The Zamansky & Associates blog has moved!

You should be automatically redirected. If not, visit
http://www.zamansky.com/blog.html
and update your bookmarks.

Friday, June 24, 2005

The Feds Get Tough with Corporate Criminals

The federal prosecutors need to be commended for their excellent work in putting corporate criminals behind bars.

The U.S. Attorneys obtained convictions for investment fraud against Bernie Ebbers (WorldCom), the Rigas boys (Adelphia), and Martha Stewart and Frank Quattrone for obstruction of justice and lying to investigators.

Even New York District Attorney Robert Morgenthau joined the successful prosecutors by getting convictions for securities fraud against Kozlowski and Swartz in the Tyco trial. Each of these criminals will be serving lengthy jail sentences. Hopefully, Corporate America and Wall Street are getting the message - if you do the crime you will serve the time.

Unfortunately, Eliot Spitzer who seems to be leading the charge against Wall Street has not been able to rack up any victories. He made a mistake in going after Ted Siphol, a small fish, and letting the big fish get away by buying their freedom. Spitzer should now take a play out of the federal prosecutors playbook and carefully prepare securities fraud cases against those most responsible. Even Dennis Koslowski on the witness stand admitted "the buck stops with me." Prosecutors need to get the top crooks and not concentrate on lower level managers.

Tuesday, June 14, 2005

Spitzer Loses the Siphol Case

Last week, in Eliot Spitzer's first showdown against Wall Street fraud, the jury dealt Spitzer a severe blow by finding Ted Siphol not guilty of grand larceny for allegedly helping a hedge fund make illegal "late trades" after the closing bell (4 pm).

I sat through some of the trial and carefully observed the jury's demeanor and body language. Here are my criticisms of Spitzer's case.

First, the prosecutors tried an overly complex and boring case to ordinary jurors and never really explained why trading after 4 pm was illegal. Prosecutors should have honed the theme that Wall Street "insiders" have special privileges such as late day trading which ordinary investors don't enjoy.

Second, Spitzer picked the wrong case to try. He allowed the "big shots" at Canary Capital hedge fund to pay $40 million to avoid prosecution while going after the "small fish" Ted Siphol who was simply a low level broker carrying out orders. I believe that going after the small fish rather than the big shots who bought their freedom may have alienated the jurors.

Lastly, Spitzer should work harder and prepare his cases better by choosing to try the right case in Court - through clear and convincing evidence - rather than trying cases in the Press.

While the case is a big blow to Eliot Spitzer's reputation it is also a blow to ordinary investors. The acquittal lessened pressure on Wall Street to do the right thing believing that they now may have a vulnerable Spitzer as an opponent. Spitzer's motives in bringing cases will also be challenged from here on in as to whether the cases are designed to promote his candidacy for Governor or whether he really believes in stopping Wall Street fraud and corruption.

Thursday, June 09, 2005

Investment Advisor Todd Eberhard Receives Stiff Jail Sentence - No Restitution to Investors

On June 7, 2005, I appeared before Federal Judge Robert Sweet with my two clients who were victimized by Todd Eberhard, their Investment Advisor. Eberhard literally stole money out of their account (forging their signatures on wire transfers and checks) and churned mutual funds in their accounts to generate huge commissions for himself. My client Robert Pellegrini was fleeced of almost $10 million and Debra Loeffler lost $2.6 million.

The Judge sentenced Eberhard to 13 years 4 months in a Federal prison for his crimes. This is a very stiff sentence for a "white collar" criminal. I argued to the Judge that Eberhard was no different than an armed robber except that he wore a suit and tie when he stole the money.

Unfortunately, despite the stiff sentence, my clients have received very little in the way of restitution for their losses. The Securities Investor Protection Corporation (SIPC) has only returned a small fraction of their losses under the SIPC program. Apparently, Eberhard spent or hid his money and there is very little for the defrauded investors to recover.

I am pursuing securities arbitration claims against Eberhard's "clearing brokers" Paine Webber and Pershing who we will prove knew or should have known of Eberhard's fraudulent activities and were in a position to stop them. We will seek to hold the clearing brokers accountable for all of the investors' losses.

This case highlights the absence of sound regulation of clearing brokers and the minimal investor protection from SIPC.

Thursday, June 02, 2005

Memo to the New SEC Chairman - Protect Investors

As a representative of ordinary investors, I believe it is important for the new SEC Chairman Congressman Christopher Cox to remember that the SEC's mission is to protect investors and not the interest of big Wall Street firms.

William Donaldson, the SEC Chairman who just resigned, had at best a mild record of supporting investor reforms. He made certain incremental changes in the conflicts of interest between research analysts and investment banks, and promoted regulation of hedge funds to protect very wealthy investors. Unfortunately, Mr. Donaldson did very little if anything to protect the millions of ordinary investors around the Country who work hard, play by the rules and save for their retirement and life savings.

The mission of the SEC is first and foremost to protect investors. A priority for the Chairman should be to promote investor restitution resulting from Wall Street and corporate fraud. Despite all of the fraud and the $1.4 billion Wall Street Global Settlement by the SEC and New York Attorney General Spitzer, only $400 million has been earmarked for restitution to ordinary investors. This paltry sum has not even been distributed and will amount to a mere token payment to the victims of the fraud.

The new Chairman also needs to promote a serious investor education program so that investors are aware of fraudulent conduct by their brokers and need to be aware of the type of investments they make. The investor restitution program from the Global Settlement set aside $55 million for the program. All of the directors of the program have resigned and the investor education program is a real disaster. This needs to also be a priority for the new Chairman.

Lastly, Chairman Cox needs to improve the Securities Arbitration system which ordinary investors are relegated to for fighting disputes with their brokerage firms. It is well documented that securities arbitration as now constituted is an anti-investor forum. The arbitration system needs to be improved to level the playing field so that investors get a fair shake in arbitration.

In the coming weeks, I will make additional specific proposals to Chairman Cox on behalf of ordinary investors.