Securities Archive
Insecurities: Securities Fraud Roundup 3.30.11
March 30th, 2011. By LucyC
Top Securities Fraud Stories…
This week’s catch phrase—”False and Misleading Statements”…In our last edition of Insecurities, the recurring theme was ‘failure to disclose’—which led us to the Madoff Meter. Well, seems the idea of Bernie kind of stuck. So he’s back…
Though he never did really leave did he? Case in point, his yacht (or the ability to sell it in order to drum up some quid to help those who’d invested with him) was in today’s news—as well as the fact that three former Madoff employees lost their bid to have criminal charges dropped against them. The grounds for their request? That the charges should be dropped because the government had frozen their assets—assets they need to pay their lawyers. It didn’t fly with U.S. District Judge Laura Taylor Swain, who rejected the bid.
Enough about Bernie (or, more about him later)—starting off this edition of Insecurities is Elan Corporation…
Company: Elan Corporation
Ticker: ELN
Class Period: Jul-2-09 to Aug-5-09
Date Filed: Mar-1-11
Court: Southern District of New York
Madoff Meter: 
The Allegations:
What’s that crashing sound I hear? Elan got hit with a securities class action lawsuit earlier this month over allegations that it and certain of its officers and directors made false and misleading statements regarding the July 2, 2009 sale of the Company’s rights to its Alzheimer Immunotherapy Program (“AIP”) to Johnson & Johnson (“JNJ”).
The allegations stem from Elan’s failure to disclose that a provision in their definitive agreement with JNJ would violate the terms of an existing agreement between the Company and Biogen Idec Inc. (“Biogen”) related to their joint development and sale of multiple sclerosis drug Tysabri. Hey—maybe they just forgot about their deal with Biogen.
As a result of the violation, Elan was forced to renegotiate the terms of its sale of AIP, whereby JNJ paid $115 million less to Elan than previously agreed. Ouch.
Predictably, once Elan issued its press release disclosing the breach of their agreement with Biogen to the public, share prices of Elan common stock fell about 11%, according to the lawsuit, on abnormally high trading volume. That would make a difference to retirement funds, no doubt.
Next up: China Integrated Energy…
Company: China Integrated Energy, Inc.
Ticker: CBEH
Class Period: Mar-30-10 to Mar-16-11
Date Filed: Mar-26-11
Lead Plaintiff Deadline: May-25-11
Court: Central District of California
The Allegations:
Determining fact from fiction. This one involves China Integrated Energy—and allegations that it also issued materially false and misleading statements to investors, because it concealed related-party transactions.
The alleged facts—that the transactions between the Company and its officers and directors had the effect of funneling cash to these officers and directors. The alleged fiction—that the company’s Chinese SAIC filings misrepresented its financial performance, business prospects, and financial condition to investors.
So, the only people making the kind of money advertised were CBEH’s officers and directors. Not the investors. The alleged violations were uncovered in a report by Sinclair Upton, most of which CBEH denied. However, they did ‘fess up to having engaged in an undisclosed related party transaction with the CEO’s 22 year old son? Where’s Bernie? This could be a 3 or 4 on the Madoff meter…
On to Finisar Corporation…
Company: Finisar Corporation
Ticker: FNSR
Class Period: Dec-2-10 to Mar-8-11
Date Filed: Mar-15-11
Lead Plaintiff Deadline: May-14-11
Court: Northern District of California
Madoff Meter:
The Allegations:
Was Finisar doing a little too much networking maybe? It’s also accused of issuing false and misleading statements resulting in investor losses.
Finisar provides optical subsystems and components that connect short-distance local area networks, storage area networks, longer distance metropolitan area networks, fiber-to-the-home networks, cable television networks and wide area networks. A growth industry one would figure—especially in emerging markets.
The complaint alleges that the company failed to disclose that its recent revenue growth was due to an oversupply of inventory in the market and that the Company would be unable to sustain its strong growth due to increased pricing pressures and a slowdown in business from China. As a result of defendants’ false statements, Finisar’s stock traded at artificially inflated prices during the Class Period, reaching a high of $43.23 per share on February 14, 2011.
Then, on March 8, 2011, after the market closed, Finisar issued a press release announcing its third quarter fiscal year 2011 results—reporting earnings of $18.8 million, or $0.22 diluted earnings per share, and revenue of $263.0 million. The Company further reported its fourth quarter 2011 revenues would be in the range of $235 to $250 million, lower than analysts’ estimates. On this news, Finisar’s stock fell $15.43 per share to close at $24.61 per share on March 9, 2011, a one-day decline of nearly 39%—it went straight through the floor and kept on going…
Top Securities Settlements…
Countrywide Financial
Madoff Meter:
A couple of settlements registering on our Madoff meter this month. I’d give this first one a 5. It Read the rest of this entry »
Insecurities: Securities Fraud Roundup 2.23.11
February 23rd, 2011. By LucyC
Top Securities Fraud Stories
Tired of losing money? WFC (NYSE)—also known as Wells Fargo—was known as Wachovia—is being sued. Hard to believe, I know—especially in these times. But it seems that a retired woman in Florida has had enough of losing money with her IRA investments, and figures the odds of actually recovering her money—never mind making any—are better with seeking a Wells Fargo class action lawsuit. So she’s filed a claim.
The back story: The plaintiff gave her Wachovia broker a ‘second chance” (why?) to “do a better job” (read ‘make money not lose it’) with her IRA investments—but apparently, that didn’t work out so well.
In fact, the securities fraud case claims that WFC “breached its duty to make suitable recommendations; mis-marked her investment objective and risk tolerance; and engaged in short term trading and speculating on Latin America and China mutual funds, and on ‘ultra bull’ leveraged exchange traded funds.” That doesn’t exactly read like the manifesto for conservative value investing.
The WFC broker also stands accused of “excessive trading”: the claim contends that the broker “generated an annual turnover rate of more than 17 times the average monthly equity in Claimant’s IRA.”
And “Wells Fargo “needed an accurate customer profile to make suitable recommendations in Claimants IRA—including her investment objectives and risk tolerance, time frame, withdrawals, annual income, net worth, investment experience and her employment. Instead, the broker’s key forms included both contradictory and untrue information about Claimant,” the claim alleges.
And then there’s a raft of securities fraud class actions stemming from unbridled optimism—also known as concealing the facts or ‘failure to disclose’…
Failure to Disclose Club
Where members vie for position on the Madoff meter.
Company: Bank of America Corporation (BofA)
Ticker: BAC
Class Period: Jan-20-10 to Oct-19-10
Court: Southern District of New York
Madoff Meter Rank: 
Let’s start with BofA (BAC:NYSE), the largest bank in the US. Just how many class actions have they faced in the past 12 months? This latest was filed by an institutional investor on behalf of purchasers of BofA common stock during the period between January 20, 2010 and October Read the rest of this entry »
6 Tips to Avoid a Ponzi Scheme
February 3rd, 2011. By Kristine B
They are two words that no investor wants to hear: Ponzi scheme. As in, your money was invested in a Ponzi scheme. People whose money winds up in a Ponzi scheme often have a lot of difficulty getting their money back, especially if they were among the last to invest. There are ways to watch for Ponzi schemes and avoid them. These tips won’t guarantee that you’ll never invest in a Ponzi scheme, but they’ll at least help to reduce the likelihood of it happening.
What is a Ponzi Scheme?
A Ponzi scheme is an investment scheme in which money from new investors is used to pay out previous (or existing) investors. So, when I invest in the scheme (unknowingly, of course), my money is used to pay the would be “ROI” (return on investment) to the people already invested in the scheme. So, in other words, very little real investing occurs. The Ponzi scheme collapses when one of three things happens: there are not enough new investors to pay out previous investors; when large numbers of previous investors demand to be paid out; or when someone becomes suspicious about where the money is coming from. In recent times, the Bernie Madoff Ponzi scheme made headlines—and Carr Miller is now facing allegations of a Ponzi scheme as well.
The Downside of Ponzi Schemes
Because the money isn’t really invested as it’s purported to be, the scheme requires new investors to keep it going. But those new investors, if no one else invests after them, won’t get their money back. Their money has either gone to previous investors or has gone to fund a lavish lifestyle on the part of the person in charge of the scheme. Nice, huh? All your hard-earned money just bought some guy a fancy car and a trip to a luxury resort, while you thought it was sitting in honest investments.
Even previous investors who were paid out might not be safe. Why? Because the money they were given was illegally gained. So they might have to give some or all of it back to a trustee who then determines how to split up whatever money remains—if any does.
How to Avoid Ponzi Schemes
1) Don’t invest with someone just because your friends/colleagues/associates do.
There’s no guarantee that they’ve done their homework about an investment. Furthermore, if Read the rest of this entry »
Office Faux Pas: Greg Invested in Carr-Miller, now what?
January 24th, 2011. By AbiK
It’s the end of a long day at the office and Greg has just been made aware that word of his investment in the alleged Carr-Miller Ponzi scheme is spreading through the office like wildfire…
Carr Miller: 7 Should’ve Seen it Coming Signs (Brian Austin Green included)
January 5th, 2011. By AbiK
- Carr Miller lives here
Hindsight is 20-20, that’s for sure. And while the Carr Miller Ponzi scheme charges are currently in “alleged” mode, I couldn’t help but do some surfing around—just who the hell is Carr Miller Capital? After all, I grew up in NJ (“Joisey”—ok, I said it) so shouldn’t I know something about them—like, did I go to school with anyone there? Things of this sort get me reaching for my mouse—so I did, and a few clicks later I had some interesting Carr Miller dish…dish that perhaps turns up some should’ve-seen-it-coming signs about falling in love with Carr Miller…
Should’ve Seen it Coming Sign #1: Arrogance.
Did I say Carr Miller was based in NJ? Why yes, I did. Funny though, all the “official” info about Carr Miller Capital refers to them as being “headquartered in the Philadelphia metropolitan area”. What? Joisey not good enough for you? You’re in Marlton, NJ folks. And last time I was in the area—ok, I was in Cherry Hill—Marlton was east of both I-95 and 295 and no, I couldn’t even see the Philly skyline if I tried (Marlton’s about a half hour out of Philly). Regardless, I guess Marlton or NJ didn’t have enough cache for CMC…just like those NY Giants…
Should’ve Seen it Coming Sign #2: Investment company doubles as film production company.
Carr Miller’s in multiple verticals. And how! Their website homepage mentions “…CarrMiller is providing innovative solutions from financial expertise to multimedia entertainment”. Who knew? And they don’t just mean that they invest in such—they OPERATE such businesses. Case in point: Carr Miller Entertainment. Haven’t heard of ‘em? You’ve heard of Brian Austin Green, right? Oh—maybe you haven’t since his Beverly Hills 90210 days. His latest—aside from being Mr. Megan Fox—is a movie, “Cross”—and it’s one of Carr Miller Entertainment’s projects. Last I checked, my financial investment team was only in one major vertical: wealth management—mine. Pixar, Carr Miller is not.
Should’ve Seen it Coming Sign #3: Investment company takes keen interest in nightclub.
Carr Miller loves the nightlife. Yep, they apparently like to boogie—or so it would seem. As if film production with “emerging talent” weren’t enough of a sideline, Octo Waterfront Grille in Philadelphia is “A Holding of Carr Miller”. With 13,000 square feet of fun alongside the majestic Delaware River, it may well be a watering hole of choice for those who’ve just found out they’ve been charged with orchestrating a Ponzi scheme.
Should’ve Seen it Coming Sign #4: Head of Investment company has day job as Big Oil exec.
Movies? Nightclub? How ’bout Oil? Not of the olive or suntan type—no, we’re talking big oil here. Yes, Carr Miller had pumped a fair amount of funding into Indigo-Energy. In fact, back in 2008, Indigo’s CEO, Steve Durdin was quoted as saying, “This package with CMC represents a realistic approach with real funding to be strategically implemented for maximum productivity. Indigo can now really begin to move forward.” Of course, here we are about two years later to the day and Indigo’s SEC Form 8-K reveals a complete 180 of things:
In addition, on December 18, 2010, Everett Miller resigned from the Company. The voluntary resignations came in the wake of a civil complaint filed by the State of New Jersey against Everett Miller and his company Carr Miller Capital Corporation and others alleging violation of the securities laws and other violations. See Item 8.01 of this 8-K. Item 8.01 Other Events On December 17, 2010, the Company was named as a nominal defendant in a civil complaint filed by the New Jersey Attorney General against Everett Miller, Carr Miller Capital and certain other individuals and companies. The Company is named because of Carr Miller Capital’s investment in the Company. There has been no allegation of wrongdoing on the Company’s part but the complaint does state that the Company was unjustly enriched by the actions of Carr Miller Capital. The Company had no knowledge of any wrongdoing alleged to have been committed by Carr Miller Capital and the company is cooperating fully to assist the Attorney General’s office in its court action.
Now, lest you think that this was merely an investment opportunity for Carr Miller, Everett Miller was also Chief Operating Officer over at Indigo. Sounds a bit more “hands on” than just signing a few checks. I might also add, as it’s a favorite topic of mine, Indigo’s one of those companies engaged in hydraulic fracturing—but that’s another story.
Should’ve Seen it Coming Sign #5: Investment company achieves high “D” marks (high five’s all around!)
The BBB weighs in on Carr Miller… A little checkeroo over at the BBB shows Carr Miller Capital achieving a D+ rating. Hey—it is at the high end of the D scale. To be fair, the score could’ve come in post-Ponzi allegations. But still, Carr Miller is not a BBB Accredited Business. (Btw, in case you’re wondering, LawyersAndSettlements.com is, with an A+ rating.) Also, to be fair, there were only two complaints noted against CMC at the BBB—both apparently contract issues; one was resolved, the other not.
Should’ve Seen it Coming Sign #6: Investment broker cum real estate brokerage has prayer in hell of earning real estate’s coveted “Circle of Excellence” award.
And there’s another vertical—real estate! Yes, but of course—Carr Miller, well, I’ll let them say it for themselves (from their website): “CarrMiller Real Estate incorporates proven, professional techniques specializing in the marketing, listing and selling of real estate.CarrMiller Real Estate maintains a staff of well-trained real estate professionals who continually strive to provide top quality service for their individual clients and customers.” Phew—that’s a mouthful! And surely you’d think of ringing up Carr Miller should you want to sell your home. So I did! But then I saw there’s only one listing on their real estate website—a rental in Myrtle Beach. They’re maintaining a staff for one listing?
Should’ve Seen it Coming Sign #7: Mention of company + “scam” in same sentence, or as popular google search term.
Carr Miller whispers…Want to check the pulse on something? Hit a message board. No, you can’t take it as fact, but you’ll definitely get some opinion. Like this one, from 2009 over at scam.com: “I am having second thoughts about investing with Carr Miller Investments. In my opinion, I think they are a SCAM company that will take your investment and then file bankruptcy in a couple of years after taking your money.” Uh, well, not exactly but not exactly far off either.
Ahh…should’ve, could’ve, would’ve. It’s all hindsight now, and Carr Miller investors will have to wait for things to play out in court. In the meantime, maybe I’ll go over and become a fan of Carr Miller Capital LLC on Facebook—they have no “likes” so I’d be their first! Or maybe I’ll follow them on LinkedIn where they only have 4 followers (not even Everett Miller, 1 connection, is following). Gee, maybe Facebook and LinkedIn are Should’ve-Seen-it-Coming Signs #8 & #9?
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