Mar 19, 2018 | Consumer Protection, Employment & Technology Archive
Utah-Based Operation Settles FTC Charges – Defendants Barred from Violating the Telemarketing Sales Rule & Calling Numbers on the National Do Not Call Registry
The Federal Trade Commission announced that three Utah-based firms and their owner, which a federal court jury in 2016 found deceptively and illegally called more than 117 million consumers pitching their movies, have agreed to a proposed court order settling the Federal Trade Commission’s charges against them. The U.S. Department of Justice secured the defendants’ agreement to the proposed order imposing civil penalties and prohibiting telemarketing abuses and filed it with the court on the behalf of the FTC.
2016 Jury Verdict Covered Six Different Telemarketing Sales Rule Violations
The 2016 jury verdict covered six different Telemarketing Sales Rule (TSR) violations, including violations of the FTC’s regulations requiring telemarketers to use caller identification names that tell consumers what seller is calling and restrictions on telemarketers making calls to consumers without connecting the call to a sales representative within two seconds of the consumer’s greeting.
Defendants Barred From Illegally Calling Do Not Call Registry Phone Numbers
The proposed court order announced today bars the defendants from the misconduct alleged in the complaint, including illegally calling phone numbers on the Do Not Call Registry, and imposes a $45.5 million civil penalty judgment, of which all but $487,735 is conditionally suspended. The suspended portion of the penalty amount will become due if the court later finds that defendants misrepresented their financial condition.
Case History of the TSR and FTC Act Violations
According to a 2011 complaint filed by the Department of Justice on behalf of the FTC, Forrest S. Baker III and three Utah firms that he controls violated the TSR and the FTC Act multiple times and deceived customers they called about where the proceeds from their movie purchases would go. The three firms named with Forrest S. Baker III as co-defendants are Feature Films for Families, Inc.; Corporations for Character, L.C.; and Family Films of Utah.
After the court resolved several issues in the case, Department of Justice attorneys and FTC witnesses presented evidence to a jury about violations by defendants during multiple telemarketing campaigns. In one nationwide campaign, Corporations for Character called consumers under the name “Kids First,” offered to send two free DVDs and requested feedback on whether the movies should be included on a list of recommended movies. This telemarketing campaign resulted in millions of calls to consumers on the Do Not Call Registry in which defendants urged consumers to buy additional DVDs by telling them that “all of the proceeds” from sales would be used to complete a recommended viewing list of the nonprofit Coalition for Quality Children’s Media. In reality, Feature Films had contracted to receive 93 percent of all money collected from consumers.
The evidence also showed that in 2009 Feature Films called consumers to urge them to buy tickets to see “The Velveteen Rabbit,” a film produced by Baker and released in theaters before going to DVD. Feature Films’ telemarketers made more than 2.5 million calls to numbers on the Do Not Call Registry during this campaign. In additional marketing campaigns, the defendants routinely called consumers on the Do Not Call Registry to sell DVDs, and even continued to call consumers who had asked the defendants to stop calling, resulting in tens of millions of illegal calls.
Jury Found Defendants Collectively Were Responsible for 117 Million TSR Violations, Including 99 Million Illegal Calls to Phone Numbers on the Do Not Call Registry.
In all, the jury found the defendants collectively responsible for 117 million TSR violations, including 99 million illegal calls to telephone numbers listed on the Do Not Call Registry, as well as more than four million additional calls in which the defendants’ telemarketers made misleading statements to induce DVD sales.
The jury also found the defendants had actual or implied knowledge of the TSR violations, allowing the court to assess civil penalties under the FTC Act. The case was the first-ever jury verdict in an action to enforce the TSR and Do Not Call Registry rules. The FTC vote approving the proposed order, which is subject to court approval, was 2-0, and it was filed in U.S. District Court for the District of Utah, Central Division.
Source: FTC.gov
Mar 16, 2018 | Securities Class Action Archive
Class Action Filed on Behalf of Purchasers of VelocityShares™ Daily Inverse VIX Short-Term ETNs (XIV)
Kehoe Law Firm, P.C. continues its investigation of XIV securities and reports that another class action lawsuit has been filed on behalf of purchasers of the VelocityShares™ Inverse VIX Short- Term Exchange Traded Notes during the Class Period of January 29, 2018, through February 5, 2018, inclusive (the “Class Period”).
Investors who bought XIV during the class period and suffered damages have until May 14, 2018 to file a motion with the Court to seek appointment as lead plaintiff.
The class action complaint, filed in United States District Court, Southern District of New York, against defendants Credit Suisse AG and Janus Index & Calculation Services LLC, alleges that the registration statement, prospectus and pricing supplement issued on January 29, 2018 was materially false and misleading, because it misrepresented the updating and accuracy of an important valuation metric, the Intraday Indicative Value, and failed to disclose that: (i) contrary to representations, the Intraday Indicative Value was not updated every 15 seconds based on the relevant index real time calculation of the relevant index (SPVXSPID) applying the real time prices of the relevant VIX futures contracts; and (ii) the Intraday Indicative Value was not an accurate gauge of the economic value of the Notes. The complaint also alleges that the representation of the Intraday Indicative Value was materially false and misleading, because it did not reflect the proper calculation of that metric.
On February 5, 2018, between 4:10 p.m. and 5:09 p.m., the Intraday Indicative Value, was incorrectly represented to be between $24.7 to $28.6 per Note. The Intraday Indicative Value between 4:10 p.m. and 5:09 p.m. — had it been calculated as Credit Suisse represented in the registration statement — was between $4.22 and $4.4 per Note, materially less than the inflated amount of $24.7 to $28.6 per Note. Beginning at 5:10 p.m., the Intraday Indicative Value began to update, showing a value of $4.22 per Note. XIV was inflated as a result of the inflated Intraday Indicative Value, trading at $92.80 per Note at 4:09 p.m. and falling to $37.34 per Note at 5:10 p.m. The trading price of the Notes hit a low of $10 per Note at 6:30 p.m. and closed at $15.43 at 8:00 p.m. On February 6, 2018, Credit Suisse issued a press release stating that it was accelerating the Maturity Date of the Notes to February 21, 2018, terminating the Notes.
VelocityShares™ Daily Inverse VIX Short-Term ETNs (“XIV”) Investors
If you purchased, or otherwise acquired VelocityShares™ Daily Inverse VIX Short-Term ETNs (“XIV”) and have questions or concerns about the securities investigation or your potential legal rights, please contact John A. Kehoe, Esq., (215) 792-6676, Ext. 801, [email protected], complete the form above on the right or e-mail [email protected].
Investors who bought XIV during the class period and suffered damages have until May 14, 2018 to file a motion with the Court to seek appointment as lead plaintiff. Please note that no class has been certified in the above action, and until a class is certified, you are not represented by counsel unless you retain an attorney of your choice. A lead plaintiff is a representative party that acts on behalf of other class members in directing the litigation. In order to be appointed lead plaintiff, the Court must determine that the class member’s claim is typical of the claims of other class members, and that the class member will adequately represent the class. Under certain circumstances, one or more class members may serve together as “lead plaintiff.” Your ability to share in any recovery is not, however, affected by the decision whether or not to serve as a lead plaintiff.
Mar 15, 2018 | Securities Class Action Archive
Class Action Filed on Behalf of Inverse VIX Short-Term ETNs
Kehoe Law Firm, P.C. continues its investigation of Credit Suisse’s XIV security and reports that a federal securities class action was filed against Credit Suisse Group AG and certain company officers on behalf of investors who purchased, or otherwise acquired, Credit Suisse VelocityShares Daily Inverse VIX Short-Term Exchange Traded Notes between January 29, 2018 and February 5, 2018 (the “Class Period”). The lawsuit, filed in United States District Court, Southern District of New York, seeks remedies under the Securities Exchange Act of 1934.
Investors who bought XIV during the class period and suffered damages have until May 14, 2018 to file a motion with the Court to seek appointment as lead plaintiff.
The lawsuit contends that the Credit Suisse defendants engaged in a deceptive course of conduct during the Class Period, which caused Plaintiff and other proposed Class members to purchase Credit Suisse’s Inverse VIX Short-Term ETNs, which were traded on the NASDAQ under ticker symbol “XIV”) at artificially inflated prices.
The defendants, allegedly, issued “materially false and/or misleading because they misrepresented and failed to disclose that (i) Credit Suisse was actively manipulating the [Inverse VIX Short-Term Exchange Traded Notes] by liquidating its holdings in various financial products to avoid a loss; (ii) Credit Suisse was manipulating the [Inverse VIX Short-Term Exchange Traded Notes] to the detriment of investors; and (iii) as a result of the foregoing, Defendants’ statements about Credit Suisse’s [Inverse VIX Short-Term Exchange Traded Notes] were false and misleading and/or lacked a reasonable basis.”
February 5, 2018 – Inverse VIX Short-Term ETN’s 89.74% Drop From Closing Value
According to the class action complaint:
On February 5, 2018, at 4:00 pm EST, the regular-hours market for the trading of the [Inverse VIX Short-Term Exchange Traded Notes] closed. The [Inverse VIX Short-Term Exchange Traded Notes’] last trading price was $99. Less than 30 minutes later, during the after-hours market, the price per [Inverse VIX Short-Term Exchange Traded Note] had dropped to $70.01. By 4:45 pm, the price had dropped to $42.81 . . . and then by 6:28 pm the price . . . had declined to a low of $10.16 per [Inverse VIX Short-Term Exchange Traded Note], a drop of approximately 89.74% from its closing value.
Credit Suisse’s Press Releases Regarding The XIV Acceleration Event
Credit Suisse, according to the complaint, issued a press release on February 6, 2018 (“Credit Suisse AG Announces Event Acceleration of its XIV ETNs”) which stated:
Credit Suisse AG (“Credit Suisse”) today announced the event acceleration of its VelocityShares™ Daily Inverse VIX Short Term ETNs (“XIV”) due to an acceleration event. The acceleration date is expected to be February 21, 2018.
Since the intraday indicative value of XIV on February 5, 2018 was equal to or less than 20% of the prior day’s closing indicative value, an acceleration event has occurred. Credit Suisse expects to deliver an irrevocable call notice with respect to the event acceleration of XIV to The Depository Trust Company by no later than February 15, 2018. The date of the delivery of the irrevocable call notice, which is expected to be February 15, 2018, will constitute the accelerated valuation date, subject to postponement due to certain events. The acceleration date for XIV is expected to be February 21, 2018, which is three business days after the accelerated valuation date. On the acceleration date, investors will receive a cash payment per ETN in an amount equal to the closing indicative value of XIV on the accelerated valuation date. The last day of trading for XIV is expected to be February 20, 2018. As of the date hereof, Credit Suisse will no longer issue new units of XIV ETNs.
Another press release issued by Credit Suisse on February 6, 2018 (“Media Response to Credit Suisse AG’s VelocityShares ™ Daily Inverse VIX Short Term ETNs due December 4, 2030”) stated that “[i]n response to certain media inquires, Credit Suisse confirms that it has experienced no trading losses from VelocityShares™ Daily Inverse VIX Short Term ETNs (“XIV”) due December 4, 2030.”
(Emphasis added)
Alleged Material Misrepresentation in XIV’s Prospectus Lead to $700 Million in Losses
The class action complaint cites to a report issued by the Securities Litigation and Consulting Group, Inc., “Material Misrepresentations in XIV Prospectus Led to $700 Million in Losses,” as additional evidence of Credit Suisse’s material misrepresentations.
According to the Executive Summary of the Securities Litigation and Consulting Group’s report:
Credit Suisse’s XIV Exchange Traded Note (ETN) linked to the inverse of short term VIX futures prices lost 97% of its value or ap-proximately [sic] $2 billion in a single day on February 5, 2018. Credit Suisse announced the following morning that it would redeem all outstanding XIV shares at the Closing Indicative Value on February 15, 2018.[]
. . .
Credit Suisse’s latest Pricing Supplement for the XIV . . . represented . . . that [Credit Suisse] would pub-lish [sic] an estimate of the current economic value of XIV shares every 15 seconds based on real time VIX futures prices but, in fact, did not. On February 5, 2018 the difference between what Credit Suisse said it would do and what is actually did was enormous because Credit Suisse effectively stopped updating its estimate of the current economic value of XIV shares at 4:10 pm when VIX futures prices were changing significantly.
From 4:10 pm to 5:09 pm on February 5, 2018 Credit Suisse was materially misrepresent-ing [sic] the true economic value of XIV. Investors were buying XIV between 4:15 pm and 5:08 pm at prices as high as in the $80s when Credit Suisse was representing to the public that the economic value of the notes was $24.6961 but had to know that the true economic value was aready [sic] between $4.22 and $4.40.
By 4:13 pm or shortly thereafter sophisticated market partici-pants [sic] would know that Credit Suisse was certain to redeem XIV for $4.22 or a little more per share. Investors paid $823.6 million to purchase 28.8 million shares after 4:15 pm at an aver-age [sic] price of $28.60. Those [aftermarket] purchases at inflated prices transferred $700 million from unsophisticated, poorly-in – formed [sic] buyers to sophisticated, well-informed sellers.
In addition to the problem with Credit Suisse’s Pricing Supple-ment [sic] prospectus we identify, we find that extraordinary trading in two critical futures contracts in the last minutes of trading before 4:15 pm on February 5, 2018 pushed up the futures’ prices and triggered the XIV liquidation. The primary ben-eficiaries [sic] of this manufactured liquidation of XIV are Credit Suisse and the traders who had previously sold XIV short.
The problems we identify herein are not unique to XIV but are found in other ETNs tied to the S&P VIX futures indices.
(Emphasis added)
VelocityShares™ Daily Inverse VIX Short-Term ETNs (“XIV”) Investors
If you purchased, or otherwise acquired VelocityShares™ Daily Inverse VIX Short-Term ETNs (“XIV”) and have questions or concerns about the securities investigation or your potential legal rights, please contact John A. Kehoe, Esq., (215) 792-6676, Ext. 801, [email protected], complete the form above on the right or e-mail [email protected].
Investors who bought XIV during the class period and suffered damages have until May 14, 2018 to file a motion with the Court to seek appointment as lead plaintiff. Please note that no class has been certified in the above action. Until a class is certified, you are not represented by counsel unless you retain an attorney of your choice. A lead plaintiff is a representative party that acts on behalf of other class members in directing the litigation. In order to be appointed lead plaintiff, the Court must determine that the class member’s claim is typical of the claims of other class members, and that the class member will adequately represent the class. Under certain circumstances, one or more class members may serve together as “lead plaintiff.” Your ability to share in any recovery is not, however, affected by the decision whether or not to serve as a lead plaintiff.
Mar 15, 2018 | Shareholder & Investor Protection
SEC Charges Related to Massive Fraud – Holmes Stripped of Control of Theranos, Inc. for Defrauding Investors
On March 14, 2018, the Securities and Exchange Commission announced that it charged Silicon Valley-based private company Theranos Inc., its founder and CEO Elizabeth Holmes (“Holmes”), and its former President Ramesh “Sunny” Balwani (“Balwani”) with raising more than $700 million from investors through an elaborate, years-long fraud in which they exaggerated or made false statements about the company’s technology, business, and financial performance. Theranos and Holmes have agreed to resolve the charges against them. Further, besides a penalty, Holmes has agreed to give up majority voting control over the company, as well as to a reduction of her equity which, combined with shares she previously returned, materially reduces her equity stake.
The SEC complaints allege that Theranos, Holmes, and Balwani made numerous false and misleading statements in investor presentations, product demonstrations, and media articles by which they deceived investors into believing that its key product – a portable blood analyzer – could conduct comprehensive blood tests from finger drops of blood, revolutionizing the blood testing industry. In truth, according to the SEC’s complaint, Theranos’ proprietary analyzer could complete only a small number of tests, and the company conducted the vast majority of patient tests on modified and industry-standard commercial analyzers manufactured by others.
The filed complaints also charge that Theranos, Holmes, and Balwani claimed that Theranos’ products were deployed by the U.S. Department of Defense on the battlefield in Afghanistan and on medevac helicopters and that the company would generate more than $100 million in revenue in 2014. Theranos’ technology, however, was never deployed by the U.S. Department of Defense and generated a little more than $100,000 in revenue from operations in 2014.
Stephanie Avakian, Co-Director of the SEC’s Enforcement Division, said, “As a result of Holmes’ alleged fraudulent conduct, she is being stripped of control of the company she founded, is returning millions of shares to Theranos, and is barred from serving as an officer or director of a public company for 10 years.”
Theranos and Holmes have agreed to settle the fraud charges levied against them. Holmes agreed to pay a $500,000 penalty, be barred from serving as an officer or director of a public company for 10 years, return the remaining 18.9 million shares that she obtained during the fraud, and relinquish her voting control of Theranos by converting her super-majority Theranos Class B Common shares to Class A Common shares. Due to the company’s liquidation preference, if Theranos is acquired or is otherwise liquidated, Holmes would not profit from her ownership until – assuming redemption of certain warrants – over $750 million is returned to defrauded investors and other preferred shareholders.
The settlements with Theranos and Holmes are subject to court approval; Theranos and Holmes neither admitted nor denied the allegations in the SEC’s complaint; and the SEC will litigate its claims against Balwani in federal district court.
For additional information, see the BBC’s “Theranos founder Elizabeth Holmes charged with $700m fraud,” and Bloomberg’s “U.S. Fires a Warning Shot at Silicon Valley With Theranos Case.”
Primary source: SEC.gov
Mar 13, 2018 | Securities Class Action Archive
Have You Traded Volatility Index Futures OR Volatility Index Options Contracts on the Chicago Board Options Exchange (“CBOE”) or Cboe Futures Exchange Between January 1, 2011 – Present?
Have You Held VIX Futures or VIX Options Contracts Through Settlement or Non-Expiring VIX Futures or VIX Options Contracts on a Day the Settling VIX Futures Contracts Settled?
If so, Kehoe Law Firm, P.C. is investigating whether the anti-manipulation provisions of the Commodity Exchange Act were violated through the intentional manipulation of the final settlement price of VIX futures and VIX options contracts linked to the Cboe Volatility Index® (VIX®), “a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices.”
A recently filed class action complaint alleged that from 2011 to the present, the as of yet unknown defendants caused an artificial monthly final settlement price of expiring VIX contracts. The defendants caused an artificial settlement price, allegedly, by placing manipulative S&P 500® Index (SPX) options orders that were intended to cause artificial VIX contract settlement prices in the expiring contracts. The result of this conduct was a significant price spike either up or down from the previous day’s closing price. The manipulative scheme also, allegedly, impacted non-expiring VIX contracts and the VIX. According to the complaint, filed in United States District Court for the Northern District of Illinois, Eastern Division, the manipulative scheme’s impact dissipated shortly thereafter following a period of trading. Moreover, extreme price moves and reversions back, like those exhibited in VIX contracts, are a sign of manipulation. (For more information about the Cboe Volatility Index® (VIX®) and the relationship of the SPX and VIX Index®, please click here.)
According to CNN Money, the “lawsuit . . . claims traders manipulated the value of VIX options and futures by making bets on the S&P before VIX settlement auctions. The unidentified plaintiffs want to subpoena the Chicago Board Options Exchange, which it says can identify traders and bets that contributed to ‘hundreds of millions of dollars in losses for investors across the country.’”
If you traded VIX futures or VIX options contracts on the CBOE or Cboe Futures Exchange between January 1, 2011 through the present OR held VIX futures or VIX options contracts through settlement or non-expiring VIX futures or VIX options contracts on a day the settling VIX futures contracts settled, your rights under federal law may have been violated.
If you wish to speak to an attorney about your potential legal rights or claims, please contact Kehoe Law Firm, P.C., John Kehoe, Esq., [email protected], (215) 792-6676, Ext. 801 or e-mail [email protected].
