Compliance September 28, 2009

Failed Bank Slammed with Eight Stock-Drop Actions

Colonial Bank, a now-defunct Alabama bank company, has been hit with eight stock-drop suits over losses suffered by its pension plan when the bank was seized by regulators, according to an Associated Press report.

Reported by

The news account said the federal court suits allege that founder Robert Lowder and other Colonial Bank officials improperly kept most of the plan’s assets in company stock causing the plan to lose $50 million when the bank collapsed. The company’s share value went from nearly $25 per share in 2007 to less than 10 cents after the bank was taken over by regulators this summer (see “Bank Hit with Stock-Drop Charges”).

“Many of them had their retirement savings disappear. Many of them had worked for Colonial for years and years,” Joe Whatley of Birmingham, one of the attorneys filing the lawsuits, told reporters.

The eight lawsuits name as defendants Lowder and other members of the board of directors, including former Auburn football coach Pat Dye and dog track magnate Milton McGregor. Attorneys for both sides have filed motions seeking to consolidate the eight lawsuits into one case.

Alabama banking regulators shut down the Montgomery-based Colonial BankGroup Inc. on August 14. The bank’s $20 billion in deposits and about $22 billion of its assets were sold to BB&T Corp. Colonial’s 346 branches in Alabama, Florida, Georgia, Nevada, and Texas reopened as offices of BB&T.

The lawsuits say the retirement savings plan continued to invest heavily in Colonial stock even as signs of trouble loomed and the stock price began dropping, according to the news account.

“The bank was financially mismanaged and it engaged in highly risky and inappropriate loan origination practices, creating dire financial circumstances that exposed the plan to risk of huge losses,” according to the lawsuits, which are all similar, the AP said.

Compliance September 28, 2009

SEC Charges Ponzi Schemer Who Preyed on Elderly

The Securities and Exchange Commission (SEC) charged Detroit-area stock broker Frank Bluestein with fraud, alleging that he lured elderly investors into a $250 million Ponzi scheme.

Reported by

In a complaint filed with the U.S. District Court for the Eastern District of Michigan, the SEC alleges that Bluestein convinced investors—specifically targeting retirees and the elderly—after convincing many of them to refinance their home mortgages. Bluestein acted as the single largest salesperson in the Ponzi scheme operated by Edward May and his company, E-M Management Company LLC (E-M), which the SEC charged in May.

The SEC said that, through his company Maximum Financial, Bluestein conducted so-called “investment seminars” in Michigan and California to lure investors into investing in E-M securities. Bluestein raised approximately $74 million from more than 800 investors over a five-year period.

The SEC said that Bluestein misrepresented to investors that the investments were low-risk and that he had conducted adequate due diligence of the investments; in fact, he did little to investigate the legitimacy of the E-M offerings even when confronted with serious red flags about the existence of some transactions. Bluestein also did not disclose that, in addition to $1.4 million in disclosed compensation, he received $2.4 million in commissions from May and E-M.

The SEC is seeking a permanent injunction against Bluestein, as well as repayment of the ill-gotten gains and financial penalties.

The latest enforcement action represents another unraveling of a Ponzi scheme amid the recession (see “Recession Foils Ponzi Schemers Game“). Fraudsters are known to target the elderly and retirees (see “FINRA Bars Brokers in Multimillion-Dollar Ponzi Schemes“).


For more stories like this, sign up for the PLANADVISERdash daily newsletter.

«