Roundup: A Quick Survey of Key Stories and Events on Wall Street and in the Broader Financial World

Pershing Square Capital’s Herbalife Bet Draws Intense Media Scrutiny and Herbalife Is Now Under Investigation

The New York Times published a deep-dive exploration of hedge-fund titan William Ackman’s big bet against nutritional supplement and vitamin marketer Herbalife. The piece delves into the multi-pronged strategy Ackman’s Pershing Square Capital has employed to spur regulatory scrutiny of the company’s business practices. The campaign to shine a light on the company seems to be gaining momentum, as the FTC has opened an investigation.

Whatever the outcome, the stakes are huge it is worth watching the controversial and sometimes messy interplay of Wall Street, Congress, federal and state regulators and civil rights groups.

FINRA Allows Brokers to Hide Key Parts of their Professional Histories

A major study by the Public Investors Arbitration Bar Association (PIABA) has revealed that brokers and brokerage firms are able to shield from public view the truth about crucial aspects of their personal and professional histories. A link to the press release announcing the study and to the study itself is here.

This is an absurd situation. Countless investors rely on FINRA’s BrokerCheck to help inform their decisions to hire, retain or fire a broker. Those investors rightly expect that FINRA, the sole regulator in charge of all the brokers in the U.S., will provide full, accurate information about those brokers. This study shatters investors’ expectations and breaks any trust that may have existed between investors and the regulator that is supposed to be protecting them. FINRA needs to fix this—and fast.

Jefferies to Pay $25 Million to SEC for Fraudulent Sales of Mortgage-Backed Securities

Just a week after a federal jury found Jefferies trader Jesse Litvak guilty of defrauding investors in connection with the firm’s sales of mortgage-backed securities to investors, the firm has agreed to pay $25 million in recognition of its failure to supervise its MBS traders.

The takeaways: (1) When in doubt, disclose; and (2) build a compliance and supervisory system that heads off these types of problems before they take a huge bite out of the bottom line.

Fabulous Fab Fined $825,000 for Defrauding Investors

A federal judge in Manhattan has ordered Fabrice “Fabulous Fab” Tourre to pay $825,000 in fines for defrauding investors in a mortgage deal that blew up during the global financial crisis. The former Goldman trader was found liable for his role in the deal gone bad, and his colorful emails became the stuff of courtroom legend.

The takeaways: (1) emails are forever; and (2) financial firms need to communicate to their traders that disclosure and strong ethics are the cornerstones of good business, and no bonus is worth stepping over the line between truth and falsity.

If you have suffered losses as a result of a broker’s fraud or other misconduct, or if you are working to instill a culture of compliance and ethical conduct at your financial services firm, please contact The Galbraith Law Firm at 212.203.1249 or email a securities fraud attorney at kevin@galbraithlawfirm.com for a free confidential consultation.