for the block trades. In a November 2011 interview with the SEC, Myers admitted to using a day-trading strategy in a personal account that was profitable 95% of the time, "but he did not offer a plausible explanation for his stellar day-trading performance." The SEC administrative order institutes civil proceedings against Myers. If found liable, Myers could face fines and the SEC can demand disgorgement of profits plus interest from him and his firm, MiddleCove.
If you have suffered losses from investments with MiddleCove, Myers or any other investment adviser firm or brokerage firm, and believe that you are a victim of sales practice abuses, please contact Lax & Neville LLP for a consultation at (212) 696-1999. Our firm has extensive experience and knowledge representing victims of investment fraud nationwide.
On August 14, 2012, nearly two years after the commencement of a class action lawsuit seeking the reimbursement of deferred compensation by thousands of former brokers of the Bank of America Corporation's ("Bank of America") Merrill Lynch & Co. ("Merrill Lynch") unit, a formal disclosure was filed with the United States Securities and Exchange Commission ("SEC") stating that the parties have finally "reached an agreement in principle" to settle the class action suit. On August 24, 2012, just over one week after this announcement was made, the class participants asked United States District Court Judge Alison Nathan to approve a $40 million settlement. This settlement, which is still pending the Judge Nathan's approval, has been purported to compensate more than 1,400 of the aggrieved brokers participating in the suit. The basis giving rise to the broker's claims for deferred composition is the direct result of Merrill Lynch's merger agreement with Bank of America in September, 2008, which caused nearly 3,300 brokers to depart from the firm. After the merger was effectuated, many of the departing brokers placed a formal request with Merrill Lynch for the disbursement of their duly owed deferred compensation. However, Merrill Lynch was aggressive in addressing these claims. Generally, deferred compensation is payable to a broker once the broker has stayed with the firm for a specified number of years. Brokers are also entitled to their deferred compensation in the event that they discontinue their employment with the firm for a "good reason." The brokers participating in this class action cite Merrill Lynch's merger with Bank of America as a "good reason." In addition to this class action, Merrill Lynch not only faces claims from more than 1,000 brokers in the Financial Industry Regulatory Authority's ("FINRA") arbitration forum, but it has also already lost quite a few high-dollar deferred compensation cases in arbitration.
If you are a financial advisor who has not been paid your due compensation, please contact Lax & Neville LLP at (212) 696-1999 to discuss your potential matter. At Lax & Neville LLP, we represent securities industry employees nationwide seeking representation in employment matters.
Last year, in October 2011, MF Global, Inc. ("MF Global"), one of the world's leading financial derivatives, futures and commodities brokers, collapsed after engaging in extremely risky proprietary trading involving European sovereign debt and repo trades. After the failure of MF Global, the United States Department of Justice launched a criminal investigation to determine whether the firm's officers and directors were involved in the misallocation of approximately $1 billion in customer funds that lead to the firm's collapse. The criminal investigation has transpired for nearly 10 months, and it has been reported that investigators will most likely conclude that internal chaos and inadequate risk controls lead to the disappearance of customer funds, not fraud. Department of Justice investigators invited Jon S. Corzine, former chief executive officer of MF Global, to a voluntary interview which is expected to take place next month. Reportedly, when prosecutors have sufficient evidence to support criminal charges, they typically do not extend an offer for a voluntary interview, as was done here. Since Mr. Corzine was invited to a voluntary interview, it is not expected that criminal charges will be filed against him. Although Mr. Corzine may not face criminal charges, he has suffered irreparable damage to his reputation on Wall Street. It is suspected, however, that criminal investigators are focusing their attention on MF Global lower level employees, including, but not limited to, Edith O'Brien, the firm's "keeper of the books." Ms. O'Brien was tasked with overseeing the transfer of customer funds during the time MF Global customer funds could not be accounted for. Notably, Ms. O'Brien refuses to cooperate with the authorities without receiving immunity from criminal prosecution. Although distributions have been made to former MF Global customers by the SIPC Trustee, none of the customers are expected to recuperate 100% of the value of their account. As such, many customers want justice to prevail and see that the wrongdoers are held accountable for their involvement in the loss of the customer funds and the collapse of MF Global. It will be interesting to see how the Justice Department concludes its investigation, and which officers and directors, if any, will be criminally charged.
At Lax & Neville LLP, we represent individuals, securities industry employees and securities industry companies seeking representation in employment matters and securities-related and commercial litigation. Please contact our team of securities fraud attorneys for a consultation at (212) 696-1999.