Securities Class Action Attorneys File Lawsuit Against Longwei Petroleum Investment Holdings (NYSE: LPH)

January 11, 2013 By Jay Eng

Securities attorneys have reportedly filed a class action complaint against Longwei Petroleum Investment Holdings (NYSE: LPH) (“Longwei”).  As previously noted here, Longwei shares were pummeled after reports raising concerns about Longwei’s financial condition and business performance.

The class action lawsuit was filed by securities attorneys in the Southern District of New York.  Case No. 12-cv-00229.  The class period alleged covers investors who purchased Longwei common stock between May 17, 2010 and January 3, 2013, and sustained investment losses.  Investors seeking to serve as lead plaintiff must file their applications with the court by March 5, 2013.

Massachusetts Regulator Files Complaint Against LPL Financial Concerning Non-Traded REITS

December 12, 2012 By Jay Eng

The Enforcement Section of the Massachusetts Securities Division has filed a lawsuit against LPL Financial, LLC (“LPL”) in connection with their sale of non-traded real estate investment trusts (or “REITs”) to retail investors through LPL’s registered representatives and investment advisors. According to the complaint, which can be found here, LPL “engaged in numerous regulatory violations in connection with the sale of non-traded REITs.” According to the complaint, LPL received commissions starting at 6% and soled over $4 million of non-traded REITS to Massachusetts investors.

REITs are companies which own and manage income producing properties which can be commercial or residential. Regulators note that non-traded REITs are often misunderstood by investors. REITs are often entirely illiquid and sometimes resort to paying distributions out of borrowed monies. Regulators have found that non-traded REITs are “especially risky through limited redemption programs, high fees and commissions and internal conflicts of interest.” Non-traded REITs can have high sales commissions and offering fees from 15-18%.

In its complaint, the Enforcement Section found issues with LPL’s sale of Inland American Real Estate Trust and other non-traded REITs. For example, LPL allegedly “failed to review properly sales of non-traded REITs.” In numerous instances, the Enforcement Section found violations of concentration requirements, net worth, annual income and liquid net worth requirements. Other non-traded REITs reviewed by the Enforcement Section included Cole Credit Property Trust II, Inc., Cole Credit Property Trust III, Inc., Cole Property 1031 Exchange, Wells Real Estate Investment Trust II, Inc., WP Carey Corporate Property Associates 17, and Dividend Capital Total Realty.

Digital Domain Media Group Securities Class Action Lawsuit Filed (OTC: DDMGQ, previously DDMG)

September 24, 2012 By Jay Eng

A securities class action lawsuit was filed against former executives and officers of Digital Domain Media Group (previously NYSE: DDMG, now OTC: DDMGQ) in United States District Court in the Southern District of Florida.  The securities class action complaint alleges violations of federal securities laws.  See the press release here.  The DDMG complaint can be found here.

CFTC v. Peregrine Financial Group Inc. (PFGBest) Complaint 12-CV-05383

July 10, 2012 By Jay Eng

Here is the complaint for the U.S. Commodity Futures Trading Commission v. Peregrine Financial Group, Inc. and Russell Wasendorf , Sr., Case No. 12-CV-05383 (Northern District of Illinois) discussed in the prior post regarding PFGBest.

Here are some highlights from lawsuit prepared by the CFTC’s attorneys:

  • “From at least February 2010 through the present (“relevant time”), PFG and Russell R. Wasendorf, Sr., PFG’s chief executive officer (“CEO”) and sole owner, have failed to maintain adequate customer funds in segregated accounts. That shortfall exceeds and has exceeded $200 million. PFG and Wasendorf have used customer funds for purposes other than those intended by its customers, and consequently, have misappropriated these funds. The whereabouts of the funds is currently unknown.”
  • “Additionally, during at least this same period, PFG and Wasendorf have filed false reports with the CFTC regarding the amount of customer segregated funds held by PFG.”
  • “In July 2012, NFA conducted an audit of PFG. In connection with the audit, PFG represented to NFA that it held in excess of $220 million in the 1845 customer seg account, when, in fact, that account held approximately only $5.1 million.”
  • “On information and belief, on or about July 9, 2012, Wasendorf attempted to commit suicide at PFG offices in Cedar Rapids, Iowa. He is reported to be in a coma as a result of that attempt.”
  • “In the immediate aftermath of that incident, the staff of the NFA received information that Wasendorf may have falsified certain bank records.”
  • “Since at least February 2010, PFG and Wasendorf have failed to maintain adequate customer funds in segregated accounts and have misappropriated those customer funds for purposes other than intended by its customers.”

SEC v. Morgan Keegan: Misstatements by Brokers Concerning ARS Must Be Considered in Materiality Inquiry

May 19, 2012 By Jay Eng

The Eleventh Circuit Court of Appeals recently issued a decision in the SEC v. Morgan Keegan overturning the trial court in a civil enforcement action concerning auction rate securities.

The SEC’s lawyers alleged that Morgan Keegan’s brokers misrepresented that auction rate securities (“ARS”) were safe cash-equivalents with no liquidity risk and continued to recommend ARS as short-term, liquid investments despite numerous auction failures and significant trouble in the ARS market in late 2007 and early 2008.

The trial judge granted summary judgment in Morgan Keegan’s favor holding that the undisputed facts failed to show a “material” misrepresentation or omission, as required for liability under the Securities Exchange Act of 1934, the Securities Act of 1933, and Rule 10b-5. In particular, the trial court found that oral misrepresentations of four brokers were insufficient to establish material misstatements to the public.

In reversing the trial court, the Eleventh Circuit held that the “misstatement or omission by an individual broker to an individual investor” must be considered in the analysis of the “total mix” of information available to the hypothetical reasonable investor in a materiality inquiry. Accordingly, the SEC “may establish a securities violation with respect to each of those four investors irrespective of ‘an institutional effort to mislead’ customers and irrespective of whether any additional brokers attempted to mislead Morgan Keegan’s other customers.” Further, the Eleventh Circuit noted that “in securities cases, whether written disclosures should trump oral misrepresentations is highly fact-specific and therefore is not amenable to bright-line rules.”

Securities and Exchange Commission v. Morgan Keegan & Company, Inc., Case No. 09-cv-01965 (11th Cir. May 2, 2012).

Lawsuit Filed Against Imperial Finance Parent and Underwriters Regarding IPO

October 6, 2011 By Jay Eng

A lawsuit was reportedly filed against Imperial Holdings (NYSE: IFT), parent company of Imperial Finance & Trading, in Florida state court. The Company reported in a Form 8-K filing on October 4, 201 that:

“Although the Company has not yet been served with any complaint, the Company has learned that on September 29, 2011, a putative securities class action complaint was filed in the Circuit Court of the 15th Judicial Circuit in and for Palm Beach County, Florida entitled Martin J. Fuller v. Imperial Holdings, Inc., et al., against the  Company, its Chairman and Chief Executive Officer, President and Chief Operating Officer, its Chief Financial Officer and Chief Credit Officer, its Director of Finance and Accounting, the members of its Board of Directors who signed the Company’s registration statement, and the underwriters of the Company’s initial public offering alleging certain violations of the Securities Act of 1933, as amended.”

This securities act case ( No. 2011CA015075) is currently pending before Judge David French and names the Company, individuals and underwriters. See the docket sheet here.

DISTRICT JUDGE ENTERS JUDGMENT FOR BANKATLANTIC IN CLASS ACTION LAWSUIT

May 12, 2011 By Jay Eng

In 112 page Order entered on April 25, 2011, a United States District Court Judge for the Southern District of Florida reversed a jury verdict that awarded class member-Bank Atlantic shareholders $2.41 per share in damages based on alleged fraud. Among other things, the Court held that “there was insufficient evidence to support the Jury’s finding of loss causation [and] even had Plaintiffs made a sufficient showing of loss causation, they did not produce sufficient evidence to support an award of damages in any amount.”

According to a January 10, 2010, Riskmetrics Report, only eight securities class action cases have been tried to a verdict since 1996. Only seven additional securities class action cases have been tried since 1996 (but not to a verdict), where the conduct at issue was alleged to have occurred after the PSLRA was enacted.

SECURITIES CLASS ACTION SETTLEMENTS LOWEST IN 10 YEARS

April 24, 2011 By Jay Eng

According to Cornerstone Research, the number of securities class action settlements approved in 2010 under the Private Securities Litigation Reform Act was the lowest in more than ten years. The number of class action settlements approved in 2010 decreased by approximately 15% from 2009. According to the report, “slightly more than 40 percent of cases settled in 2010 were accompanied by a derivative action filing compared with more than 45 percent of cases in 2009.” Further, institutional investors served as lead plaintiffs in more than 67% of settlements.

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