April 20, 2015

Securities Class Action Says ARCP Made Over $900M From Acquisition Binge

According to the amended complaint of an investor class action securities case, American Realty Capital Properties Inc. made over $900 million in commissions, fees and payments issued to company insiders after it started an acquisition binge to raise its share price and capital. The non-traded real estate investment trust purportedly started the buying frenzy, which lasted for three years, after completing its $69.8M IPO in 2011 and discovering that its share price was wallowing under the initial public offering price. The lead plaintiff in the case is the Teachers Insurance and Annuity Association of America, which is a retirement and annuities plan behemoth.

The securities lawsuit contends that because the lower than desired price was holding up ARCP’s ability to raise a significant amount of capital, the acquisition strategy allegedly involved artificially raising adjusted operation funds—a key metric for investors when evaluating an REIT’s performance. The plaintiffs believe that senior insiders at ARCP knew that the tactic was the only way to make the hefty fees. Over $917 million in payments went straight to ARCP insiders and the company’s affiliates.

Because of the acquisition binge, ARCP went from owning 63 properties and having $13 million in assets to owning over 4,400 properties and $21.3 billion in assets. The complaints claims that indirect and direct payments to ARCP insiders purportedly included $186.6 million subordinated distribution fees, and $333 million in fees and commissions. Some of the fees were allegedly triggered by ARCP’s buying of non-traded REITs American Realty Capital Trust IV Inc. and American Realty Capital Trust II, both defendants in the case. Other payments included $21.6 million for sales purportedly made to ARCP for equipment, fixtures, and furniture, $63.4 million for strategic advisory services, and $17.7 million for financing coordinating fees.

Also defendants are ex-ARCP chairman and CEO Nicholas Schorsch and other ex-executives. A Schorsch spokesman says that the amended lawsuit has no merit.

The original nontraded REIT fraud lawsuit was submitted in January. It accused ARCP of making statements that were misleading and false and misrepresenting its nontraded REITs business. It also claimed that ARCP took part in a scam to fool the market and artificially raise American Realty securities prices.

It was in October that ARCP disclosed that it purposely did not fix a $23 million accounting error that occurred during the first half of 2014. Schorsch resigned as ARCP chairman at the end of the year, as did then-CEO David and Kay and other leading executives.

Our REIT fraud lawyers represent investors in getting their money back. Contact The SSEK Partners Group today. Our clients include institutional investors and high net worth individual investors.

ARCP insiders generated $900M in fees during buying binge: lawsuit, InvestmentNews, April 20, 2015

Another Institutional Investor Fraud Lawsuit Accuses American Realty Capital Properties Of Violating Securities Laws, Institutional Investor Securities Blog, January 26, 2015

Fidelity, Schwab, and Pershing Suspend Trading of Schorsch Nontraded Real Estate Investment Trusts, Institutional Investor Securities Blog, November 13, 2014

April 17, 2015

Former Tullett Prebon Broker, Rabobank Trader Plead Not Guilty To Libor Manipulation Charges

Noel Cryan, an ex-Tullett Prebon Plc (TLPR) broke, has pleaded not guilty to conspiring to manipulate the London interbank offered rate related to the Japanese yen. He is charged with conspiracy to defraud, which purportedly would have occurred in 2009, in London.

Cryan is among numerous brokers that the U.K. Serious Fraud Office has charged for Libor rigging. Meantime, in the U.S., Anthony Conti, who is also a former Rabobank Groep trader, has pleaded not guilty to Libor manipulation charges.

The 46-year-old, who is English, didn’t combat extradition to the United States. He was released on bond and allowed to go home and vacation in France. He could go to trial at the same time as Anthony Allen, the ex-global liquidity and finance head of Rabobank. Allen pleaded not guilty to similar charges. Both men are accused of involvement in the scam to manipulate the U.S. dollar and yen Libor to make money on derivatives linked to benchmarks for the bank.

In March, another ex-Robobank trader, Lee Stewart, pleaded guilty to conspiracy to manipulate the interest rate. The 51-year-old worked as a senior derivatives trader for Rabobank for 16 years. He admitted to getting involved in derivative contracts involving swaps tied to LIBOR for the U.S. dollar. He said that from May 2006 through early 2011, he and others at the bank worked together to manipulate the rate. Stewart’s sentencing is scheduled for June 2017.

Two other ex-Rabobank traders, Paul Robson and Takayuki Yagami, have both pleaded guilty to conspiring to commit wire and bank fraud. They too are waiting for their sentence.

In 2013, Rabobank consented to pay $1.1 billion to resolve probes in the U.K., the U.S. and the Netherlands over its involvement in benchmark interest rate manipulation, including Libor. It’s deal with the U.S. Department of Justice, which includes a $325 million penalty, comes with a deferred prosecution agreement.

And as we reported in a recent blog post, Deutsche Bank (DB) is expected to soon reach what could be an over $1.5 billion settlement with regulators in Britain and the U.S. over Libor manipulation allegations as well. A criminal guilty plea may also be likely.

An agreement accompanied by this sum would be even larger than the $1.5 billion deal that UBS (UBS) arrived at over Libor rigging with international regulators in 2012. The Swiss bank admitted to fraud in the rate manipulation scandal.

UBS admitted that some of its employees tried to manipulate LIBOR related to a number of currencies. Much of the rigging occurred in its Japan unit. The bank also said that some of its employees worked with employees at other banks, as well as cash brokers, to guide the benchmark rates so their trading positions would benefit.

Sixth broker pleads not guilty to Libor fraud charges in UK court, Reuters, April 17, 2015


More Blog Posts:
Deutsche Bank Settlement Over Libor Rigging Likely to Exceed $1.5B, Institutional Investor Securities Blog, April 10, 2015

Texas-Based Broker-Dealer Faces SEC Charges Over Supervisory and Customer Protection Violations, Stockbroker Fraud Blog, March 6, 2015

DOJ Gets Ready to Wrap Mortgage Bond Case Against Standard & Poor’s, Probes Moody’s, Institutional Investor Securities Blog, January 31, 2015

April 15, 2015

SEC Settles With Ex-Freddie Mac Executives Over Allegations They Mislead Investors Over Mortgage Risks

The Securities and Exchange Commission has reached as settlement with three ex-Freddie Mac executives accusing them of knowingly misleading investors about the quality of high-risk mortgages that the company bought heading into the end of the housing boom several years ago. The former executives are ex-Freddie Mac (FMCC) CEO Richard Syron, ex-chief business officer Patricia Cook, and former senior VP of credit policy and portfolio management Donald Bisenius. The SEC accused the three executives of saying that there was little subprime exposure for Freddie even as they bought more loans with subprime qualities.

Under the agreement, the three ex-executives agreed that they wouldn’t sign certain reports that are required by finance chiefs or chief executives for a certain period of time, and would pay $310,000 to a fund to pay back bilked investors. Insurance from Freddie Mac will cover the amount.

Considering that the regulator tried to get bars to prevent the three of them from serving as company directors or officers, as well as pay financial penalties, the agreements reached highlight the challenges the U.S. has had in bringing and winning cases against individual executives over the 2008 economic crisis.

Per the settlement, the two sides disagreed about the extent to which Freddie Mac’s disclosures were at risk of misrepresentations, as well as about issues related to how Freddie was able to quantify its subprime loan exposure. The agreement acknowledges that in 2007 and 2008 market participants did not have one definition of subprime that was universally accepted to go by. SEC enforcement director Andrew Ceresney called the settlement’s limits on future activities as well as the financial payments, an “appropriate” resolution.

Meantime, three ex-Fannie Mae (FNMA) executives, including former Chief Risk Officer Enrico Dallavecia, ex-Chief Executive Daniel Mudd, and ex-executive VP of single family credit guarantee business Thomas Lund are facing a parallel case. The defendants have asked the court to rule that there was no evidence showing that the company’s subprime disclosure were misleading or false or that the three of them thought the disclosure were not accurate. Contact our mortgage fraud lawyers today if you suspect you were the victim of financial fraud.


SEC Reaches Settlement with Former Freddie Mac Executives
, The Wall Street Journal, April 14, 2015

The SEC Complaint Against the Freddie Executives(PDF)

The SEC Complaint Against the Fannie Mae Executives (PDF)


More Blog Posts:

Goldman to Buy Back $3.15B in RMBS to Resolve FHFA Claims, Stockbroker Fraud Blog, August 26, 2014

Massachusetts Files Lawsuit Against Fannie Mae, Freddie Mac, and FHFA, Stockbroker Fraud Blog, June 2, 2014

Bank of America Settles Mortgage Bond Claims with FHFA for $9.3B, Institutional Investor Securities Blog, March 29, 2014

April 13, 2015

Plaintiffs Appeal Federal Court’s Ruling Dismissing Their 401(K) Lawsuit Against Fidelity

A notice of appeal was submitted with the 1st U.S. Circuit Court of Appeals by plaintiffs seeking to overturn a ruling by a federal district court dismissing their 401(K) case against Fidelity Investments. The case is In Re Fidelity ERISA Float Litigation.

According to the plaintiffs, who are participants in a number of defined contribution plans, as record keeper for several of the plan, the financial firm breached its fiduciary duty when managing the plans’ float income. This is the money made from interest-bearing accounts that 401k) plans use temporarily before plan assets are disbursed and participants move their funds among different investment choices.

The plan participants believe that Fidelity used the float income to cover administrative and record-keeping costs, which was not part of their agreement with the firm in terms of the fees they were supposed to pay it. However, U.S. District Judge Denise Casper dismissed their complaint last month, finding that the plaintiffs did not plausibly allege that “float income is a plan asset.” Casper noted that she did not consider Fidelity an ERISA fiduciary in relation to float. Now, however, the plaintiffs’ lawyers are disagreeing with Casper’s ruling.

The ERISA case consolidated four lawsuits filed against Fidelity by 401(k) plan participants. Bank of America (BAC) is one of the plaintiffs.

The appeal comes just weeks after Ameriprise Financial ag (AMP) consented to pay $27.5M to resolve a 401(k) lawsuit accusing it of breaking its fiduciary duty to 24,000 ex- and current employees who participate in the company’s retirement savings plans.

The plaintiffs accused that firm of failing to make sure the administrative services fees charged were reasonable. They questioned the way Ameriprise used investment options that were managed by a subsidiary. The firm denies the allegations.

However it did consent to place the record-keeping functions of its plan out for bidding and to pay a per-participant or flat fee for these services. It also consented to specific fee disclosures and agreed to find the lowest-priced investment choices moving forward.

Plaintiffs appeal decision in Fidelity case on 401(k) float income, InvestmentNews, April 13, 2015

Fidelity float income lawsuit dismissed, Pensions and Investments, April 6, 2015

Another suit on 401k fees is dismissed
, The Wall Street Journal, March 26, 2015

http://www.gpo.gov/fdsys/pkg/USCOURTS-mad-1_13-cv-10222/pdf/USCOURTS-mad-1_13-cv-10222-0.pdf

More Blog Posts:
FINRA Fines Fidelity $350K for Overcharging More than 20,000 Clients $2.4M, Stockbroker Fraud Blog, January 20, 2015

Investor Files Securities Case Against Fidelity Over Float Income Investments Involving 401(K)s, Institutional Investor Securities Blog, May 6, 2013

Fidelity Investments Settles Class Action Lawsuits Over 401(K) Plan for $12 million, Stockbroker Fraud Blog, September 5, 2014

April 10, 2015

Deutsche Bank Settlement Over Libor Rigging Likely to Exceed $1.5B

According to media reports, Deutsche Bank AG (DB) could settle allegations over Libor manipulation with U.S. and British regulators as early as this month. A source reports that the settlement is likely to be larger than $1.5 billion and unit Deutsche Bank Group Services may even plead guilty.

Regulators expected to be involved in any settlement are the U.S. Department of Justice, the Department of Financial Services in New York, the Commodity Futures Trading Commission, and U.K.’s Financial Conduct Authority. Deutsche Bank is one of several banks probed over accusations of London interbank offered rate manipulation.

Libor is the key interest rate linked to mortgages, credit cards, student loans, and other instruments. The bank is accused of giving false data to a British Banker’s Association daily survey, which impacted Libor’s daily rate in numerous currencies, such as the U.S. dollar, the Euro, and the yen.

Already, UBS Group AG (UBS), Barclays (BARC), Rabobank Groep of the Netherlands, Royal Bank of Scotland Plc (RBS), and Lloyds Banking Group Plc have arrived at settlements over similar allegations. Also, last year, six global banks paid $4.3 billion to resolve civil claims that they manipulated foreign exchange rates. Those cases were settled with the FCA and the CFTC. A number of banks have yet to resolve the DOJ’s criminal probes against them for FX rigging.

A more than $1.5 billion settlement with Deutsche Bank would be the largest one involving a bank over Libor manipulation allegations to date. Already, the German lender was fined $773 million by the European Union for euro interbank offered rate and yen Libor manipulation. The bank is also under scrutiny by Bafin, which is the financial market regulator in Germany.

In other Libor rigging-related news, a federal judge in New York ruled last week that a securities lawsuit against Citigroup (C), Credit Suisse Group AG (CS), Barclays Bank PLC, and dozens of other banks failed due to lack of personal jurisdiction and because the plaintiff, Sheldon Solow brought his claims too late.

The judge said that his court did not have jurisdiction over the foreign banks accused of involvement in the alleged scam that puportedly cost the real estate mogul $100 million.

Solow contended that he would have never paid out that much money if he’d known that the banks were colluding with one another and that this would cost him. He and 7 West 57th Street Realty Co. LLC argued that the foreign banks should have made their jurisdictional arguments in a previous motion to dismiss.

U.S. District Court Judge Paul G. Gardephe, however, said that in light of the U.S. Supreme Court’s ruling last year in Daimler AG v. Bauman, which made tougher the rules regarding bringing American cases against foreign banks that have a New York presence, Solow lost his case.

Deutsche Bank Settlement Over Libor Rigging Likely to Exceed $1.5B, Bloomberg, April 9, 2015

Deutsche Bank comes close to reaching Libor settlement, Financial Times, April 10, 2015

Banks Escape Real Estate Mogul’s $100M Libor-Rigging Suit, Law 360, April 1, 2015

More Blog Posts:
Ex-Rabobank Trader Banned from Financial Services Industry in Britain for Libor Manipulation, Another Pleads Not Guilty in the US, Institutional Investor Securities Blog, March 29, 2015

Libor Manipulation Cases Get the Green Light from U.S. Courts, Libor Manipulation Cases Get the Green Light from U.S. Courts, Institutional Investor Securities Blog, January 30, 2015

Texas-Based Broker-Dealer Faces SEC Charges Over Supervisory and Customer Protection Violations, Stockbroker Fraud Blog, March 6, 2015

April 9, 2015

U.S.'s $1B Mortgage Bond Trial Against Nomura Holdings Comes to a Close

Closing arguments took place this week in the Federal Housing Finance Agency’s mortgage-backed securities lawsuit against Nomura Holdings Inc. (NMR). The U.S. regulator claims that the bank made false statements when selling some $2 billion in MBSs to Freddie Mac (FMCC) and Fannie Mae (FNMA).

A lawyer for the bank said that FHFA’s claimed losses were not the fault of Nomura or that of Royal Bank of Scotland (RBS), which the government is also pursuing over the securities. Instead, contended the attorney, market conditions during the 2008 economic crisis were to blame.

The is the first of 18 MBS fraud cases over about $200 million in securities that different banks sold to mortgage finance giants to go to trial. Already, FHFA has gotten $17.9 billion in settlements with the other financial firms, including JPMorgan Chase & Co. (JPM), Bank of America Corp. (BAC), and Deutsche Bank AG (DB). There was just this case and the one against Royal Bank of Scotland remaining.

At issue is whether Freddie and Fannie knew that there were problems with the securities they were buying and of the alleged damages that were due to misrepresentations or because of the housing crisis at the time. FHFA is accusing Nomura, which was the sponsor of the securities, of misstating key details about the mortgages that were backing the securities. RBS was the underwriter.

Nomura’s legal team, however, argued during the trial that that the agency did not provide much testimony to support its claims, depending instead on paid expert witnesses using allegedly questionable methodologies to examine the mortgages backing the securities.

FHFA said that 68% of the loans underlying the securities purchased from Nomura by Freddie and Fannie had underwriting defects, while close to a third of them purportedly having false loan-to-value ratios.

Freddie and Fannie buy loans from landers, package them into securities, while giving investors a guarantee that they will make them whole should the loans default. During the housing boom, the two entities were among largest investors in triple-A rated private-label securities, purchasing them partially because they helped fulfill government affordable housing mandates and because shareholders profited from them. When the economic crisis happened, however, the securities lost billions of dollars.

At Shepherd Smith Edwards and Kantas, LTD, our securities fraud lawyers have spent the last several years helping investors who have sustained mortgaged-backed securities fraud-related losses to recoup their investments. Many of these losses didn’t have to happen but were very much a result of misrepresentations, omissions, and bad advice given to them by financial firms and their representatives. Our MBS fraud lawyers are available for a free case consultation to help you explore your legal options.

Nomura Set to Square Off Against FHFA in Crisis-Era Securities Case, The Wall Street Journal, March 16, 2015

Nomura blasts U.S. agency's case as $1 bln mortgage bond trial closes, Reuters, April 9, 2015


More Blog Posts:
Texas-Based Broker-Dealer Faces SEC Charges Over Supervisory and Customer Protection Violations, Stockbroker Fraud Blog, March 6, 2015

SIFMA Says White House Isn’t Entirely Right About The Cost of Abusive Trading to Investors, Stockbroker Fraud Blog, March 30, 2015

April 8, 2015

SEC Files First Enforcement Action Protecting Whistleblower Confidentiality Agreements

The SEC has brought its first case for whistleblower protection violations involving Rule 21F-17. The Commission claims that KBR Inc. used language in confidentiality agreements that were improperly restrictive and could potentially impede the whistleblower process.

According to the regulator, KBR required that witnesses involved in certain internal investigative interviews sign confidentiality statements that contained language warning about potentially disciplinary action, including termination, if the matters involved were discussed with an external party without the legal department’s approval. Such probes typically involved claims of possible securities law violations. Because of this, the agency said the terms violated the rule, which bars companies from getting in the way of whistleblowers being able to report securities law violations to the Commission.

To settle, KBR will pay a $130,000 penalty. The company, however, is not denying or admitting to the charges. It did voluntarily consented to modify its confidentiality statement to include language that lets employees know they can report possible violations to federal agencies without the company’s approval or fear of reprisal. KBR also agreed to cease and desist from future Rule 21F-17 violations.

The SEC said there doesn’t appear to be any instances when KBR specifically stopped an employee from notifying the SEC about possible securities law violations. Still, any kind of blanket prohibition could have a chilling effect that might prevent a potential whistleblower from stepping forward.

SSEK Partners Group is a securities law firm. We represent high net worth individual investors and institutional investors.

Read the Order (PDF)


More Blog Posts:
SEC News: Regulator Grants $30M Whistleblower Award and Charges Washington Investment Advisory Firm $600K for Undisclosed Principal Transaction, False Advertising, Stockbroker Fraud Blog, September 23, 2014

Barclays Must Pay Former Trader $9M, Ex-Raymond James Broker Gets Back $650K Award, Institutional Investor Securities Blog, April 6, 2015

Two Firms Charged in Texas With Running Fraudulent Commodity Pool Must Pay Over $7.5M, Stockbroker Fraud Blog, April 6, 2015

April 6, 2015

Barclays Must Pay Former Trader $9M, Ex-Raymond James Broker Gets Back $650K Award

Financial Industry Regulatory Authority arbitrators have awarded Mayank Chamadia $3.7 million in compensation in his case against Barclays Plc. (BARC) Chamadia was placed on leave from the June 2013 to prepare testimony for a possible interest-rate manipulation case. He resigned in October 2013 to go work for another firm.

Although Chamadia wasn’t accused of any violations, he said that the leave time while at Barclays hurt not just his reputation but also is bonus earning power. Now, Barclays must pay Chamadia millions of dollars in deferred pay along with the compensation. The arbitrators found that the firm had “no basis” to reduce or keep payouts that had not yet vested. Chamadia’s lawyer says that this releases some $9 million in back pay that had vested, including interest, to his client.

In another financial representative case against a firm, Robert Fenyk, an ex-Raymond James Financial Services Inc. (RJF) adviser, recently saw his $650,000 award reinstated by the U.S. Court of Appeals for the First Circuit. The ruling comes after a five-year legal battle.

Fenyk was part of the independent adviser network of Raymond James before he was fired in 2009. He took the firm to arbitration two years later alleging employment discrimination and retaliation after a supervisor found out about his sexual orientation and that he was a recovering alcoholic.

An arbitration panel awarded him $650K in back pay and legal costs in 2013. The firm, claiming that the arbitration panel misapplied Florida law and that Fenyk’s claims exceeded the one-year statute of limitations for civil rights cases, appealed in district court. The court vacated the award.

Fenyk appealed and the appellate panel affirmed the original arbitration award. Depending on whether Raymond James appeals this latest ruling, the case could end up before the U.S. Supreme Court.

The SSEK Partners Group is an institutional investor fraud law firm.

Former Barclays Swaps Trader Wins Millions in Back Pay, The Wall Street Journal, April 3, 2015

Barclays Ordered to Pay Ex-Trader About $9 Million, Lawyer Says, Bloomberg, April 6, 2015

Ex-Raymond James broker wins back $650,000 award, Investment News, March 13, 2015


More Blog Posts:
CNL Lifestyle Properties REIT Dips in Value, May Sell Ski Resorts, Institutional Investor Securities Blog, March 16, 2015

Broker and Adviser News: Morgan Stanley Sues Ameriprise Broker, Former UBS Broker Alleges Investor Risk Levels Were Mischaracterized, and Ex-Bank of America Merrill Lynch Trainees Seek Overtime, Institutional Investor Securities Blog, March 5, 2015

Financier Lynn Tilton Sues the SEC After She is Charged with Securities Fraud, Institutional Investor Securities Blog, March 31, 2015

March 31, 2015

Financier Lynn Tilton Sues the SEC After She is Charged with Securities Fraud

Lynn Tilton, the owner of the financial firm Patriarch Partners LLC, is suing the U.S. Securities and Exchange Commission. She wants the regulator to stop going after her for alleged financial fraud. Tilton claims that the agency did not abide by the U.S. Constitution when it chose to pursue its case against her via its own administrative proceeding rather than federal court.

The SEC is charging Tilton and her firm with securities fraud. The Commission contends that she concealed the poor performance of the assets that were underlying three CLO (collateralized loan obligation) funds, known as the Zohar Funds. The agency has been probing the Zohar I, II, and III funds for years. They contain securities put together by Patriarch and are made up mostly of loans to companies that the financial firm controlled.

Tilton and Patriarch had raised over $2.5 billion for the funds. The regulator said that because they concealed the low performances, the firm and Tilton were able to collect close to $200 million of fees they shouldn’t have received. The SEC said that “major conflict of interest” was a factor.

The regulator contends that Tilton and Patriarch Partners reported that the underlying loans’ value hadn’t changed even though a lot of the companies made only partial or no interest payments at all for years to the funds where clients had put their money. Following the charges, Patriarch issued a letter to investors disputing the agency’s claims.


Now, Tilton is claiming that the SEC’s administrative proceedings are a constitutional violation, because even though administrative law judges are considered executive branch officers they garner job protections that do not allow the president to take them out of office. Critics of these proceedings have expressed concern that claimants may be at a disadvantage because of the limited discovery, depositions aren’t allowed, and there are no juries. The judges are paid by the SEC.

Tilton’s Patriarch invests in beleaguered companies at prices that are low. She has helped turned around companies because of these investments. Bloomberg says that she owns all the underlying companies borrowing funds from her investors. This is not typical, because usually multiple firms deal with the different aspects of these types of deals, whether it’s putting together the bonds, selling them, and underwriting. Patriarch is the owner of over 70 companies.

Tilton has been under close examination since 2011 when Moody’s Investors Services (MCO) reduced the credit rating on a deal of hers due to an increasing amount of defaults. The credit rating agency, along with fellow credit rater Standard & Poor’s, have since withdrawn a number of their ratings from the Zohar deals because Tilton didn’t get them enough information about the underlying businesses.

Financier Lynn Tilton sues SEC after it charges her with fraud, Reuters, April 1, 2015

Diva of Distressed’ Tilton Accused of Defrauding Investors, Bloomberg, March 30, 2015


More Blog Posts:

FINRA Fines J.P. Turner, LaSalle St. Securities, and H. Beck For Report Supervision Lapses, Institutional Investor Securities Blog, March 30, 2015

SIFMA Says White House Isn’t Entirely Right About The Cost of Abusive Trading to Investors, Stockbroker Fraud Blog, March 30, 2015

Ex-Rabobank Trader Banned from Financial Services Industry in Britain for Libor Manipulation, Another Pleads Not Guilty in the US, Institutional Investor Securities Blog, March 29, 2015

March 30, 2015

FINRA Fines J.P. Turner, LaSalle St. Securities, and H. Beck For Report Supervision Lapses

The Financial Industry Regulatory Authority Inc. is fining J.P. Turner & Co., LaSalle St. Securities, and H. Beck Inc. $100K, $175K, and $425K, respectively, for lapses in supervising reports sent to clients. The reports provided asset summaries, and the self-regulatory organization is concerned that they had the potential to hide fraudulent activities.

A consolidated report typically contains information regarding most if not all of a customer’s financial holdings, wherever they are held. FINRA requires that these reports are accurate and clear. Failure to supervise these documents can cause regulatory issues, such as the possibility of inaccurate communication, data that is misleading or confusing, supervisory control lapses, and the use of consolidated reports for unethical or fraudulent reasons. The SRO’s regulatory notice 10-19 states that if a firm cannot properly supervise these reports then it should not distribute them and must make sure that registered representatives abide by this restriction.

During routine exams, FINRA found that representatives from the three firms prepared and issued consolidated reports to customers even if the documents hadn’t been properly reviewed beforehand. LaSalle St Securities, which had written procedures pertaining to consolidated reports, failed to enforce these and did not properly trained representatives on how to use the reports. The disciplinary action against the broke-dealers was related to private placement-involved matters.

J.P. Turner and H. Beck lacked the written procedures tackling consolidated reports and their supervision and use, said FINRA. The action against H. Beck also dealt with violations linked to unit investment trust sales. FIRNA said that all three firms had representatives who used consolidated report systems that let them submit customized values for investments or accounts that were held away from the firm. However, the firms’ procedures lacked the safeguard to confirm their accuracy. By settling, the three firms are not denying or admitting to the self-regulatory organization’s findings.

The SSEK Partners Group is a securities law firm.

FINRA Sanctions Three Firms for Inadequate Supervision of Consolidated Reports, FINRA, March 30, 2015


More Blog Posts:
FINRA Orders J.P. Turner to Pay $707,559 in Exchange-Traded Fund Restitution to 84 Clients, Stockbroker Fraud Blog, December 10, 2013

Ex-Rabobank Trader Banned from Financial Services Industry in Britain for Libor Manipulation, Another Pleads Not Guilty in the US, Institutional Investor Securities Blog, March 29, 2015

Ex-Nomura, RBS Trader Enters Guilty Plea to Bond Fraud, Institutional Investor Securities Blog, March 11, 2015

March 29, 2015

Ex-Rabobank Trader Banned from Financial Services Industry in Britain for Libor Manipulation, Another Pleads Not Guilty in the US

The Financial Conduct Authority has banned Paul Robson, an ex-Rabobank Groep (RABO) trader, from the financial services industry in the United Kingdom. Robson pleaded guilty to U.S. fraud charges and was convicted for his involvement in a conspiracy to rig the London interbank offered rate (Libor). This is the FCA’s first public action against an individual for Libor manipulation.

Robson was the main submitter of yen Libor at the bank. FCA’s acting enforcement and market oversight director Georgina Philippou said that there was no way Robson could argue that he didn’t know what he was doing. The criminal charges submitted by the Southern District of New York last year said that while at Rabobank Robson was responsible for its yen Libor submission from January 2006 through at least November 2008. He then went to another brokerage firm before going to work at Bank of Tokyo-Mitsubishi UFJ, also in the U.K. The FCA said that Robson kept manipulating Libor through at least the beginning of 2011.

He is accused of colluding with co-workers and employees of other firms of manipulating the rate to their benefit. In May, trials are set to start for individuals charged with Libor rigging.

Two years ago, Rabobank consented to pay $1.1 billion to resolve probes in the U.K., the U.S. and the Netherlands over its involvement in Libor rigging as well as the manipulation of related benchmark interest rates. So far, regulators globally have imposed some $6.5 billion in fines against firms for their involvement in manipulating Libor.

In other related, Anthony Allen, another ex-Rabobank trader, has pleaded not guilty to charges related to his alleged involvement in manipulating Libor. The banks’ former liquidity and finance global head waived extradition and made his plea in U.S. federal court.

Allen was indicted last year. He is one of several Rabobank traders charged by the U.S. Justice Department for their alleged involvement in the rigging scandal. The DOJ is accusing Allen of setting up a system that allowed fellow bank employees to trade in derivative products tied to US dollar and Japanese yen Libor rates. These employees were able to convey their trading positions to Libor submitters. Others at the bank were then asked to turn in Libor contributions that were in line with the financial interests of the bank or traders to benefit their trading positions.

Some 18 financial institutions in 11 countries have been tied to the Libor rigging scandal. According to media reports, Deutsche Bank (DB) is under investigation by the state of New York as well as by the DOJ. Already the bank has consented to pay the European Union $351 million for its purported involvement. In 2007, Mark Wong, a Deutsche Bank trader was caught trying to manipulate the rate to his advantage. Last month, Deutsche Bank was one of the two banks that failed the US Federal Reserve’s ‘stress test,’ which is designed to see whether the institutions could handle a financial crisis like the one of 2008. The bank will not be allowed to buy back stock or raise dividends until it passes the test.

Contact our securities law firm if you suspect you were the victim of financial fraud.

Rabobank Trader Pleads Not Guilty to Libor-Fixing Charges, The Wall Street Journal, March 20, 2015

Ex-Rabobank Trader Banned From U.K. Finance for Rigging Libor
, Bloomberg, March 17, 2015


More Blog Posts:
Puerto Rico’s Debt Gets Downgraded to "B" by Fitch Ratings, Stockbroker Fraud Blog, March 28, 2015

Ameriprise Financial Settles 401(k) Fiduciary Breach Case for $27.5M, Institutional Investor Securities Blog, March 26, 2015

First New York Securities to Pay $916K to FINRA for Illegal Short Selling
, Institutional Investor Securities Blog, March 25, 2015

March 26, 2015

Ameriprise Financial Settles 401(k) Fiduciary Breach Case for $27.5M

Ameriprise Financial Inc. (AMP) will pay $27.5 million to settle a fiduciary breach case filed by its retirement plan participants. The plaintiffs contend that the financial firm cost them millions of dollars in excessive fees. The agreement was reached just weeks before the 401k lawsuits were set to go to trial. Even though Ameriprise is settling, the firm is not denying or admitting to the alleged breaches.

The plan participants filed their case in 2011 against the firm and the committes tasked with supervising Ameriprise's employee benefits administration and 401(k) investments. The plaintiffs said that the investments in the 401(k) plan included money from the firm’s RiverSource Investments subsidiary and that both companies were paid fee revenues from the plan dollars of employees.

Under the deal, Ameriprise will not have to modify its plan but it will perform a request-for-proposal bidding process for investment consulting services and recordkeeping services, as well as other modifications. Aside from direct expense reimbursements from the plan, the firm cannot get paid for the administrative services it provides to the plan. Ameriprise also must continue to pay a recordkeeper, offer participants the required plan fee disclosures, and consider using separately managed accounts and collective investment trusts.

Recently, experts at the National Association of Plan Advisors 401(k) Summit gathered to talk about the developing legal risks that are starting to impact advisers and retirement plans. Among the areas ripe for 401(k) cases are the failure to swiftly abide by fee disclosure regulations and deals involving plan providers having discretion over employee stock ownership plans and fund menus. The number of 401K lawsuits has been growing over the last few years.

Aside from the Ameriprise case, Lockheed Martin Corp. recently settled a 401(k) lawsuit for $62 million to resolve employee allegations that it mismanaged its retirement plan. Over 108,000 participants were represented in the case, which alleged excessive fees that were imposed and concealed, hurting investment returns.

Underperformance of its “stable value” fund option was blamed on portfolio managers who were too conservative with their investment choices. The defense contractor, however, maintains that it did nothing wrong.

In 2013, International Paper Co. paid $30 million to settle current and ex-employees claims alleging that its 401(k) plans violated the Employee Retirement Income Security Act. The plaintiffs alleged that International Paper kept up its own publicly traded stock as an investment choice, paid excessive investment management and recordkeeping fees, and fraudulently reported performance histories for the funds of the plans. It too denied the allegations.

And there are other cases, including Tibble v. Edison. That class action case has participants in the Edison International-sponsored plan contending that they also were charged excessive fees.

While the lower courts sided with the plaintiffs, finding that the company failed to act in participants’ best interests when selecting mutual fund retail-class shares (rather than the less expensive institutional class ones), a district court and an appeals court sided with the defendant.

Edison said that because of the statute of limitations under ERISA, participants are only allowed to sue based on funds that had been in the plan for six years or less. Because of this, argued the company, it isn’t possible to hold it liable for all of the funds under dispute. Now, it’s up the U.S. Supreme Court to issue a ruling.

Ameriprise to pay $27.5 million settlement in 401(k) fiduciary breach suit, Investment News, March 26, 2015

Lockheed Martin to pay $62 mln to settle 401(k) lawsuit, Reuters, February 20, 2015

International Paper Pays $30 Million Over 401(k) Claims
, The Wall Street Journal, October 1, 2013

Tibble V. Edison


More Blog Posts:
Ex-Ameriprise Adviser Pleads Guilty To Nearly $1M Fraud, Stockbroker Fraud Blog, October 16, 2014

Fidelity Investments Settles Class Action Lawsuits Over 401(K) Plan for $12 million
, Stockbroker Fraud Blog, September 5, 2014

Investor Files Securities Case Against Fidelity Over Float Income Investments Involving 401(K)s, Institutional Investor Securities Blog, May 6, 2013

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