July 2022 - Law Offices of Robert Wayne Pearce

Jul 28, 2022

What is Insider Trading?

Using insider information to make investment decisions on the stock market is illegal and can lead to serious financial penalties. This type of investment fraud is commonly referred to as insider trading. In this article, we will cover the definition of insider trading, how it is detected and prosecuted when insider trading is illegal, and the potential penalties that a person may face if convicted. What is insider trading? Insider trading is the practice of trading a company’s stocks or other securities by an individual to one’s own advantage through having access to confidential or non-public information. Need Legal Help? Let’s talk. or, give us a ring at 561-338-0037. For example, if a company insider tells his or her friend about an upcoming merger that has not been made public, both the company insider and the friend could be held liable for insider trading if the friend buys the stock. IMPORTANT: The definition of an “insider” for insider trading purposes is far broader than most people realize. While it includes corporate officers and directors, it also covers employees at lower levels, friends and family members, and other persons who have access to nonpublic information. Who is an “insider”? An “insider” is anyone who is an officer, director, 10% stockholder or has access to inside information as a result of his or her relationship with the Company or an officer, director, or principal stockholder of the Company. According to SEC Rule 10b-5, the definition of an “insider” goes considerably beyond these key company personnel. In fact, this rule also covers ANY employee who has access to confidential information as part of his or her job duties. In addition, if ANY person outside of the company has received a “tip” from an “insider” about the material, nonpublic information, that person would also be considered an “insider” under this rule. Lastly, Rule 10b-5 also covers any family members or close friends of an “insider.” For example, if the CEO of a company tells his son about an upcoming merger, and the son then buys stock in the company before the merger is public knowledge, both the CEO and his son would be considered “insiders” under this rule. Who can be charged with insider trading? An individual is liable for insider trading when they have acted on privileged knowledge or confidential information that is not available to the general public to attempt to make a quick/easy profit. This may include using information about: Upcoming mergers or acquisitions; Unreleased financial reports; New product releases; Changes in company leadership; and any other information that could give an individual an unfair advantage in the marketplace. Identifying insider threats might be simple at times: CEOs, executives, and directors are immediately exposed to important information before it’s made public. However, lower-level employees may also have access to this type of information, which means that anyone from an entry-level analyst to a janitor could be susceptible to committing insider trading. Note: If you are under investigation or have been charged with insider trading, it is important to seek legal counsel immediately. An experienced SEC defense attorney can help you understand the charges against you and build a strong defense. How is insider trading detected? Both companies and regulators try to prevent insider trading to ensure the integrity of a fair marketplace. Despite what you may have read before, not all insider trading is illegal. Directors, workers, and management of a corporation may buy or sell the company’s stock with special knowledge as long as they notify the Securities and Exchange Commission (SEC) about those transactions; these trades are then made public. Unfortunately, not all insider trading is this transparent. Illegal insider trading happens when people use confidential information to make profits in the stock market. The SEC investigates and prosecutes these cases as they are a form of securities fraud. Here are a few of the ways that the SEC detects insider trading: Monitoring Trading Activity The government tracks stocks that are being bought and sold to look for patterns that may be indicative of insider trading. The SEC monitors trading activity, especially around the time when significant events happen, such as a major announcement or earnings release. This practice of surveillance can lead to the discovery of large, irregular trades around the time of these events. The SEC may then investigate the people behind those trades to see if they had access to nonpublic information. Complaints From The Public The SEC also relies on tips from the public to help detect insider trading. When the SEC receives a large number of complaints from investors who lose substantial sums of money around the same time, it can be an indication that insider trading has taken place. Since the insider trader has special knowledge, they can leverage investment tactics like options trading on the company’s stock to make a lot of money in a short period. When this occurs, it can lead to other investors losing money and filing complaints with the SEC. Whistleblowers The SEC’s Office of the Whistleblower was created in 2011 to reward people who come forward with information about securities law violations, including insider trading. The SEC gets tips from whistleblowers who come forward with information about potential violations. Whistleblowers can be current or former employees, lawyers, accountants, or anyone else with knowledge of insider trading. Whistleblowers have incentives to come forward, as they may be eligible for a portion of the money recovered by the SEC. The maximum award is 30% of the amount recovered, and it can be higher if the SEC takes action based on the information provided. Which regulatory agencies are involved in investigating insider trading? The SEC is the primary federal regulator that investigates and prosecutes cases of insider trading. The agency has a division, called the Division of Enforcement, which is responsible for bringing enforcement actions against individuals and companies who violate securities laws. The Department of Justice (DOJ) also plays a role in investigating and prosecuting insider trading cases. The DOJ can bring criminal charges against individuals...

Jul 21, 2022

How a Margin Call Works: Definition, Triggers, and How to Handle

Increased volatility in the market can sometimes bring about uncomfortable and surprising situations for investors, especially when it comes to margin calls. When you buy stock on a margin, you’re essentially borrowing money from your broker to finance the purchase. While this is a strategy that can amplify your gains if the stock price goes up, it can also lead to painful losses if the stock price falls and you’re forced to sell other assets or put more money into your account to meet the margin call. In this article you will learn everything there is to know about margin calls, including: what is a margin call; what triggers a margin call; what happens when you get a margin call; how long do you have to pay a margin call; what happens if you cannot pay the margin call; how you can avoid a margin call; and how to handle margin call liquidation. IMPORTANT: If you have suffered significant investment losses as a result of being forced to liquidate a margin account, you should speak to an experienced securities fraud attorney about your legal options. What is a margin call? A margin call is a demand from your broker that you must deposit more money or securities into your margin account to cover potential losses. This typically occurs when a margin account runs low on funds, usually due to heavy losses in investments. Need Legal Help? Let’s talk. or, give us a ring at 561-338-0037. In most, but not all cases, your broker will notify you of a margin call and give you a set amount of time to deposit more funds or securities into your account. You typically will have two to five days to respond to a margin call. Timeframes for responding to a call may vary depending on your broker and the circumstances. Regardless of the time frame, it is important that you take action as soon as possible. IMPORTANT: If you aren’t able to meet the margin call fast enough or don’t have any extra funds to deposit, your broker may also force you to sell some of your securities at a loss in order to free up cash. This is known as forced liquidation. In fact, many margin account agreements allow brokerage firms to liquidate your portfolio at their discretion without notice. What triggers a margin call? There are several things that can trigger a margin call, but the most common is when the value of securities in your account falls below a certain level set by your broker (house maintenance margin requirement) or securities exchange where securities are traded (exchange margin requirement). Need Legal Help? Let’s talk. or, give us a ring at 561-338-0037. When this occurs, your broker will issue a margin call in order to protect themselves from losses and to ensure that your account has enough funds to cover potential losses. You’re then required to deposit additional funds or securities into your account to meet the call to bring your account back to the maintenance margin level. If you don’t make a deposit, your broker may sell some of your securities at a loss to cover the shortfall. Margin calls can occur at any time, but tend to occur during periods when there is high volatility in the markets. What happens when you get a margin call? A margin call is most often issued these days electronically, through your broker’s online platform. You can also receive an email or other notification from your broker informing you of the margin call and how much money you need to deposit by a certain time. What happens next depends on your broker and the situation. If your broker is not worried about the situation, they may give you some time to raise the extra funds to deposit into your account. If they are worried, they may demand that you meet the call immediately or they may even sell some of your securities to cover the shortfall if you don’t have the extra cash on hand without notice. Yes, a broker can sell your securities without your permission if you don’t have enough money in your account to meet a margin call. All of this depends upon the contract you signed when you opened your account which outlines the broker’s rights in these situations. It’s important to remember that your broker will most likely be interested in protecting their own financial interests rather than yours, so you should make sure that you understand your rights and obligations before entering into a margin agreement. Because they are not always required to give you time to meet a margin call, unless they are under contractual agreement to do so, they may not notify you before liquidating assets in your account to pay off any margin debt. If this happens, your investment portfolio may suffer significant losses. Unfortunately, even if you are in a position to meet the call, you may not be able to get your securities back if they have already been sold by your broker. When you opened up your margin account, you likely signed an agreement that gave your broker the right to sell your securities without notifying you first. This is why it’s important to understand the terms of your margin agreement before signing it. You should also be aware of the risks involved in trading on margin. MPORTANT: If your broker decides to sell your highly appreciated securities, you can be left with large deferred-tax liabilities as well as major capital gain tax expenses that must be paid in the relevant tax year. In addition, brokers can sell your securities within the margin account at an undervalued price, leaving you with even more investment losses. How long do you have to pay a margin call? The time frame for responding to a margin call can vary depending on your broker and the circumstances. Typically, brokers will allow from two to five days to meet the call. You will need to review your...

Jul 21, 2022

Can a Broker Sell My Stocks Without My Permission?

You looked into your investment account and discovered that a number of your shares had been sold without your permission. You didn’t give the go-ahead, so you’re understandably confused, frustrated, and angry. What do you do now? First, you need to determine who sold your stocks. If it was your broker, you may be finding yourself asking whether or not your broker can sell stocks without your permission. Can my broker sell my stocks without permission? Your broker cannot sell stocks without your permission, unless you have given written authorization to do so. This is called unauthorized trading and not permitted under securities industry rules. Need Legal Help? Let’s talk. or, give us a ring at 561-338-0037. However, while the appropriate authorization must always be obtained, a broker does not necessarily need to obtain express permission for every transaction. In this article we will review the two circumstances in which a broker may sell securities without prior notice to or consent from the client. Note: If you believe you have suffered losses on your investment as a result of unauthorized trading, you should speak to a stockbroker fraud attorney about your legal rights. Is Your Investment Account a Discretionary Account? The first instance when a broker may sell stocks without your permission is if they are trading in a discretionary account. A discretionary account is one in which the broker has the authority to make investment decisions on behalf of the client, without prior approval from the client. If you are unsure whether or not you have a discretionary account, you learn about the difference between a non-discretionary and discretionary account here. In order for a broker to sell stocks in a discretionary account, they must have what is called “discretion.” This means that the broker must have reasonable grounds to believe that the sale is in the best interests of the client. The key word in this definition is “reasonable.” This means that a broker cannot simply sell stocks without your permission because they feel like it. There must be a reason for the sale, such as an expectation of a market decline or other adverse event that could impact the value of the security. If you do not agree with a decision made by your broker in a discretionary account, you have the right to object and have the decision reviewed by a supervisor. Is There a Margin Call on Your Account? The second instance when a broker may sell stocks without your permission is in response to a margin call. A margin call is when the broker demands that the client deposit additional funds or securities to cover the cost of the stock purchased on margin. Technically, you probably gave him permission when you opened your margin account. If you do not meet the margin call, the broker has the right to sell the securities to cover the margin debt. This is done in order to protect the interests of the broker and the securities lending institution. Trading on a margin account is a risky investment and can result in substantial losses. For this reason, it is important to understand the risks before opening a margin account. You can learn more about margin trading on FINRA’s website. Get a Second Opinion: Contact a Stockbroker Fraud Lawyer Today If you have discovered that your broker sold stocks without your permission, you may be feeling overwhelmed and confused. You may be wondering what your legal rights are and whether or not you can take action. The best way to determine your legal rights and options is to speak with a stockbroker fraud lawyer. The Law Offices of Robert Wayne Pearce, P.A. specializes in representing investors who have suffered losses as a result of investment fraud. We offer free, no-obligation consultations so you can learn more about your legal rights and options. Call us today at (800) 732-2889 to speak with an stockbroker fraud lawyer.

Jul 19, 2022

J.P. Morgan Sued For Edward Turley’s Alleged Misconduct: $55 Million!

The Law Offices of Robert Wayne Pearce has filed another case against J.P. Morgan Securities for alleged misrepresentations, misleading statements, unsuitable recommendations, and mismanagement of Claimants’ accounts continuing in fall 2019 and thereafter by Edward Turley (“Turley”), a former “Vice-Chairman” of J.P. Morgan. At the outset, it is important for our readers to know that our clients’ allegations have not yet been proven. IMPORTANT: We are providing information about our clients’ allegations and seeking information from other investors who did business with J.P. Morgan and Mr. Turley and had similar investments, a similar investment strategy, and a similar bad experience to help us win our clients’ case. Please contact us online via our contact form or by giving us a ring at (800) 732-2889. Turley Allegedly Misrepresented And Misled Claimants About His Investment Strategy The claims arise out of Turley’s “one-size-fits-all” fixed income credit spread investment strategy involving high-yield “junk” bonds, preferred stocks, exchange traded funds (“ETFs”), master limited partnerships (“MLPs”), and foreign bonds. Instead of purchasing those securities in ordinary margin accounts, Turley executed foreign currency transactions to raise capital and leverage clients’ accounts to earn undisclosed commissions. Turley over-leveraged and over-concentrated his best and biggest clients’ accounts, including Claimants’ accounts, in junk bonds, preferred stocks, and MLPs in the financial and energy sectors, which are notoriously illiquid and subject to sharp price declines when the financial markets become stressed as they did in March 2020. In the beginning and throughout the investment advisory relationship, Turley described his investment strategy to Claimants as one which would generate “equity returns with very low bond-type risk.” Turley and his partners also described the strategy to clients and prospects as one “which provided equity-like returns without equity-like risk.” J.P. Morgan supervisors even documented Turley’s description of the strategy as “creating portfolio with similar returns, but less volatility than an all-equity portfolio.” Note: It appears that no J.P. Morgan supervisor ever checked to see if the representations were true and if anybody did, they would have known Turley was lying and have directly participated in the scheme. The Claimants’ representative was also told Turley used leverage derived from selling foreign currencies, Yen and Euros, to get the “equity-like” returns he promised. Turley also told the investor not to be concerned because he “carefully” added leverage to enhance returns. According to Turley, the securities of the companies he invested in for clients “did not move up or down like the stock market,” so there was no need to worry about him using leverage in Claimants’ accounts and their cash would be available whenever it was needed. The Claimants’ representative was not the only client who heard this from Turley; that is, he did not own volatile stocks and not to worry about leverage. Turley did not discuss the amount of leverage he used in clients’ accounts, which ranged from 1:1 to 3:1, nor did Turley discuss the risks currency transactions added to the portfolio, margin calls or forced liquidations as a result of his investment strategy. After all, Turley knew he could get away without disclosing those risks. This was because J.P. Morgan suppressed any margin calls being sent to Turley’s clients and he liquidated securities on his own to meet those margin calls without alarming clients. This “one-size-fits-all” strategy was a recipe for disaster. J.P. Morgan and Turley have both admitted that Turley’s investment strategy was not suitable for any investor whose liquid net worth was fully invested in the strategy. It was especially unsuitable for those customers like Claimants who had other plans for the funds in their J.P. Morgan accounts in fall 2019 and spring 2020. Unfortunately, Turley recommended and managed the “one-size-fits-all” strategy for his best clients and friends, including Claimants. Turley was Claimants’ investment advisor and portfolio manager and required under the law to serve them as a “fiduciary.” He breached his “fiduciary” duties in making misrepresentations, misleading statements, unsuitable recommendations, and mismanagement of Claimants’ accounts. The most egregious breach was his failure to take any action to protect his clients at the end of February 2020, when J.P. Morgan raised the red flags about COVID-19 and recommended defensive action be taken in clients’ accounts. Turley Allegedly Managed Claimants’ Accounts Without Written Discretionary Authority Claimants’ representative hired Turley to manage his “dry powder,” the cash in Claimants’ accounts at J.P. Morgan, which he would need on short notice when business opportunities arose. At one point, Claimants had over $100 million on deposit with J.P. Morgan. It was not unusual for Claimants to deposit millions and make multi-million-dollar withdrawals of funds for different acquisitions and projects. Turley would then select the securities to buy with the cash deposited that suited his “one-size-fits-all” strategy. He would also decide whether to sell securities and/or increase the leverage in the accounts to meet Claimants need for cash from the accounts. Turley regularly made multi-million-dollar purchases and sales in Claimants’ accounts without a word being spoken with his clients. Although Turley called and texted often, the communications with his clients were almost always about anything other than getting permission to buy or sell any securities in Claimants’ accounts. Turley’s reports about account activity were generally limited to the “Big Number;” that is, reporting the net equity in the accounts and whether it had gone up or down. Turley rarely consulted with Claimants’ representative about any transaction in Claimants’ accounts before they occurred. Turley exercised his discretion even though Claimants never executed any documents giving him written discretionary authority over Claimants’ accounts. There was not enough time in the day to speak with every client and do the volume of transactions on an individual basis, so Turley exercised discretion and entered large block orders in the same securities for many of his clients at the same time to generate millions in commissions and fees each year. Note: Claimants did not think this was unusual because they hired Turley to manage their accounts, just as they hired others to manage other businesses. However, Turley knew better...