N.Y. AG settles with Portuguese financial institution

Bryan Cohen Oct. 24, 2011, 1:33pm


NEW YORK (Legal Newsline) - New York Attorney General Eric Schneiderman announced a settlement on Monday with a Portuguese financial institution for the alleged unregistered recommendation and sale of securities.

Banco Espirito Santo S.A. allegedly sold securities to its U.S. customers without registering itself, any of its affiliates or any of its employees as salesmen as a securities broker-dealer or investment adviser as required under the state's Martin Act.

BES is a Euronext stock exchange-listed commercial bank headquartered in Lisbon with more than 700 branches throughout Portugal and elsewhere, including New York. BES and its affiliates offer a variety of financial products, such as investment, banking, retirement and insurance, to its customers worldwide, including customers in the U.S.

As part of the agreement, BES will cease and desist from violating the Martin Act and Executive Law § 63(12), offer to make its customers whole for all securities it sold them, disgorge all profits derived from its conduct and pay $975,000 to the state in penalties, costs and fees.

"Today's announcement sends a clear message that soliciting and selling securities in New York without registering as required under the Martin Act will not be tolerated under any circumstances," Schneiderman said. "My office will continue to protect investors and the integrity of New York's global financial markets at all costs."

From November 2004 through November 2009, BES and some of its affiliates inside and outside of the U.S. allegedly sold its U.S. banking customers a variety of investment products that are qualified as securities under U.S. federal and state law, including under the Martin Act.

The securities transactions were allegedly conducted through a call center in Lisbon, Portugal; BES branches in Portugal and Madeira; solicitations by direct mail and two Portugal-based U.S. relationship managers; a money transmitter located in New Jersey; and seven other BES affiliates outside of the U.S. The institution allegedly sold more than $110 million in securities to 524 residents of the state of New York without registering to do so.

The Martin Act requires that any entity recommending, soliciting or effectuating the purchase or sale of securities, or that provides investment recommendations, be registered with Schneiderman's office as a broker-dealer or investment adviser. Any individual who executes securities transactions must be registered as a salesman.

Schneiderman also alleged that senior BES executives consciously chose to carry on the company's securities-related activities in the U.S. without complying with state or federal regulation requirements even after those requirements were called to their attention. BES cooperated with Schneiderman as part of its ongoing efforts to address its attempt to comply with the applicable laws.

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