April 16, 2014

Barclays Settles Two Libor-Related Securities Cases

Barclays (BARC) has just settled two Libor-related securities cases alleging mis-selling related to Libor. In the first lawsuit, filed by Guardian Care Homes over interest swaps worth £70M that were linked to the benchmark interest rate, Barclays has agreed to restructure a loan for the home care operator.

The bank had tried to claim the case lacked merit and that it was the home care operator that owed money. Barclays argued that the swaps, purchased in 2007 and 2008, cost the bank millions of pounds when interest rates plunged in the wake of the economic crisis. In 2012, Barclays was fined $450 million for Libor rigging.

The London interbank offered rate is relied on for measuring how much banks are willing to lend each other money. Among the allegations against the firm was that it tried to manipulate and make false reports about benchmark interest rates to benefit its derivatives trading positions. Barclays settled with regulators in the US and the UK.

In the other Libor mis-selling case, the bank has arrived at a “formal” compromise in the securities case involving property firm Domingos Da Silva Teixeira over more rigging claims and Portuguese construction. The company had filed a 11.1 million euro securities case against the bank.

Also, this week, three ex-ICAP (IAP) brokers appeared in court in London to face charges accusing them of running a securities scam to manipulate the Libor benchmark interest rates. ICAP is the biggest interbroker dealer in the world.

The men allegedly engaged in conspiracy to defraud. Their scam allegedly involved Tom Hayes, an ex-yen derivatves trader. He is charged with multiple counts of conspiracy to fraud while he worked for UBS (UBS) in Japan.

To date, 10 banks and ICAP have been ordered to pay$6 billion in fines. The Libor rigging scandal spans multiple continents and has led to numerous criminal charges. Traders are accused of fixing Libor for profit.

Barclays settles with Guardian Care Homes in Libor-linked court case, The Guardian, April 7, 2014

Three former ICAP brokers in UK court on Libor fixing charges, Reuters, April 15, 2014

Barclays settles second Libor case in week, Telegraph, April 11, 2014

Continue reading "Barclays Settles Two Libor-Related Securities Cases" »

April 15, 2014

SEC Takes a Closer Look at Municipal Bonds

The US Securities and Exchange Commission is finally beginning to scrutinize municipal bond issuers. Recent efforts include the opening of investigations into whether certain municipalities misled investors about their financial well-being before they made their bonds available to them.

The SEC’s municipal-bond enforcement unit is searching for occurrences involving “tension” involving “disclosures and the subsequent announcements” by municipal issuers of financial problems. The regulator is a telling underwriter and issuers that they will be subject the less harsh penalties if they choose to self-report violations rather than waiting for an enforcement action.

The $3.7 trillion muni bond industry is essential for not just local governments but also for investors. Retail investors, especially senior investors, have long looked to muni bonds for tax-free income.

However, investor confidence hasn’t been as solid in recent years in the wake of the financial crisis of 2008 as well as the financial problems facing Jefferson County, Ala., Stockton, Ca., and Detroit, Michigan, which all filed for bankruptcy protection. Then, of course, there are the Puerto Rico bond losses sustained by hundreds of investors that are now the subject of numerous municipal bond fraud claims.

Last month, The Wall Street Journal reported that according to a new study released by the S&P Dow Jones Indices, there is a hidden 1.73% transaction cost included in muni-bond markups. Also, the Municipal Securities Rulemaking Board is trying to push for more transparency from the industry with a rule that would mandate that muni securities dealers obtain the best execution prices for retail investors. The deadline for public comments on the proposed rule was March 21.

The latest SEC investigations are part of the regulators efforts to clamp down on the industry. Last year, it filed securities charges against the city of Harrisburg, Pennsylvania for putting out public statements that were misleading even as its financial health was getting worse. Municipal bond investors were purportedly given dated or incomplete financial data.

The SEC also sued an Indiana school district and its underwriter for purportedly lying about financial data, including failing to submit required reports and notices for a 2005 bond issue and saying it had complied with disclosure obligations in a 2007 bond sale. The SEC says that the underwriter, City Securities Corporation, failed to make sure that the district did in fact comply.

In a 2013 investor alert, the Financial Industry Regulatory Authority reminded investors that munis, as with all bond investments, come with risks, including:

• Defaults
• Data about financial woes impacting the issuer of the bond may not always be available to investors
• A muni bond’s market value may be hard to asses because they don’t trade often
• The market value of the bond may change for reasons unrelated to the issuer’s financial state

Your broker or investment adviser should apprise you of the risks and make sure that you understand what you are getting involved in. They should also make sure that the investment is suitable for you, your goals, and your portfolio and is in your best interests.

Muni regulator pursues rule to increase price transparency, InvestmentNews, March 12, 2014

Indiana school district, bond underwriter charged with fraud -SEC, Reuters, July 29, 2013

SEC Charges City of Harrisburg for Fraudulent Public Statements, SEC, May 6, 2013


More Blog Posts:
FINRA Doesn’t Want Oversight Over Financial Advisers, Says CEO Ketchum, Stockbroker Fraud Blog, April 12, 2014

Large Hedge Funds Invested in Puerto Rico Bonds, Stockbroker Fraud Blog, April 11, 2014

Muni Bond Investors Pay Twice More In Commissions than When Investing in Corporate Bonds, Reports The Journal, Institutional Investor Securities Blog, March 10, 2014

SEC Says At Least 200 Private-Equity Firms Have Imposed Bogus Fees, Institutional Investor Securities Blog, April 9, 2014

April 12, 2014

SAC Capital Advisor’s $1.8B Criminal Securities Fraud Settlement with the DOJ is Accepted by a Federal Judge

U.S. District Judge Laura Taylor Swain has approved the criminal settlement reached between the US Department of Justice and SAC Capital Advisors LP. The hedge fund, which was founded by Steven A. Cohen, consented to pay a $1.8 billion penalty and plead guilty to insider trading charges that resulted in hundreds of millions of dollars in illegal profits.

According to an indictment issued last year, for over a decade, insider trading involving stock of over 20 publicly-traded companies occurred at SAC Capital. The hedge fund is pleading guilty to numerous counts of securities fraud and a single count of wire fraud.

Eight of its employees have either been convicted or pleaded guilty over their involvement, including former SAC Capital portfolio managers Mathew Martoma and Michael Steinberg, who were convicted in their trials but will likely appeal. Cohen, however, has not been criminally charged—although the Securities and Exchange Commission did file a civil case against him. The regulator also put forth an administrative action to get Cohen barred from the securities industry because he failed to properly supervise Steinberg and Martoma or prevent the insider trading from happening.

Of the $1.8 billion, $900 million is a civil forfeiture (lowered to $284 million because of money already paid by SEC to SAC) and $900 is a criminal penalty. Included in the securities settlement is $616 million that will go to the regulator as settlement. Also, as part of the agreement, SAC can no longer manage the funds of outside investors and it will have to undergo a 5-year probation and compliance monitoring period.

SAC is now called Point 72 Asset Management and it can only invest the wealth of Cohen, members of his family, and his employees. The firm oversees around $9 – $10 billion, much lower than the over $16 billion it managed prior to the financial crisis.

The DOJ has been trying to uncover market cheating at hedge funds, publicly traded companies, and expert-networking firms for several years now, and so has the Federal Bureau of Investigation. In nearly five years, about 80 people have entered guilty pleas or been convicted as a result.

The SSEK Partners Group is a securities fraud law firm that represents individual investors and institutional investors. Contact our securities lawyers today.

U.S. judge accepts SAC guilty plea, OK's $1.2 billion deal, Reuters, April 10, 2014

As Judge OKs SAC Plea, Pursuit of Cohen Appears to Cool, The Wall Street Journal, April 10, 2014


More Blog Posts:
SAC Capital Advisors to Pay $1.2B Penalty, Pleads Guilty to Insider Trading Violations, Stockbroker Fraud Blog, November 4, 2014

SEC Charges SAC Capital Hedge Fund Adviser Stephen Cohen Faces With Failure to Stop Insider Trading, Institutional Investor Securities Blog, July 20, 2013

US Hedge Fund Industry is Worried About Tax Implications Under EU Directive, Institutional Investor Securities Blog, November 27, 2013

April 9, 2014

SEC Says At Least 200 Private-Equity Firms Imposed Bogus Fees

According to the US Securities and Exchange Commission, over half of the approximately private-equity firms that it examined have charged unjustified expenses and fees to investors without their knowledge. The regulator’s findings are from its review of the $3.5 trillion industry.

It was the 2010 Dodd-Frank Act that gave the SEC more oversight over money managers, which allowed the agency to scrutinize some firms for the very first time. By the end of 2012, examiners had discovered that certain advisers were wrongly collecting money from companies included in their portfolio, improperly calculating fees, and using assets from the funds to pay for their own expenses. Bloomberg reports that a source in the know about the regulator’s findings said that while some of the issues seem to stem from mistakes, others might have been intentional.

SEC to Look Even More Closely At Private Funds
Per Dodd-Frank, the majority of private equity and hedge funds that are large or midsized have to register with the SEC. A lot of them hold illiquid and complex investments that are tougher to value than the ones at more conventional asset managers. They also can have complex fee structures that can be more difficult for investors to comprehend.

Now, reports Reuters, the SEC has set up a group to look more closely at both. The team will examine the way they disclose fees, value assets, and communicate with investors.

Private-Equity Firms
Private-equity firms use debt and investor capital to buy companies that they will then take public or sell for profit. Annual management fees are usually 1.5 – 2% of committed funds and the firms usually keep 15-20% of investment profits, which is also called carried interest. A lot of buyout firms will charge fees to the companies they obtain to help pay for related expenses, with investors sometimes getting part of the proceeds.

Unfortunately, according to some critics, abuse by private-equity firms can happen because these organizations tend to be so “opaque.” Managers get wide discretion and this can make it hard for investors to know what is going on.

In March, the SEC filed a securities case against Clean Energy Capital LLC and Scott Brittenham, who founded the firm, for allegedly misusing over $3 million to cover office rent, group photography sessions, bottled water, and tuition. The regulator says that investors should have gotten the money instead. The legal representation from Brittenham and Clean Energy Capital maintains that his clients thought the expenses were allowed under Delaware law and limited agreements.

If you are an investor who suspects you suffered losses because your financial representative engaged in negligence or misconduct, contact our securities lawyers today.

Exclusive: SEC forms squad to examine private funds - sources, Reuters, April 7, 2014

Bogus Private-Equity Fees Said Found at 200 Firms by SEC, Bloomberg, April 7, 2014

Detroit Reaches Settlement With Some Bond Insurers, The Wall Street Journal, April 9, 2014

Read the SEC Order Against Clean Energy Capital

More Blog Posts:
SEC Accuses Private Equity Manager of $9M Securities Fraud, Institutional Investor Securities Blog, January 30, 2014

Two Oppenheimer Investment Advisers Settle for Over $2.8M SEC Fraud Charges Over Private Equity Fund, Institutional Investor Securities Blog, March 14, 2013

Securities Fraud Lawsuit Seeks to Recover $49M From 96 Independent Broker-Dealers Liable Over Sales of Tenant-In-Common Exchanges, Stockbroker Fraud Blog, December 15, 2010

April 4, 2014

US Supreme Courts Broadens SOX Whistleblower Protections

In Lawson v. FMR LLC, the US Supreme Court held that the Sarbanes-Oxley Act does extend its whistleblower protections to include employees of privately held contractors that do work for public companies. The Supreme Court case was filed by two ex-employees of privately held companies engaged in mutual funds investments.

The plaintiffs contend that their employers acted against them for bringing up issues they had related to mutual funds. Meantime, their former employers tried to have the lawsuits dismissed, contending that because the plaintiffs had been employees of privately held companies, they could not avail of the whistleblower protections under the SOX Act. Such protections prohibit retaliation against an employee by any officer, contractor, employee, agent, or subcontractor of a public company.

Although previous to Lawson, other federal district courts had made the same assertion, in this latest case, the district court said that the whistleblower provision does in fact protect the employees of any related entity of a public company. This protection would therefore apply to the Lawson plaintiffs.

Later, although divided, a U.S. Court of Appeals for the First Circuit panel said that the protection was limited to publicly traded companies’ employees. Now, however, the Supreme Court is overruling the appeals court, holding that SOX’s whistleblower provisions do in fact apply to employees of privately held contractors that work for public companies. With this broader reach, more whistleblower claims brought under Sarbanes-Oxley will likely follow.

In other whistleblower news, ex-JPMorgan Chase (JPM) employee Keith Edwards was just awarded $73.8 million for his role in helping the government compel the firm to agree to a $614 million settlement over mortgage lending practices that allegedly violated the false claims act.

As part of the agreement, the bank admitted that it turned in thousands of mortgages to be insured by the Federal Housing Administration or the Department of Veterans Affairs even though they did not qualify to receive government guarantees. JPMorgan also acknowledged that it did not disclose problems it found during internal reviews.

Whistleblowers that report certain violations can be entitled to a percentage of what is recovered. Under the Dodd-Frank Act, those who provide original information resulting in a successful action where the U.S. Securities and Exchange Commission recovers at least $1 million may be entitled to 10-30% of that amount.

This week, the SEC announced that the first whistleblower to be awarded under the agency’s program will get another $150,000 after the regulator collected more money in the case. That ups the whistleblower’s award to $200,000 for helping to stop a multimillion-dollar fraud by providing significant data and documents. The total amount is 30% of what has been collected.

Shepherd Smith Edwards and Kantas, LTD LLP is a securities law firm that helps institutional investors and high net worth investors recoup their fraud losses.

Lawson v. FMR LLC= (PDF)

Sarbanes Oxley Act of 2002 (PDF)

SEC Announces Additional $150,000 Payment to Recipient of First Whistleblower Award, SEC, April 4, 2014


JPMorgan whistleblower gets $63.9 million in mortgage fraud deal, Reuters, March 7, 2014


More Blog Posts:
SEC Says Investment Advisors Can Publish Third-Party Endorsements Online, Stockbroker Fraud Blog, April 1, 2014

FBI Probes Possible High-Speed Trading, Insider Trading Link, Institutional Investor Securities Blog, April 1, 2014

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

April 3, 2014

PNC Bank Sues Morgan Stanley & Ex-Trust Adviser For “Surreptitious Conspiracy”

In U.S. District Court for the Western District of Pennsylvania, PNC Bank (PNC) is suing Emily Daly, one of its ex-trust advisers, and her employer Morgan Stanley (MS). According to InvestmentNews, The bank contends that Daly allegedly stole trade secrets, solicited its clients, and violated her employment agreement when she switched firms. Meantime, Morgan Stanley is accused of helping her bring over the confidential data about clients.

Banks don’t like it when advisers take their customers with them when they go to another firm and nonsolicitation agreements can be violated as a result. Also, under PNC’s employment contract, employees are not allowed to take data that isn’t general industry knowledge or from a public source when they leave a firm. The bank contends that Daly helped transfer over $250 million in client assets to Morgan Stanley, which allowed the firm to make fees of about $ 1 million.

Daly even purportedly used her cell phone to take pictures of her computer screen when internal measures made it impossible to download lists of clients. Boxes of client data that were in Daly’s office are said to have gone missing.

PNC wants millions of dollars in damages and back wage payments from Daly because she allegedly recruited some of hear colleagues to go work with Morgan Stanley.

Securities Fraud
At the SSEK Partners Group, we are here to represent investors that have sustained losses because of the negligence or wrongdoing of their representatives or their firms. We work with institutional and high net worth clients.

PNC sues former adviser, Morgan Stanley for "surreptitious conspiracy", Investment News, April 3, 2014

PNC Bank claims former employee, Morgan Stanley stole information, TribLive.com, March 14, 2014


More Blog Posts:
$550M Securities Fraud Case Between Texas’ Wyly Brothers & SEC Goes to Trial, Stockbroker Fraud Blog, April 2, 2014

SEC Says Investment Advisors Can Publish Third-Party Endorsements Online, Stockbroker Fraud Blog, April 1, 2014

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

April 1, 2014

FBI Probes Possible High-Speed Trading, Insider Trading Link

The Federal Bureau of Investigation is continuing to look at whether high-speed trading firms are insider trading when they avail of fast-moving market data to which other investors don’t have access. The agency is concern that the limited availability of material nonpublic information could be placing these traders at an advantage, including giving them access to extremely rapid data feeds. The probe is called the High-Speed Trading Initiative.

Since computer programs initiate high-speed trades, it can be harder to identify suspect activities and prove that they were done on purpose. According to The Wall Street Journal, FBI officials are looking for patterns to indicate that any trading activities took place that might have broken the law. The government would then have to prove that fraudulent intent was a factor.

Trading activities under examination include the placing of trades in groups and then cancelling them to make it appear as if market activity actually went on. This type of practice could potentially be considered market manipulation because others might buy trades because of these false orders. Also under scrutiny is the use of high-speed trade orders to hide that transactions are a result of an illegal tip.

The FBI wants to know whether some brokers trade on data about client orders before making them and if they use data about after-hours trading to defeat the market the next day. Proprietary-trading outfits that trade only for their account, and pension plans, mutual funds, and other rapidly moving broker operations that purchase and sell orders for clients are among those getting a closer look during the probe.

Investigators involved in the High-Speed Trading Initiative also wants to find out whether the barrage of orders that enter the market from high-frequency firms are being manipulated pricewise for the companies’ benefit. Those who participated in such illegal activity or know of others that have used high-frequency trading to their benefit will reportedly benefit if they step forward on their own. The US Department of Justice said it is working with the Commodity Futures Trading Commission, the Securities and Exchange Commission, and Financial Industry Regulatory Authority to look into the matter.

Although the investigation was started last year, it has grown in intensity in recent months in the wake of the closer scrutiny of computerized trading. Also, the SEC and the CFTC are examining links between major exchanges and high-speed traders and whether the firms are getting favored treatment over other investors. The SEC is trying to find out if high-speed firms used order types to get ahead of other investors. Meantime, the CFTC wants to know if high-frequency firms are distorting futures markets on a regular basis by serving as seller and buyer of a transaction. Known as wash trades, this is illegal.

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

FBI Investigates High-Speed Trading, The Wall Street Journal, March 31, 2013

Federal Bureau of Investigation

FBI Seeks Help From High-Frequency Traders to Find Abuses, Bloomberg, March 31, 2013

High-Speed Trading Is Turning Wall Street Into a Casino, Time, April 1, 2014


More Blog Posts:
Puerto Rico Bonds Are At Record Low Prices After FINRA Announces It Is Looking At Transactions, Stockbroker Fraud Blog, March 27, 2014

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

Madoff Ponzi Scam: Five Ex-Aides Convicted of Securities Fraud, Victims to Recover $349 Million, Stockbroker Fraud Blog, March 26, 2014

March 29, 2014

Bank of America Settles Mortgage Bond Claims with FHFA for $9.3B

Bank of America (BAC) will pay $9.3 billion to settle securities claims that it sold faulty mortgage bonds to Freddie Mac (FMCC) and Fannie Mae (FNMA). The deal, reached with the Federal Housing Finance Agency, includes $3.2 billion in securities that the bank will buy from the housing finance entities and a cash payment of $6.3 billion.

The mortgage bond settlement resolves securities lawsuits against the bank, Countrywide, and Merrill Lynch (MER). FHFA, which regulates both Freddie Mac and Fannie Mae, accused Bank of America of misrepresenting the quality of the loans behind residential mortgage-backed securities that the mortgage financing companies purchased between 2005 and 2007.

This is the 10th of 18 securities lawsuits reached by the FHFA over litigation involving around $200 billion in mortgage-backed securities. To date, it has gotten back over $10 billion over such claims.

During the housing boom, Freddie and Fannie bought privately issued securities in the form of investments and became two of the biggest bond investors. The US Treasury was forced to rescue the two entities in 2008 as their mortgage losses grew.

Also, Bank of America and its ex-CEO Kenneth Lewis have settled for $25 million a NY mortgage lawsuit accusing them of deceiving investors about the firm’s acquisition of Merrill Lynch. The state’s Attorney General Eric Schneiderman accused Lewis of hiding Merrill’s growing losses from Bank of America shareholders before the merger vote in 2008 and getting the US government to give over another $20 billion in bailout money by making false claims that he would step out of the merger without the funds. Another defendant, ex-CFO Joe Price, has not settled yet.

NY officials had sued Bank of America, Lewis, and Price under its Martin Act. The US Securities and Exchange Commission also sued the bank over Merrill losses and bonus disclosures. That securities lawsuit was settled for $150 million. Another case, a shareholder class action lawsuit, was settled for $2.43 billion.

Contact our mortgage-backed securities lawyers if you suspect you may have been the victim of securities fraud.

Bank of America to Pay $9.5 Billion to Resolve FHFA Claims, The Wall Street Journal, March 26, 2014


Bank of America to pay $9.3 billion to settle mortgage bond claims, Reuters, March 26, 2014

Federal Housing Finance Agency


More Blog Posts:
$500M MBS Settlement Reached Between Countrywide and Investors, Stockbroker Fraud Blog, May 10, 2013

Bank of America and Countrywide Financial Sued by Allstate over $700M in Bad Mortgage-Backed Securities, Stockbroker Fraud Blog, December 29, 2010

Bank of America’s $8.5B Mortgage Bond Settlement Gets Court Approval, Institutional Investor Securities Blog, January 31, 2014

March 26, 2014

Citigroup and Royal Bank of Scotland Fail Federal Stress Test

A capital plan to reward investors with stock buybacks and dividends by Citigroup Inc. (C) was one of five to fail Federal Reserve stress test. The others that did not succeed were those involving the US units of Royal Bank of Scotland Group Plc. (RBS), HSBC Holdings Plc. (HSBA), Zions Bancorporation (ZIONS) and Banco Santander SA (SAN). The central bank, however, did approve plans for 25 banks, including those from Bank of America (BAC) and Goldman Sachs (GS) after both lowered their dividend and buyback requests.

Regulators have been trying to prevent another financial crisis like the one in 2008 by conducting yearly tests on the way the biggest banks would do in a similar crisis. According to analysts, banks had intended to pay out about $75 billion in excess capital to raise returns and reward shareholders. This is the second year in a row that the Fed has taken issue with certain plans.

While Citigroup requested the least capital return among the five biggest banks in the country last year after its plan was turned down in 2012, this year it could have passed on just quantitative grounds. However, the central bank found numerous deficiencies in Citigroup’s planning practices, including whether it could project revenues and losses while under stress, as well as be able to properly measure exposures.

Now, Citigroup and the other institutions that weren’t approved must turn in revised capital plans and suspend increased dividend payments until they get formal approval by the Fed. The foreign banks will not be allowed to pay greater dividends to their parent firm. And while the Fed approved the shareholder-reward plans of Goldman and Bank of America, they had to resubmit them after the strategies initially fell under minimum capital levels in the ‘severely adverse’ stress testing conditions.

Banks usually announce buybacks and dividend raises soon after the stress test results are issued. Collectively this year, banks got approval to pay out about 60% of estimated net income for the upcoming four quarters.

Last week, the Fed disclosed the way banks are projected to perform in a hypothetical recession with unemployment in this country at 11.3%, stock prices dropping nearly 50%, and the costs of homes dropping 25%. Projected losses for the 30 banks was at $377 billion over 9 nine quarters.

At The SSEK Partners Group, our securities lawyers are continuing to work with investors who suffered losses from the last economic crisis because of the negligent investment advice and inadequate broker services they received. We handle securities fraud cases involving mortgage-backed securities, residential mortgage-backed securities, auction rate securities, real estate investment trusts, non-traded real estate investment trusts, collateralized debt obligations, alternative investments, collateralized mortgage obligations, derivative securities, credit default swaps, and other investments that failed. Our securities attorneys represent clients in arbitration and in the courts.

Fed Kills Citi Plan to Pay Investors, The Wall Street Journal, March 26, 2014

Federal Reserve Board announces approval of capital plans of 25 bank holding companies participating in the Comprehensive Capital Analysis and Review, Board of Governors of the Federal Reserve, March 26, 2014

Dodd-Frank Act Stress Tests, Board of Governors of the Federal Reserve, March 24, 2014


More Blog Posts:
Madoff Ponzi Scam: Five Ex-Aides Convicted of Securities Fraud, Victims to Recover $349 Million, Stockbroker Fraud Blog March 26, 2014

LPL Financial Fined $950K by FINRA for Supervisory Failures Involving Alternative Investments, Stockbroker Fraud Blog March 25, 2014

Securities Class Action Lawsuits Don’t Help Investors Recover, Says New Study, Institutional Investor Securities Blog, March 24, 2014

March 24, 2014

Securities Class Action Lawsuits Don’t Help Investors Recover, Says New Study

According to a study commissioned by the US Chamber Institute for Legal Reform, securities class action lawsuits are not a help to investors seeking to recover their investment losses. The study, which was released by Navigant Consulting, found that class action litigation costs investors close to $39 billion annually even as they recover only about $5 billion.

To arrive at the finding, the authors of the calculated the wealth lost by shareholders when lawsuits were announced right after a class period had ended. Usually, at this point, the class members consisted largely of the same shareholders who experienced the first drop. Per the study, a significant percentage of proceeds from the settlement was given to plaintiffs who almost always would not have recovered anything if a securities case was litigated. However, said the authors, after looking at 50 allocation plans for large settlement, they discovered that when redistribution of the wealth happens it hardly resembles the alleged injury. Instead, an analysis of more than 14,000 class action securities cases from 1996 to now showed, shareholders who were alleged fraud victims and the plaintiffs of these claims sustained “an incremental wealth loss” of over $262 billion because class action securities cases were filed.

In a report also issued last month based on its own study, consumer advocacy group Public Citizen found that it is private securities lawsuits that are effective when it comes to deterring fraud. Lisa Golber, the co-author of the study. said that institutional investors widely see these cases as a way to keep up their investments’ sustainability. The report found that private securities fraud cases compensate investors and do what the SEC sometimes can’t because of its lack of resources.

Our securities fraud lawyers represent investors with private securities lawsuits and securities arbitration claims. Submitting a private securities claim increases your chances of getting back the maximum recovery you are owed. Contact The SSEK Partners Group today.

Study says securities class actions actually harm investors, Legal Newsline, February 28, 2014

U.S. Chamber Institute for Legal Reform

Economic Consequences: The Real Costs of U.S. Securities Class Action Litigation

Public Citizen's Study (PDF)


More Blog Posts:
US Supreme Court Considers Whether to Limit Securities Fraud Lawsuits, Institutional Investor Securities Blog, March 5, 2014

Supreme Court to Hear Texas-Based Halliburton’s Class Action Securities Fraud Case Again, Stockbroker Fraud Case, November 18, 2013

Texas Judge Throws Out Verizon Retirees’ Class Action Lawsuit Over $8.4B Pension Sales to Prudential, Stockbroker Fraud Blog, July 9, 2013

March 22, 2014

Credit Suisse to Pay $885M To Settle RMBS Fraud Lawsuit with FHFA, Continues to Face Allegations It Hid US Accounts from Internal Revenue Service

Credit Suisse (CS) will pay $885 million to resolve securities allegations related to the sale of approximately $16.6B in residential mortgage-backed securities that it made to Freddie Mac (FMCC) and Fannie Mae (FNMA) prior to the financial crisis. The RMBS settlement is with the Federal Housing Finance Agency, which oversees both government-controlled financing companies. It closes the books on two lawsuits.

The mortgage cases accused Credit Suisse of making misrepresentations when selling the RMBS to the two companies. Because the deal was reached prior to Credit Suisse submitting its financial results for 2013, the Swiss bank says it will take a related $312 million charge for last year, as well as post a loss for the most recent fourth quarter.

In other Credit Suisse news, one of the firm’s ex-bankers has pleaded guilty in federal court to assisting US clients so that they could avoid paying taxes to the IRS. Andreas Bachmann is one of seven employees at the firm indicted on a criminal charge that he helped Americans conceal assets of about $4 billion.

Since agreeing to work with prosecutors, Bachmann has implicated his superiors at Credit Suisse by saying that they allowed US law and a deal between the firm and the IRS (to withhold and pay taxes on the accounts of clients that are US citizens) to be violated. Bachmann claims that when he spoke about the practices internally, an executive told him to make sure he wasn’t caught. Also, in his statements of fact, Bachmann said that compliance workers at Credit Suisse did not act to make sure compliance was taking place per a prohibition made in a deal with the IRS that its bankers were prohibited from talking about investments in US securities.

Bachman said that of his 100 clients, at least 25 of them were based in the US. He contends that that the IRS wasn’t notified about many of the US accounts and sham structures were used to hide who actually owned them.

The ex-Credit Suisse banker’s plea comes after a Senate subcommittee issued a report finding that the firm helped 22,000 Americans conceal up to $10 billion from the IRS.

Ex-Credit Suisse Banker Bachmann Admits Guilt in Tax Case, Bloomberg, March 12, 2014

Credit Suisse Settles Mortgage Litigation for $885 Million, The Wall Street Journal, March 21, 2014


More Blog Posts:
Credit Suisse Admits Wrongdoing and Will Pay $196M to Settle SEC Charges That It Provided Unregistered Services to US Customers, Stockbroker Fraud Blog, February 22, 2014

JPMorgan Will Pay $614M to US Government Over Mortgage Fraud Lawsuit, Stockbroker Fraud Blog, February 8, 2014

Credit Suisse Officials Accused of Telling Staff to Ignore Due Diligence Standards, Accept Questionable Loans Involving, Institutional Investor Securities Blog, March 11, 2014

March 19, 2014

Non-traded REITS Exhibit Unbelievable Resistance to FINRA Disclosure Rules

The non-traded real estate investment trust industry want to delay the implementation of the Financial Industry Regulatory Authority disclosure rule until the end of 2015. The rule would require that investors be given more accurate data about the valuation of direct participation programs and nontraded REITs. This should provide investors a more accurate picture of how much it costs to buy nontraded REIT shares. Currently, the self-regulatory authority’s proposal would put the rule change into effect at the end of 2014, which would be about six months after obtaining Securities and Exchange Commission approval.

Almost all Nontraded REIT vendors are independent brokerage firms. Generating close to $20 billion in sales last year, which is twice as much as the year prior, broker-dealers and their representatives have gotten commission boosts due to their typical 7% commission.

If the disclosure rule is approved, broker-dealers would no longer be able to list a nontraded REITs per-share value at $10, which is the price their clients would typically pay. Instead, commissions and fees paid to dealer and broker managers would have to be factored. This would lower the share price on every customer account.

In a letter to the SEC, the Investment Program Association said it is asking for an 18-month implementation period to avoid unfavorable consequences not just for nontraded REIT industry and others that depend on unlisted DPPs and REITs as capital sources, but also for investors. The industry trade group wants to slow down changes to the way REIT valuations are presented on client account statements and give brokerage formers and Nontraded REIT sponsors more time to make adjustments to any new requirements. Already, contends IPA Chairman and Carey Financial President Mark Goldberg, the expected changes are having a negative impact on new offerings of Nontraded REITs and DPPs.

Goldberg says that the industry supports greater disclosure as well as the reduction of commissions. He also wrote that net investments should be calculated by just subtracting dealer manager fees and commissions. He believes this is in line with the “point of sale cost deduction approach” employed for other securities.

Commenting on the industry’s move to delay the implementation of the disclosure rule, Shepherd Smith Edwards and Kantas, LTD LLP Founder and stockbroker fraud lawyer William Shepherd said: “Any attempt to delay implementation of new rules to help investors know the true value of any investment is scandalous. Consumer protection groups have often been critical of FINRA, which is a trade association itself operated by the brokerage industry. Yet, financial advisory firms are fighting to keep from being subject even to FINRA regulation. By now opposing a requirement of greater disclosure of the true value of non- traded (and often unmarketable) REIT investments, we see just how far a financial investment trade organization will go to obscure information regarding problem investments such as many of these REIT’s!”

If you think that your non-traded REIT losses are a result of securities fraud, please contact our stockbroker fraud lawyers immediately. We represent retail and institutional investors in getting their non-traded REIT investment losses back.

Nontraded REITs want delay in Finra's proposed disclosure rule, InvestmentNews, March 14, 2014

Download the Investment Program Association's Letter (PDF)


More Blog Posts:

FINRA Bars Ex-LPL Broker Over Nontraded REIT Sales, Stockbroker Fraud Blog, December 27, 2013

Securities America, Ameriprise, Among Independent Broker-Dealers Charged $10.75M by Massachusetts for Nontraded REIT Sales, Stockbroker Fraud Blog, September 4, 2013

Mortgage REITs See a Slump, Institutional Investor Securities Blog, August 14, 2013

Contact Us

(800) 259-9010

Our Other Blog

Recent Entries