October 23, 2014

SEC to Reject BlackRock Inc. Proposal for Nontransparent Exchange-Traded Fund

In a preliminary ruling, The U.S. Securities and Exchange Commission said it expects to reject BlackRock Inc.’s (BLK) proposal to put out a nontransparent exchange-traded fund. BlackRock sought permission to sell the ETF from the regulator in 2011.

The fund wants to keep its investments secret, which go against SEC rules. BlackRock proposed using a blind trust to manage the securities of a portfolio without revealing the contents. It sought exemption from the agency’s rules, which mandate that disclosure be provided daily. Instead, BlackRock would have disclosed its holdings with the nontransparent ETF on a quarterly basis. One reason that certain fund managers are pushing for less frequent disclosure is their worry that daily disclosures could allow investors to imitate the trades.

Now, however, the SEC is saying that without portfolio transparency such as a plan does not guarantee that that the ETF would trade consistently or near net asset value. The regulator said that the proposed structure sets up substantive risk that ETF share market prices might materially deviate from the ETF’s NAV/share, especially during stressful periods in the market. This could “inflict substantial cost on investors,” noted the Commission.

Meantime, the SEC is considering other nontransparent ETF products. Others firms are also looking offer similar ETFs than the one BlackRock proposed, including Precidian Investments, which filed its own proposal last year. The SEC said it was unlikely to approve that one also. PowerShares, which is an Invesco Ltd. Unit, and Capital Group Cos. are other firms in favor of nontransparent ETFs. The SEC has opened the floor to public comments through mid-November.

Our exchange traded fund fraud lawyers represent investors in recouping their losses. Contact The SSEK Partners Group today.

SEC to Keep Veil Open on ETFs, The Wall Street Journal, October 23, 2014

Money managers to redraw battle plans after SEC nixes batch of nontransparent ETFs, InvestmentNews, October 22, 2014

More Blog Posts:
SEC To Examine Exchange Traded-Fund Regulation Again, Stockbroker Fraud Blog, March 22, 2014

Stifel, Nicolaus & Century Securities Must Pay More than $1M Over Inverse and Leveraged ETF Sales, Stockbroker Fraud Blog, January 14, 2014

Pension Fund Securities Lawsuits: JPMorgan to Face MBS Case, PERSM Files Class Action Case, & Institutional Clients Can Sue BP, Institutional Investor Securities Blog, October 17, 2014

October 22, 2014

SEC, Federal Reserve, HUD Approve Laxer Mortgage-Lending Rule

The U.S. Securities and Exchange Commission, the Department of Housing and Urban Development, the Federal Reserve, the Federal Housing Finance Agency, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency have jointly approved a new rule for mortgage-backed securities and collateralized loan obligations. The regulation completes what had been a delayed provision of the 2010 Dodd Frank Act.

The rules are supposed to enhance the quality of loans by providing banks with a financial impetus to make sure the mortgages can be repaid. An earlier version of the proposed rule had obligated banks to retain either 5% of the risks of mortgages sold and packaged to investors or require a 20% borrower down payment.

Regulators, however, were concerned that these stipulations could hurt the housing market and they have since rescinded that 20% down payment requirement. The 5% of the risk on banks’ books when securitizing loans, however, still stands. And banks can get around the 5% risk retention requirement as long as they confirm the borrower’s ability to repay the loan and remain in compliance with other requirements, including debt payments that aren’t above 43% of income.

Private label securities that were put out without federal backing will fall under the jurisdiction of the new rule. Loans that were sold to Freddie Mac (FMCC) and Fannie Mae (FNMA), however, are exempt from the risk-retention requirements.

The regulation will go into effect next fall. It will be evaluated for impact in 2019 and every five years thereafter.

At The SSEK Partners Group, our mortgage-backed securities lawyers represent investors that suffered losses from fraud, negligence, and criminal acts by members of the securities industry. Please contact our securities fraud law firm to request your free case consultation. You may have reason to pursue an MBS fraud claim.

The Final Rule for Risk Retention (PDF)

Regulators Approve New Risk-Retention Rules on CLOs, The Wall Street Journal, October 1, 2014

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

Judge Rakoff Approves Citigroup’s $285M Mortgage Securities Fraud Deal with the SEC, Institutional Investor Securities Blog, August 5, 2014

October 21, 2014

Wells Fargo to Pay $5M Over Inadequate Controls, Altered Documents

Wells Fargo Advisers LLC has consented to pay $5M to resolve U.S. Securities and Exchange Commission charges accusing the firm of not keeping up adequate controls so that one of its employees would be unable to use a customer’s nonpublic information to engage in insider trading. Wells Fargo also was charged with taking too long to produce documents during the SEC’s probe and giving the regulator an altered document related to a review of a broker’s trading activities.

Federal law mandates that investment advisers and broker-dealers set up, keep up, and enforce procedures and policies so that material nonpublic data of customers is not misappropriated. This is the first time the Commission has charged a brokerage firm for not protecting a customer’s material, nonpublic data. Wells Fargo is settling the charges without admitting or denying wrongdoing.

The agency says that Wells Fargo broker Waldyr Da Silva Prado Neto found out in confidence from a customer that private equity firm 3G Capital Partners Ltd. was acquiring Burger King in 2010. The client had placed $50 million in the fund that would go on to acquire the hamburger chain. Prado then traded on the information before it was made public. The regulator filed insider trading charges in 2012.

The Commission says that the Wells Fargo groups responsible for supervision and compliance became aware of indicators that Prado was misusing customer data. But due to a lack of coordination and assigned accountabilities, they did not take action.

Also according to the SEC’s order, when its investigators requested documents related to Wells Fargo’s compliance review of Prado’s trading, the firm left out some documents related to his involvement in Burger King stock. The broker-dealer eventually provided the documents but not until six months later.

Also, one of the documents was purportedly altered with additional language before it was given to the SEC. The regulator is accusing Wells Fargo of not providing an accurate record of Prado’s compliance review.

Last week, the Commission instituted an administrative proceeding against Judy K. Wolf, the compliance officer accused of altering the document. She has been let go from Wells Fargo. Her job with the firm was to identify potentially suspicious trading, either by clients and customers or personnel, and analyzing whether material nonpublic data was involved.

In 2010, Wolf made a document summarizing her review of Prado’s trading activity that was concluded with no findings. The SEC Enforcement Division says that in 2012, she modified the document after Prado was charged, to make it look as if her review had been more thorough. Although Wolf initially denied altering the document, she later admitted to making the changes.

Read the SEC Order Charging Wells Fargo (PDF)

Read the SEC Order Against Wolf (PDF)

Read the SEC Order Charging Prado (PDF)

More Blog Posts:
FINRA Bars Ex-Wells Fargo Broker From Industry For Allegedly Bilking Customers, Expels HFP Capital Markets LLC for Securities Fraud, Stockbroker Fraud Blog, September 19, 2014

Wells Fargo Must Face Los Angeles’s Lawsuit Over Predatory Loans
, Stockbroker Fraud Blog, May 30, 2014

Deutsche Bank, Wells Fargo, Citigroup Sued by Pimco and Blackrock Over Trustee Roles Involving Mortgage Bonds, Institutional Investor Securities Blog, July 3, 2014

October 17, 2014

Pension Fund Securities Lawsuits: JPMorgan to Face MBS Case, PERSM Files Class Action Case, & Institutional Clients Can Sue BP

JPMorgan Ordered to Face $10B Mortgage-Backed Securities Case
A federal judge said that JPMorgan Chase & Co. (JPM) must face a class action securities fraud lawsuit filed by investors accusing the bank of misleading them about the risks involved in $10B of mortgage-backed securities that they purchased from the firm prior to the financial crisis.

U.S. District Judge Paul Oetken certified a class action as to the bank’s liability but not for damages. He said it wasn’t clear how investors were able to value the certificates they purchased considering that the market hadn’t been especially liquid. He did, however, say that the plaintiffs could attempt again to seek class certification on class damages.

The class in this securities case is made up of investors in certificates from nine trusts established by JPMorgan for an April 2007 offering. The lead plaintiffs are the Construction Laborers Pension Trust for Southern California and the Laborers Pension Trust Fund for Northern California.

Mississippi Pension Fund Files Class Action Securities Case
The Public Employees’ Retirement System of Mississippi is helming a class action securities case accusing Millennial Media Inc. that alleges Securities Exchange Act of 1934 violations. PERSM contends that Millennial Media and a number of other entities, including Oppenheimer & Co. (OPY), Morgan Stanley & Co. (MS), Stifel Nicolaus & Company (SF), Goldman Sachs & Co. (GS), Allen & Company LLC, and Barclays Capital Inc. (BARC) concealed information that didn’t reflect well on Millennial. The pension group says that once the data became public, the company’s stock fell.

Millennial Media started its initial public offering on March 28, 2012, selling, along with certain shareholders, over 11.7 million shares to make aggregate gross proceeds of over $152 million. With a second stock offering six months latter, Millennial and its shareholders made aggregate gross proceeds greater than $162 million from another 11.5 million shares.

The plaintiffs believe that the defendants made misleading and materially false statements and omissions that caused Millennial’s common stock to be offered and traded at artificially high prices during the class period. When the truth about the company’s operations and prospects became clear, Millennial's common stock dropped 86.56 percent from its high price during the class period, causing significant damages and losses to plaintiffs and other class members.

Institutional Clients can Sue BP for Investment Losses
Earlier this month the U.S. District Court for the Southern District of Texas put out a number of rulings allowing certain institutional clients to pursue securities claims against British Petroleum (BP). The plaintiffs want to get back their investment losses stemming from the Gulf of Mexico oil spill in 2010.

Included among the plaintiffs are U.S. public pension funds, ERISA trusts, limited partnerships, and private and public pension funds in other countries. They claim that BP misrepresented not just its commitment to putting into effect safety reforms in the years leading up to spill but also the extent of the spill when it happened. They want to get back the losses they sustained in BP American Depository Shares and common stock shares from January ‘07 through June ’10.

JP Morgan Is About To Face An Enormous Class Action Lawsuit By Investors, Business Insider/Reuters, September 30, 2014

Class action lawsuit alleges Millennial Media misled shareholders, BizJournals, October 1, 2014

More Blog Posts:

DOJ Charges Another Two Ex-Rabobank Traders Over Libor Manipulation, Institutional Investor Securities Blog, October 16, 2014

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

Ex-Ameriprise Adviser Pleads Guilty To Nearly $1M Fraud, Stockbroker Fraud Blog, October 17, 2014

October 16, 2014

DOJ Charges Another Two Ex-Rabobank Traders Over Libor Manipulation

The U.S. Department of Justice has indicted another two ex-Rabobank (RABO) traders over their alleged involvement in a London interbank offered rate manipulation scam. The charges widen the Federal Bureau of Investigation’s probe into the Dutch bank to include U.S. dollar Libor, as well as yen libor.

Anthony Allen and Anthony Conti, both from England, are the two ex-Rabobank derivatives traders that have been indicted. The charges accuse them of taking part in a Libor manipulation scam involving derivatives linked to both the yen and U.S. libor benchmark rates to benefit themselves and the bank.

In 2013, Rabobank reached a settlement with the Justice Department and consented to pay a $325 million penalty to resolve allegations related to the bank’s submissions for LIBOR and the Euro Interbank Offered Rate. The government had charged Rabobank with wire fraud for its involvement in manipulating both benchmark interest rates.

Rabobank is one of a number of large financial institutions to admit to misconduct related to the benchmark manipulation criminal probe. Rabobank also settled similar allegations with the Commodity Futures Trading Commission (CFTC) for $475 million, the U.K. Financial Conduct Authority (FCA) for $170 million, and the Openbaar Ministerie in Holland for about $96 million.

Aside from Allen and Conti, four other ex-Rabobank employers were indicted for Libor manipulation, including Tetsuya Motomura and Paul Thompson. Takayuki Yagami and Paul Robson pleaded guilty to one count of conspiracy related to their involvement with the Libor scheme.

Meantime, Bloomberg reports, the European Commission is getting ready to announce penalties related to Libor rate rigging involving the Swiss frank. Sources say that banks that have been settlement negotiations include UBS AG (UBSN), Credit Suisse Group AG (CSGN), JPMorgan Chase & Co. (JMP) and Royal Bank of Scotland Group Plc. (RBS).

Two More Former Rabobank Traders Charged in Libor Probe, The Wall Street Journal, October 16, 2014

Global Banks Said to Get EU Fines Over Swiss Franc Libor, Bloomberg, October 16, 2014

Rabobank Admits Wrongdoing in Libor Investigation, Agrees to Pay $325 Million Criminal Penalty, DOJ, October 29, 2013

More Blog Posts:
LPL Financial Fires Texas Branch Manager Over Selling Away Claims, Settles with Senior Investors in Massachusetts for $541,000 Over Faulty Variable Annuity Switches, Stockbroker Fraud Blog, October 15, 2014

Barclays to Pay $20M To Settle Libor Manipulation, Institutional Investor Securities Blog, October 14, 2014

Virginia Files $1.15B Securities Lawsuit Against Citigroup, Credit Suisse, JPMorgan Chase, and Other Big Banks, Institutional Investor Securities Blog, September 27, 2014

October 14, 2014

Barclays to Pay $20M To Settle Libor Manipulation

Barclays PLC (BARC) has consented to pay $20 million to settle complaints over the manipulation of the London interbank offered rate benchmark. As part of the accord, the bank will cooperate with a group of Eurodollar-futures traders that have filed lawsuits against other banks over Libor manipulation.

The deal resolves claims by firms and individuals that traded in Eurollar futures contracts and options on exchanges that were Libor based from 1/1/05 to 5/31/10. Now, a district court judge in Manhattan must approve the settlement.

This is the first settlement reached in the U.S. antitrust litigation involving investments linked to Libor. In addition to paying the $20 million, Barclays will help traders with their claims against other banks. This will include giving documents and information and other support to the plaintiffs so that they can bolsters their cases.

Authorities around the world have been looking into claims that over a dozen banks modified the submissions for establishing Libor and other benchmarks to make money from bets on interest-rate derivatives or cause their finances look more robust. In 2012, U.K. and U.S. authorities fined Barclays $469 million related to benchmark rate manipulation.

Bank of America Corp. (BAC), JPMorgan Chase & Co. (JPM), and Citigroup (C) are some of the other banks that were sued over allegedly manipulating Libor.

Meantime, regulators are trying to reach a settlement over rate-rigging allegations made against Deutsche Bank AG (DBK). According to The New York Times, U.S. prosecutors are considering whether to get the bank to plead guilty to interest-rate rigging.

Also under investigation of suspected wrongdoing related to currency manipulation are UBS (UBS), JPMorgan Chase, Barclays (BARC), Citigroup, and several other banks. Past resolved cases against these firms could be opened up if any misconduct was discovered that potentially violated earlier settlements related to interest rate manipulation.

Meantime, in the United Kingdom, the Financial Conduct Authority may be close to reaching settlements with JPMorgan, Citigroup, HSBC (HSBC) the Royal Bank of Scotland, and UBS. The agreement could potentially be a collective one.

U.S. May Press Deutsche Bank for Guilty Plea on Libor, NYT Says, Bloomberg, October 6, 2014

Barclays to pay $20 million to settle U.S. class action over Libor, Reuters, October 8, 2014

More Blog Posts:
NY Sues Barclays Over Alleged High Speed Trading Favors in Dark Pool, Stockbroker Fraud Blog, June 26, 2014

Virginia Files $1.15B Securities Lawsuit Against Citigroup, Credit Suisse, JPMorgan Chase, and Other Big Banks, Institutional Investor Securities Blog, September 27, 2014

Barclays to Pay $15M SEC Settlement Over Compliance Failures Following Lehman Brothers Acquisition, Pays $61.7M Fine to U.K.'s FCA Over Client Asset Issues, Institutional Investor Securities Blog, September 24, 2014

October 11, 2014

Credit Suisse, Goldman Sachs, JPMorgan, and 16 Other Banks Agree to Swaps Contract Modifications to Assist Failed Firms

JPMorgan Chase & Co. (JPM), HSBC Holdings Plc (HSBA), Goldman Sachs Group Inc. (GS), Credit Suisse (CS), and fourteen other big banks have agreed to changes that will be made to swaps contracts. The modifications are designed to assist in the unwinding of firms that have failed.

Under the plan, which was announced by the International Swaps and Derivatives Association, banks’ counterparties that are in resolution proceedings will postpone contract termination rights and collateral demands. According to ISDA CEO Scott O’Malia, the industry initiative seeks to deal with the too-big-to-fail issue while lowing systemic risks.

Regulators have pressed for a pause in swaps collateral collection. They believe this could allow banks the time they need to recapitalize and prevent the panic that ensued after Lehman Brothers Holdings Inc. failed in 2008. Regulators can then move the assets of a failing firm, as well as its other obligations, into a “bridge” company so that derivatives contracts won’t need to be unwound and asset sales won't have to be conducted when the company is in trouble. Delaying when firms can terminate swaps after a company gets into trouble prevents assets from disappearing and payments from being sent out in disorderly, too swift fashion as a bank is dismantled.

After Lehman’s bankruptcy filing, it still had tens of thousands of individual derivative positions. Trading partners tried to close out swaps trades with the firm right away, even demanding their collateral back. Because of this, billions of dollars of swap-termination payments were issued.

Current U.S. bankruptcy laws exempt swaps and other derivatives from the stay that prevents creditors of a firm that has failed from collecting on what they are owed right away. Banks’ swap counterparties, however, have been able to move fast to grab collateral.

ISDA has changed the language in a standard swaps contract following concerns from U.S. regulators that close-out derivatives transactions could slow resolution efforts. The changes allow banks to get involved in overseas resolution regimes that might only have been applicable to domestic trades.

The deal with the banks stretches out delays or stays to 90% of what is outstanding of notional value of derivatives. The firms have agreed in principal to wait up to 48 hours before canceling derivatives contracts and collecting payments from firms that are in trouble.

Establishing a credible plan to unwind failed banks could get rid of the impression that governments will rescue firms if they become too big too fail.

The other banks that have consented to this agreement:
· Bank of America (BAC)
· Bank of Tokyo-Mitsubishi UFJ
· Sumitomo Mutsui Financial Group Inc.
· Societe Generale SA (GLE)
· Barclays Plc (BARC)
· Royal Bank of Scotland Group Plc
· BNP Paribas SA (BNP)
· Nomura Holdings Inc.
· Citigroup Inc. (C)
· Mizuho Financial Group. Inc.
· Credit Agricole SA (CA)
· Morgan Stanley (MS)
· Deutsche Bank AG (DBK)

The Wall Street Journal says that under the agreement, firms are agreeing to forfeit certain rights that exist with their current contracts.

Banks Back Swap Contracts That Could Help Unwind Too-Big-to-Fail, Bloomberg, October 11, 2014

Banks Ink Swaps Deal With U.S. Regulators
, The Wall Street Journal, October 12, 2014

International Swaps and Derivatives Association

More Blog Posts:
Securities Fraud: Ex-Ameriprise Adviser to Pay $3M for Ponzi Scam, Four Insurance Agents Allegedly Defrauded Senior Investors, and Trading in Nine Penny Stocks is Suspended, Stockbroker Fraud Blog, October 8, 2014

As SEC Examines Private-Equity Consultant Salaries, Blackstone Stops Monitoring Fees, Institutional Investor Securities Blog, October 8, 2014

Private Equity Firms, Including Blackstone, Settle ‘Club Deals’ Case with $325M Settlement, Stockbroker Fraud Blog, August 9, 2014

October 10, 2014

SEC Panel Recommends Changes to Accredited Investor Definition

The SEC Investor Advisory Committee (IAC) is recommending that the agency to make substantial revision to who should be considered a sophisticated investor. This could change who can get involved in private placements as investors.

Currently, there are about 8.5 million accredited investors. The Dodd-Frank Act obligates the SEC to reexamine the accredited-investor definition every four years.

At the moment, accredited investor standard only allows individuals who make a minimum of $200K or have a net worth of $1M—the value of their primary residence not included—to invest in private placement purchases. If a couple’s net worth is $300K together, they may qualify too.

Now, the SEC panel is saying that such criteria for private placement investments merely oversimplifies the process of determining whether an individual has enough money and liquidity to handle the possible risks involved in private offerings. The IAC said that the existing thresholds fail to provide enough protection for investors, whose net worth may have been determined by illiquid holdings or retirement funds. Many retirees regularly depend on their investments to cover their living expenses every month, so those monies can fluctuate.

The committee wants the Commission to get rid of these thresholds. Instead, it wants a sophisticated investor to have had substantial education, professional credentials, and experience in investing. A financial-sophistication test is another method the IAC is suggesting. The committee also doesn’t think that retirement accounts should be included when factoring whether an investor meets the $1 million wealth threshold, were that to remain in place.

The IAC said that if the regulator decides to keep the standards for net worth and income, then the SEC should only allow investors of private placements to put in a certain percentage of their assets or funds. The committee wants third parties, rather than securities issuers, to verify accredited investor status. It also wants the non-accredited investors in private offerings that were recommended by a purchaser representative to get more robust protections.

Aside from the net worth and income thresholds that are criteria for individual accredited investors, federal securities laws also defines accredited investors as:

· A bank, insurer, business development firm, registered investment company or small business investment company

· An employee benefit plan if its assets are over $5 million or its investment decisions are handled by a bank, registered investment adviser, or insurer.

· An executive officer, director, or general partner of the company that is selling the securities.

· A charitable organization, partnership, or corporation with assets above $5 million.

· A business in which all equity owners are accredited investors.

· A trust that was not set up to acquire the securities offered and has assets above $5 million.

The SSEK Partners Group is a securities fraud law firm that helps high net worth individuals and institutional investors to recoup their losses.

Accredited-investor definition revamp backed by SEC panel, Investment News, October 9, 2014

SEC Panel Urges Update of ‘Accredited Investor’ Standard, CFO, October 13, 2014

The Dodd-Frank Act (PDF)

More Blog Posts:
SEC Lifts Ban on General Solicitation, Institutional Investor Securities Blog, September 23, 2013

Investment Opportunities to Get More Advertising Exposure Because of JOBS Act Mandate Lifting Ban on General Solicitation, Stockbroker Fraud Blog, January 29, 2013

FINRA Bars Former Raymond James Adviser for Elder Financial Fraud, Charges SWS Over Variable Annuity Supervision, Stockbroker Fraud Blog, October 7, 2014

October 8, 2014

As SEC Examines Private-Equity Consultant Salaries, Blackstone Stops Monitoring Fees

According to The Wall Street Journal, the operating partners of private equity firms, are coming under closer scrutiny. These professionals are typically retained when acquiring a company with the intention of enhancing its operations.

These operating partners are usually listed with full-time employees. Regulators are worried that buyout firms are not providing private equity fund investors enough information about the way these consultants are compensated.

The firm usually doesn’t pay its operating partners. Instead, their salary usually comes from the company they are advising or the investors of the buyout firm. However, the WSJ’s examination of regulator filings regarding 80 private equity companies found that only about fifty percent of them disclosed where the money paid to operating partners comes from.

Meantime, Blackstone Group (BX) LP has decided to stop charging extra consulting fees when taking or selling public companies. This could save fund investors millions of dollars. The changes come in the wake of criticism from a senior SEC official about the practice.

These consulting payments are also known as monitoring fees. Private equity firms get into contracts with companies they purchase and they are paid these fees for years. If the company is sold or goes public before the contract is up, then the remaining fees are accelerated via a lump sum payment for services that won’t have to be rendered. Now, Blackstone will no longer collect these fees.

The SEC is looking at whether buyout firms garner hidden fees at cost to investors and without their permission or proper disclosure.

The SSEK Partners Group works with high net worth individual investors and institutional clients to recover their securities fraud losses.

Heightened Regulatory Scrutiny Makes Blackstone Halt Some Transaction Fees, The New York Times, October 8, 2014

Private-Equity Consultants Face SEC Scrutiny, The Wall Street Journal, October 8, 2014

More Blog Posts:
T.J. Malone’s Lincolnshire Management Settles with SEC for $2.3M Over Purportedly Improper Allocations That Cost Its Funds, Institutional Investor Securities Blog, September 23, 2014

Barclays to Pay $15M SEC Settlement Over Compliance Failures Following Lehman Brothers Acquisition, Pays $61.7M Fine to U.K.'s FCA Over Client Asset Issues, Institutional Investor Securities Blog, September 24, 2014

Private Equity Firms, Including Blackstone, Settle ‘Club Deals’ Case with $325M Settlement
, Stockbroker Fraud Blog, August 9, 2014

October 7, 2014

Rabobank Groep NV Suspends Currencies Traders, British Banker Pleads Guilty in Libor Probe

In London, Rabobank Groep NV (RABN.UL) has suspended two senior currencies traders in the wake of an internal probe into the bank’s forex business. Chris Twort and Gary Andrews were placed on leave of absence after their names were discovered in chat rooms along with a currencies trader from another bank who was also suspended.

Last year, the Dutch bank paid $979.5 million to resolve investigations related to attempts to manipulate the London interbank offered rate. Other banks that have paid to settle Libor rigging charges include ICAP (IAP), Royal Bank of Scotland (RBS), UBS (UBS), and JPMorgan (JPM).

Meantime, according to the Serious Fraud Office in London, a banker who works for a top British bank agreed to plea guilty to the criminal charge of conspiracy to defraud related to the agency’s probe into Libor manipulation. This individual is the first to plead guilty to manipulation charges of the rate in the United Kingdom. SFO has charged 12 men with the manipulation of Libor.

Eleven people have been charged in the United States. Several of them have pleading not guilty. Two ex- Rabobank Groep NV traders, Takayuki Yagami and Paul Robson entered guilty pleas to conspiracy-related charges in 2013.

It was in 2012 that the SFO and the Financial Services Authority found that traders at numerous banks had intentionally rigged the Libor rate to make the institution’s credit quality look better. This allowed the bank to keep their profits artificially inflated.

Britain secures first guilty plea in rate rigging probe
, Reuters, October 7, 2014

Banker Pleads Guilty in U.K. Libor Case, The Wall Street Journal, October 7, 2014

More Blog Posts:
Lloyds Banking Group to Pay $370M Fine Over Libor Manipulation, Institutional Investor Securities Blog, July 29, 2014

Detroit Becomes Largest US City to File Bankruptcy Protection, Institutional Investor Securities Blog, July 18, 2013

New Hampshire Investment Adviser Focus Capital Wealth Management Accused of Elder Financial Fraud to Pay Exchange Traded Fund Victims $2.4M, Stockbroker Fraud Blog, March 14, 2013

September 30, 2014

Citigroup Inc. Must Turn Over Bank Records Over Banamex Unit to Oklahoma Pension Fund

A judge has ordered Citigroup Inc. (C) to give over certain internal records to the Oklahoma Firefighters Pension and Retirement System related to the bank’s Banamex unit. The pension fund is a Citigroup shareholder.

Earlier this year, Citigroup revealed that its retail bank in Mexico City had been deceived in an accounting fraud involving Oceanografia, an oil-services company. Meantime, federal prosecutors have also been looking into whether Banamex USA did enough to protect itself so that customers couldn’t use it to launder money. Now, the U.S. Department of Justice and the Securities and Exchange Commission are examining Banamex USA and Banamex.

The Oklahoma fund submitted a complaint earlier this year asking to be able to look into whether Citigroup board members and executives had violated their fiduciary duty to shareholders related to the loan fraud scandal involving the Mexican unit. In its complaint, the pension fund alleged that Citigroup’s officers and directors may have known of the risks or existence of illegal activities and fraud but ignored them, as well as the likely civil and criminal penalties that could result.

Citigroup has since responded, contending that the Oklahoma fund did not demonstrate credible grounds for inferring the alleged wrongdoing and mismanagement. The bank said that it acted right away to remedy the problems at Banamex once they were identified.

Although Judge Abigail LeGrow ordered Citigroup to hand over certain bank records to the Oklahoma fund, she did not rule on whether the bank or its executives engaged in wrongdoing. However, she said that the issues stemming from the Banamex claims did have consequences.

Contact our securities lawyers if you suspect institutional investor fraud.

Citigroup Ordered to Turn Over Banamex Records, The Wall Street Journal, October 1, 2014

Citigroup ordered to turn over Banamex files to pension fund, Bloomberg, October 1, 2014

More Blog Posts:
Citigroup Global Markets Fined $1.85M By FINRA, Must Pay $638K Restitution Over Non-Convertible Preferred Securities Transaction Valuations, Stockbroker Fraud Blog, August 27, 2014

Securities Lawsuit Accuses Deutsche Bank, JPMorgan Chase, Credit Suisse, and Other Banks of Manipulating ISDAfix, Institutional Investor Securities Blog, September 4, 2014

Judge Rakoff Approves Citigroup’s $285M Mortgage Securities Fraud Deal with the SEC, Institutional Investor Securities Blog, August 5, 2014

September 29, 2014

Shareholder’s $40B Class Action Securities Lawsuit Over AIG Bailout Goes to Trial

The trial over whether the U.S. government unlawfully seized a majority stake in American International Group Inc. (AIG) during the bailout has started. The securities case was brought by Starr International Co., which is the charitable and investment firm helmed by former AIG CEO Maurice R. Greenberg. Starr was the insurer’s biggest shareholder when the company became a ward of the government at the height of the economic crisis.

The lawsuit, now a class action case, claims that government violated the rights of shareholders to receive fair compensation under the U.S. Constitution. Some 300,000 AIG stockholders from 2008 and 2009, including AIG employees, large mutual fund companies, and retirees, would be entitled to any award issued to Starr. Greenberg wants about $40 billion in compensation over the government takeover and the high interest rates the U.S. charged for the loans. AIG is not one of the plaintiffs.

The insurance giant got into financial trouble in the wake of the financial crisis mostly because of sales of an insurance of the unregulated variety to banks and others, which was intended to mitigate debt exposure risks. The government loaned AIG $85 billion in 2008 to keep it from falling into bankruptcy. In opening statements, Kenneth Dintzer, a lawyer for the U.S., noted that the insurance company’ shareholders hugely benefitted from the efforts made to stabilize AIG. The government maintains that it had to bailout AIG to keep the world economy from collapsing.

Now, AIG shareholders hold an approximately 20% stake in the insurance giant. If AIG had filed for bankruptcy, shareholders might have gotten nothing. The government’s assistance ultimately reached $184.6 million, which AIG has paid back. The insurer's net income from the latest quarter was $3 billion.

This week, during the first day of trial, Greenberg’s lawyer David Boies contended that the Federal Reserve exceeded its authority when it issued the rescue loans and took controlling ownership of the insurer. He noted that the loan terms issued to AIG were stricter than the terms given to banks.

For example, Federal Reserve Bank of New York not only demanded equity from AIG but also charged 14% interest to borrow. This is a lot more than what big banks paid. (Citigroup (C) and Morgan Stanley (MS) were given bailout loans with rates of under 4% without having to give up equity.)

Some of these financial firms were later accused of fraudulent misrepresentation in their mortgage-securities business and have since paid huge settlements.

At issue is whether it was legal for the government to take $35 billion in AIG shares and pay just $500,000. Under the U.S. Constitutions’ Fifth Amendment, private property cannot be taken for public use without fair compensation. Also up for argument is whether the government could condition its initial $85 billion loan on an equity stake in the insurance company. Starr’s legal team claims that under the Federal Reserve Act the government could not insist on a company stake as an exchange for the loan.

AIG Bailout by U.S. Was ‘Extortion,’ Greenberg Lawyer Says, Bloomberg, September 29, 2014

Trial in $40 Billion Lawsuit Against AIG Bailout Begins, The Wall Street Journal, September 29, 2014

More Blog Posts:
Stakeholders With $55M Securities Fraud Case Against Government Over AIG Bailout Get Class Action Certification, Institutional Investor Securities Blog, March 19, 2013

New York Fed Bailed Out Bank of America Over Mortgage-Backed Securities Sold to AIG, Institutional Investor Securities Blog, February 20, 2013

McGraw Hills, Moody’s, & Standard & Poor’s Can’t Be Held Liable by Ohio Pension Funds for Allegedly Flawed MBS Ratings, Affirms Sixth Circuit, Stockbroker Fraud Blog, December 20, 2012

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