November 19, 2014

Insider Trading Roundup: Ex-Broker Pleads Guilty to Securities Fraud Involving IBM Acquisition, BNP Officials Are Under Scrutiny, and Ex-Billionaire Is Tried In Historic Brazilian Case

Former Stockbroker Pleads Guilty to Insider Trading in IBM Case
Daryl Payton, an ex-trader at Euro Pacific Capital Inc., has pleaded guilty to conspiracy to commit securities fraud. Payton was involved in an insider trading scam that revolved around software manufacturer SPSS Inc., which IBM acquired in 2009. A U.S. judge accepted his plea.

Three other people have admitted that they shared and traded on secret information about the deal when it was in the works. The confidential data came from Michael Dallas, a corporate lawyer who has not been charged but was identified in a related S.E.C. securities fraud lawsuit.

Dallas is accused of sharing the secret information with Trent Martin, a Royal Bank of Scotland (RBS) analyst, who then told his roommate, Euro Pacific broker Thomas Conradt. The latter shared the tips with others, including Payton, who bought shares and options in SPSS.

French Prosecutors Probe BNP Paribas Officials Over Insider Trading Allegations
Prosecutors in France investigating insider trading allegations related to BNP Paribas SA’s (BNP) $9 billion settlement in the U.S. are looking at a number of the bank’s senior officials over their possible involvement. They want to know how much the bank’s directors knew about its exposure to litigation risks in this country when they sold shares in 2014. Depending on what they discover, prosecutors may decide to instigate a formal probe.

In June, BNP Paribas not only settled but also pleaded guilty to crimes involving the violation of U.S. sanctions against Cuba, Iran, and Sedan. The bank is accused of concealing billions of dollars in financial transactions that violated the sanctions, as well as hiding its involvement in this process. As part of the deal, BNP agreed to a yearlong ban on its ability to conduct certain transactions with U.S. dollars.

Former Brazilian Billionaire Goes To Trial For Insider Trading
In the first insider trading case to go to trial in Brazil, Eike Batista, who was once the richest man in that country, must defend himself against charges that he was allegedly involvement in a market manipulation scam related to his petroleum company OGX. Prosecutors claim that Batista traded OGX’s stock because he had advanced information that certain petroleum fields were lacking in economic viability. They contend that his actions resulted in about $580 million in damages.

Also, not long after Batista sold his OGX shares, the company defaulted on $5.8 billion in debt. This compelled OGX to file for the largest-ever corporate bankruptcy in Latin America. While creditors may get some of their funds back, shareholders lost everything.

Batista, who was once listed seventh on Forbes’ billionaires list, says that he is now in serious debt.

Eike Batista’s Insider Trading Case in Brazil to Test a Much-Criticized Justice System, The New York Times, November 16, 2014

U.S. judge accepts broker's guilty plea in IBM insider trading case, Reuters, November 18, 2014

BNP Officials Examined in Insider-Trading Probe, The Wall Street Journal, November 18, 2014

More Blog Posts:

Rajaratnam Brother Settles Insider Trading Charges Involving Hedge Fund Advisory Firm Galleon Management, Stockbroker Fraud Blog, October 23, 2014

Galleon Group Founder’s Brother Pleads Not Guilty to Insider Trading, Institutional Investor Securities Blog, April 2, 2013

Ex-Goldman Sachs Board Member Accused of Insider Trading with Galleon Group Co-Founder Seeks to Have SEC Administrative Case Against Him Dropped, Institutional Investor Securities Blog, April 19, 2011

November 18, 2014

Bank of Tokyo Mitsubishi Ordered By NY Regulators to Pay Another $315M in Penalties Over Transactions Involving Sanctioned Nations

The New York Department of Financial Services says that Bank of Tokyo Mitsubishi UFJ must pay another $315 in penalties for misleading Benjamin M. Lawsky, the state’s Superintended of Financial Services, about transactions involving Iran, Myanmar, and Sudan. All three nations are subject to U.S. economic sanctions. The Japanese bank also agreed to take disciplinary action against three employees that allegedly took part in diluting a report submitted to Lawsky about the transactions.

One employee, who was a manager in the bank’s anti-money laundering compliance office, stepped down. The other two, who work in the compliance department, have been barred from conducting business with any financial institutions. As part of the settlement, Bank of Tokyo admitted to misleading the regulator.

Lawsky's office fined the bank $250 million in a settlement last year over allegations that it had routed $100 billion of payments via 28,000 transactions involving the three countries through its New York office. The year before, Bank of Tokyo arrived at a separate agreement with the U.S. Department of Treasury for $8.6 million over allegedly 97 transfers valued at $5.9 million.

In August, a PriceWaterhouse Coopers LLP unit consented to a two-year suspension from consulting work and paying $25 million to resolve allegations that it improperly modified a report regarding Bank of Tokyo’s compliance with anti-money laundering laws.

Lawsky contends that bank executives pressured the PWC unit into modifying a report on its wire transfers for sanctioned nations and entities. He said that this allowed the bank to conceal its practice of taking out references made to these entities.

As part of the latest agreement, Bank of Tokyo will extend the term of an independent consultant, which was mandated under last year’s settlement. It also consented to move its unit tasked with sanctions and money laundering compliance to New York.

The SSEK Partners Group is an institutional investor fraud law firm. We represent institutional clients and high net worth individual investors.

Bank of Tokyo to Pay $315 Million to N.Y. Regulator, The Wall Street Journal, November 18, 2014

Lawsky Fines Bank of Tokyo-Mitsubishi UFJ Another $315 Million, NY Times, November 18, 2014

Bank of Tokyo to pay $250 million to N.Y. in money-laundering case, The Washington Post, June 20, 2013

More Blog Posts:
Citigroup, Bank of America Are Selling Soured Home Loans, Sources Tell Bloomberg, Stockbroker Fraud Blog, November 13, 2014

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

Detroit Suburb Charged with Muni Bond Fraud, Institutional Investor Securities Blog, November 6, 2014

November 15, 2014

$13B JPMorgan Chase Mortgage Settlement Was Not Sufficient, Says Whistleblower

According to Alayne Fleischmann, the whistleblower who gave the evidence which helped resident in a $13 billion mortgage settlement from JPMorgan Chase(JPM) to the U.S. Department of Justice last year, that amount was not enough. Fleischmann, a lawyer, joined the financial firm as a deal manager in 2006.

She says that not long after she started working there she noticed that about half of the loans in a multimillion-loan pool included overstated incomes. Such loans, she said, were likely at risk for default—a precarious position for both the investors and the securities. Fleischmann said that she notified management about how the bank was re-selling subprime mortgages to customers without letting them know about the risks. She also spoke about how one bank manager wanted to put in place a non-email policy so there would be no paper trail to show that the firm was aware that such activities were happening.

It was the sale of toxic sub-prime loans by JPMorgan and other US banks that incited the US housing market crisis, which eventually spurred the global financial meltdown of 2008. Repackaged loans were sold to pension funds and other institutional investors, with many buyers unaware of the high default risks involved.

Fleischman was let go from JPMorgan in early 2008. The U.S. Securities and Exchange Commission reached out to her later that year. Even though she had signed a non-disclosure agreement when leaving the firm, this did not preclude her from talking about criminal wrongdoing, including the selling of toxic sub-prime mortgage products.

Prosecutors used the information to negotiate a $9 billion mortgage fraud settlement with JPMorgan, in addition to $4 billion relief for homeowners that included mortgage modifications for homeowners at risk of foreclosure. Yet no criminal charges have been brought in this matter.

After signing an approximately 10-page “statements of fact, JPMorgan Chase CFO Marianne Lake spoke out, noting that despite the settlement, the firm was not admitting to having violated any laws. The settlement did not even have to pass court approval. The firm also was able to take some $7 billion of the settlement and use it as a tax write-off.

Fleischmann, who recently outed herself as the whistleblower in a Rolling Stone article, believes that individuals who took part in the infringements that lead to the housing crisis should be held responsible for their crimes. According to journalist Matt Taibbi who wrote the article, she said that a number of other historical settlements with the DOJ, including those made with Bank of America (BAC) and Citigroup (C) were actually deals in which “cash for secrecy,” was the trade.

Institutional investors were the ones that suffered when they were sold toxic sub-prime mortgages instruments. Our mortgage-backed securities fraud lawyers have been working hard over the last six years to help investors recoup their losses. Contact the SSEK Partners Group today.

The $9 Billion Witness: Meet JPMorgan Chase's Worst Nightmare, Rolling Stone, November 6, 2014

‘Occupy made it possible’: JPMorgan whistleblower Fleischmann to Max Keiser,, November 13, 2014

JPMorgan settlement not enough, says whistleblower, CNBC, November 12, 2014

JPMorgan agrees to $13 billion mortgage settlement, CNN, November 19, 2013

More Blog Posts:
SEC Sanctions UBS, Charles Swab, Oppenheimer, & 10 Other Firms For Improper Sales of Puerto Rico Junk Bonds, Stockbroker Fraud Blog, November 3, 2014

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

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

November 13, 2014

Fidelity, Schwab, and Pershing Suspend Trading of Schorsch Nontraded Real Estate Investment Trusts

Three more firms have decided to suspend trades of nontraded real estate investment trusts managed and backed by companies under Nicholas Schorsch’s control. The suspension come following news of a $23 million accounting error involving American Realty Capital Properties Inc. (ARCP) which is Schorsch’s publicly treated REIT. ARCP owns Cole Capital Advisors Inc. and Cole Capital Partners.

The mistake was disclosed at the end of the month. ARCP revealed that the error occurred during the first half of the year and then was purposely left uncorrected. The latest firms to announce suspensions are Charles Schwab (SCHW), Pershing and Fidelity.

Schwab said it would suspend sales of Cole and American Reality Capital REITs. Fidelity noted that it was going to stop facilitating subscriptions for certain Cole and Realty Capital Securities-affiliated nontraded REITs. Pershing told broker dealers that use its clearing services that it would stop facilitating purchases of Cole Capital-sponsored investment products. More than thirty of the leading independent brokerage firms have clearing deals with Pershing.

Other firms that have suspended trades of Schorsch-affiliated nontraded REITs include AIG Advisor Group, LPL Financial (LPLA), Securities America, National Planning Holding, and Schorsch’s own broker-dealer network, Cetera Financial Group.

More trouble also appears to be brewing in the Schorsch empire. ARCP just announced that it is suing RCS Capital Corp. for pulling out of a deal earlier this month. Schorsch owns both of them.

RCS Capital had said it would buy broker-dealer Cole Capital Advisers for $700 million but canceled after ARCP disclosed the accounting error. Meantime, securities lawyers are looking into the possibility that members of the RCS Capital Board of directors breached their fiduciary obligations to shareholders regarding corporate reorganization efforts.

RCS Shareholders Sought for Possible Lawsuits
, Financial Planning, November 12, 2014

ARCP Files Suit Against RCS Cap Over Nixed Deal, The Wall Street Journal, November 12, 2014

Fidelity, Pershing, Schwab join suspension of Schorsch REITs, November 12, 2014

More Blog Posts:
AIG Advisor Group, Securities America, LPL Financial, Cambridge, And Even Schorsch’s Broker-Dealer Stops Selling His REITs, Institutional Investor Securities Blog, November 7, 2014

National Planning Holding Temporarily Stops Selling American Reality Capital Properties’ Nontraded REIT sales After Disclosure of $23M Accounting Error, Institutional Investor Securities Blog, October 31, 2014

SEC Approves Regulations Involving REIT Prices and Arbitration Fraud Intervention, Stockbroker Fraud Blog, October 18, 2014

November 12, 2014

Citibank, JPMorgan Among Firms to Pay $4.3B For Currency Rigging Penalties

Royal Bank of Scotland Group Plc (RBS), UBS AG (UBS), (HSBC), Bank of America Corp (BAC), HSBC Holdings Plc, JPMorgan Chase & Co. (JPM), and Citigroup Inc. (C) will pay $4.3 billion in penalties to regulators in the United States and Europe for failing to stop traders from attempting to manipulate the foreign exchange market. Further penalties could also result not just for the banks but also for certain individuals in the wake of litigation accusing bank dealers of colluding amongst themselves to rig benchmarks that are used in determining foreign currency.

According to authorities, the dealers exchange confidential data regarding client orders and worked it out so their trades would enhance profits. This information was purportedly exchanged in online chat rooms. Regulators say the misconduct occurred from 2008 through October 2013. The probe has also widened to look into whether traders used confidential information to take bets on unauthorized personal accounts and if clients were charged excessive commissions by sales desks.

The currency rigging probe has led to the firing or suspension of over 30 traders while the number of automated trade transactions have increased. In the U.S. the Federal Reserve, the Justice Department, and New York’s financial regulator continue to investigate banks over foreign exchange trading. Meantime, some lawyers have spoke out about how the settlement doesn’t address client compensation.

The regulators involved in the currency rigging probe included The U.S. Commodity Futures Trading Commission, The U.S. Office of the Comptroller of the Currency, Switzerland’s Financial Market Supervisory Authority, and Britain’s Financial Conduct Authority. Here is a breakdown of the fines:

FCA is fining:

UBS $371 million
Citibank $358 million
RBS $344 million
JPMorgan $352 million
HSBC $343 million

CFTC is fining:
Citibank $310 million
HSBC $275 million
JPMorgan $310 million
UBS $290 million
RBS $290 million

The Office of the Comptroller of the Currency assessed JPMorgan, Citigroup, and Bank of America $950 million for their practices related to forex trading. Barclays Plc (BARC) which pulled out of talks resulting in these latest settlements, is looking to arrive at a more “coordinated settlement.”

Contact The SSEK Partners Group to speak with one of our securities lawyers if you suspect you were the victim of financial fraud.

Regulators fine global banks $4.3 billion in currency investigation
, Reuters, November 12, 2014

JPMorgan, Citi Among Five Banks In $3.3 Billion Forex Settlement, Forbes, November 12, 2014

Six Banks to Pay $4.3 Billion in First Wave of Currency-Rigging Penalties, Bloomberg, November 12, 2014

More Blog Posts:

Two Former Merrill Lynch Brokers Contend with Unauthorized Trading Claims, Stockbroker Fraud Blog, November 10, 2014

AIG Advisor Group, Securities America, LPL Financial, Cambridge, And Even Schorsch’s Broker-Dealer Stops Selling His REITs, Institutional Investor Securities Blog, November 7, 2014

SEC Approves Regulations Involving REIT Prices and Arbitration Fraud Intervention, Stockbroker Fraud Blog, October 18, 2014

November 7, 2014

AIG Advisor Group, Securities America, LPL Financial, Cambridge, And Even Schorsch’s Broker-Dealer Stops Selling His REITs

More broker-dealers are suspending their sale of Nicholas Schorsch-affiliated nontraded real estate investment trusts. The suspensions are coming in the wake of the announcement of a $23 million accounting error involving American Reality Capital Properties Inc., which is the traded REIT under Schorsch’s control. Even after the error was found it was purportedly purposely left unfixed.

Now, LPL Financial Holdings Inc. (LPLA), the biggest independent broker-dealer in the country, has said that it has put a stop for now to the sale of products sponsored Schorsch’s RCS Capital Corporations, American Realty Capital Properties Inc., and their affiliates. LPL has almost 14,000 advisers.

Another brokerage network, AIG Advisor Group, which has four broker dealers and 6,000 registered representatives and advisers, said it was suspending its sale of two Schorsch-related nontraded REITS: the Phillips Edison-ARC Grocery Center REIT II and the American Realty Capital New York City REIT Inc.

Securities America also said that it was temporarily suspending sales of the Cole Capital Properties V. and the Phillips Edison-ARC Grocery Center REIT II, which are both American Realty Capital-related REITs. On Wednesday, Cambridge Investment Research Inc. notified its over 3,041 registered representatives and advisors to stop, at least for now, selling three Cole-branded products. The following day it announced the suspension of sales in four Realty Capital Securities-distributed products.

Last week, it was National Planning Holdings Inc.’s four broker-dealers that told their nearly 4,000 registered reps and advisers to temporarily suspend the sale of nontraded REITs that American Reality Capital and its affiliate company's sponsor. As if matters couldn’t get worse for Schorsch, his own broker-dealer network, Cetera Financial Group, also suspended the sales of nontraded REITs related to the Cole brand. Cetera is a RSCS Capital Corp, also known as RCAP, subsidiary. Schorsch is executive chairman of RCAP.

On Friday, InvestmentNews reported that Massachusetts regulator William Galvin is now investigating Realty Capital Securities. His office is examining how the broker-dealer sold the nontraded REITs under scrutiny, including what information was provided to the REIT investors. Realty Capital Securities is based in Boston.

Also, Schorsch’s own American Realty Capital appears to be also trying to create some distance from the accounting debacle. Several of its nontraded REITs have updated their filings with the SEC emphasizing that they are separate from ARCP. Not only is ARCP a separate company but also that it is not affiliated with ARC. Schorsch’s RCAP also is distancing itself from ARCP, maintaining the two of them separate from one another.

If you suspect that your investment losses are due to REIT fraud, please contact our securities fraud law firm today. Shepherd Smith Edwards and Kantas LLP helps investors get their money back.

LPL, Advisor Group Stop Sales of American Realty Capital REITs, Think Advisor, November 4, 2014

Massachusetts regulator Galvin investigating Schorsch B-D
, Investment News, November 7, 2014

More Blog Posts:
National Planning Holding Temporarily Stops Selling American Reality Capital Properties’ Nontraded REIT sales After Disclosure of $23M Accounting Error, Institutional Investor Securities Blog, October 31, 2014

SEC Approves Regulations Involving REIT Prices and Arbitration Fraud Intervention, Stockbroker Fraud Blog, October 18, 2014

California Regulators Probe Inland American Real Estate Trust REIT, Stockbroker Fraud Blog, May 15, 2014

November 6, 2014

Detroit Suburb Charged with Muni Bond Fraud

The U.S. Securities and Exchange Commission is charging the Detroit, Michigan suburb of Allen Park with fraud involving a municipal bond sale that was supposed to finance a movie studio project. Also charged with municipal bond fraud are ex-city Mayor Gary Burtka and former City Administrator Eric Waidelich. All three settled without denying or admitting to the charges.

The Commission contends that Allen Park took advantage of a 2008 Michigan law giving substantial tax credits to film studios that engage in business in the state. The $147 million movie studio, called Unity Studios, was supposed to give jobs to thousands. The plan, however, failed when the city was unable to keep up its end of the partnership.

Because of the project, Allen Park ended up with a $2 million budget deficit. The regulator says that the studio became a “primary factor” in the failing economic health of the city. A vocational school was constructed on the site instead.

Despite the problems, however, the city failed to tell investors about the difficulties in meeting debt service payments, revenue instabilities, and the budget deficit, which were not mentioned in bond documents. Investors also weren’t purportedly notified of the toll the failing project would have on the city’s ability to pay back the debt.

According to the regulator, offering documents for issues of $31 million in general obligation bonds for 2009 and 2010 included misleading and false statements about plans to set up a movie studio and the city’s failing financial health. Because of this, said SEC enforcement division director Andrew Ceresney in a statement, Allen Park provided investors they solicited with a pitch that was not truthful or realistic and included dated budget data in offering documents to get around disclosing “its budget deficit.”

As part of the settlement, Burtka is barred from bond issuances and has to pay $10,000. Waidelich is also barred from muni bond offerings in the future. Allen Park consented to cease and desist from future violations.

Meantime, a federal judge is expected to decide whether Michigan’s biggest city—Detroit—can now exit bankruptcy protection. U.S. Bankruptcy Judge Steven Rhodes will likely approve the exit. However, he has to determine first if Detroit’s restructuring plan is doable, equitable to creditors, and fair. The plan gets rid of $7 billion in debt, cuts pensions to over 20,000 retirees, and resolves claims of over $2 billion with big Wall Street Creditors.

Last week, U.S. Bankruptcy Judge Christopher Klein ruled that the California city of Stockton is now ready to exit bankruptcy protection. He approved the city’s reorganization plan, which cuts payments to bondholders and ups taxes. Stockton had filed for bankruptcy after getting hit hard during the housing market collapse. Two Franklin Templeton Investments-managed funds had protested allowing the plan’s approval. The funds underwrote the bonds for the city’s parks and fire stations.

Please contact our muni bond fraud lawyers if you suspect that your losses are due to negligence or misconduct.

SEC charges Michigan city with fraud over municipal bond sale, Reuters, November 6, 2014

Judge Approves California City’s Bankruptcy-Exit Plan
, Wall Street Journal, October 30, 2014

More Blog Posts:
BlackRock Buys Part of UBS Puerto Rico’s Mutual Fund Operations, Say Sources, Stockbroker Fraud Blog, November 4, 2014

DOJ Launches Criminal Probe Into JPMorgan, Citigroup Foreign Exchange Business, Institutional Investor Securities Blog, November 4, 2014

Ex-LPL Financial Adviser, James Bashaw from Texas, Lands at New Brokerage Firm, Stockbroker Fraud Blog, October 30, 2014

November 5, 2014

Morgan Stanley Puts Aside $50M for Clients Who Didn’t Get Prospectuses for Purchased Securities

The wealth-management arm of Morgan Stanley (MS) has set aside $50 million to pay back clients who didn’t get prospectuses after buying certain securities. The firm recently realized that a number of electronic prospectuses were never delivered to clients this year, as well as last.

Brokerages are required to send investors their prospectuses in a timely fashion. Because of the oversight, Morgan Stanley is now offering affected clients the chance to rescind the securities they purchased and receive refunds. The brokerage firm also said that it would reimburse clients for trades that lost value.

The firm had thought the oversight would cause it around $20 million. However, due to a raised level of rescission offer acceptances last month, that amount has more than doubled.

That said, Morgan Stanley has just announced that during the fourth quarter it would record a $1.3 billion tax benefit because of modifications it made to the way it accounts for its wealth-management business. According to a regulator filing, Morgan Stanley Smith Barney is now a corporation rather than operating as a partnership. The change allowed Morgan Stanley to release a deferred tax liability.

In other Morgan Stanley news, the firm said it is dealing with possible mortgage securities claims from the U.S. Justice Department and a number of state attorneys general. For example, according to, the firm is trying to meet with the Illinois Attorney General’s Office over allegations that the brokerage firm made intentional misrepresentations when it was soliciting state pension funds to get them to buy residential mortgage bonds. The state prosecutor wants the firm to pay $88 million. Also under investigation are Morgan Stanley’s due diligence on loans bought for securitizations, investor disclosures, and foreclosure-related issues.

The SSEK Partners Group represents high net worth individuals and institutional investors.

Morgan Stanley Sets Aside $50 Million to Reimburse Investors, The Wall Street Journal, November 5, 2014

Morgan Stanley may face legal claims from U.S. govt -filing, Reuters, November 4, 2014

Morgan Stanley gets $1.3 billion tax gain on legal-entity switch for wealth arm, MarketWatch, November 5, 2014

More Blog Posts:
Morgan Stanley to Pay a $280,000 Fine to CFTC for Records and Supervision Failures Involving SureInvestment and $35M Ponzi Scam, Stockbroker Fraud Blog, September 16, 2014

Morgan Stanley Gets $5M Fine for Supervisory Failures Involving 83 IPO Shares Sales, Stockbroker Fraud Blog, May 6, 2014

PNC Bank Sues Morgan Stanley & Ex-Trust Adviser For “Surreptitious Conspiracy”, Institutional Investor Securities Blog, April 3, 2014

November 4, 2014

DOJ Launches Criminal Probe Into JPMorgan, Citigroup Foreign Exchange Business

The U.S. Department of Justice has begun a criminal probe into the foreign exchange businesses of JPMorgan Chase (JPM) and Citigroup (C). The investigations come in the wake of allegations that banks in the United States and abroad manipulated key reference rates in the foreign exchange currency markets.

On Monday, JPMorgan disclosed the criminal investigation in a regulatory filing. Noting that other regulators, including the U.S. Commodity Futures Trading Commission and UK’s Financial Conduct Authority are conducting civil probes, the firm estimated that current legal proceedings could reach $5.9 billion.

Last week, Citigroup announced that it too was facing a criminal probe over foreign currency trades and controls. The bank is also dealing with inquiries from regulators. Citigroup said it has put aside $600 million in legal provisions over what had been budgeted for the third quarter.

In the wake of foreign exchange rigging allegations, over 25 traders from different firms have been put on leave, suspended, or fired. Regulators in the U.S. and the Financial Conduct Authority are coordinating efforts to settle some of the investigations. Other banks under investigation over possible interest rate manipulation include UBS (UBS), Royal Bank of Scotland (RBS), Barclays (BSC) and Deutsche Bank (DB).

Meantime, HSBC Holdings PLc (HSBA) reported lower-than-estimated profits for the third quarter after putting aside over $1 billion for the probe into possible currency market rigging, as well as for customer compensation. Europe’s largest bank recently took a $550 million charge to settle claims of misconduct related to mortgage securities sales from prior to the financial crisis.

JPMorgan facing criminal probe over currency trades, CNN Money, November 4, 2014

Big Banks Brace for Penalties in Probes, The Wall Street Journal, October 30, 2014

HSBC Misses Estimates, Takes $378 Million Currency Charge, Bloomberg, November 3, 2014

More Blog Posts:
Shareholders Settle with Fannie Mae for $170M, Institutional Investor Securities blog, October 30, 2014

Ex-LPL Financial Adviser, James Bashaw from Texas, Lands at New Brokerage Firm, Stockbroker Fraud Blog, October 30, 2014

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

October 31, 2014

National Planning Holding Temporarily Stops Selling American Reality Capital Properties’ Nontraded REIT sales After Disclosure of $23M Accounting Error

National Planning Holding, a broker-dealer network, says that it has temporarily stopped offering American Realty Capital Properties Inc.’s (ARCP) non-traded real estate investment trusts for sale. The move comes after the real estate investment trust, run by Nicholas Schorsch, disclosed a $23 million accounting mistake. American Realty Capital is the top sponsor of nontraded REITs. Schorsch is its chairman.

The National Planning Holding suspension impacts just one Schorsch product, the Phillips Edison – ARC Grocery Center REIT II. This is a new REIT with about $207 million in total assets.

The four brokerage firms who are temporarily suspending sponsorship and distribution of the nontraded REITs by American Realty Capital Properties and its affiliates are SII Investments Inc., National Planning Corp, Investment Centers of America Inc., and INVEST Financial Corp. They are asking for Realty Capital Securities, the wholesaling broker-dealer for ARC products, to return unprocessed sales orders from INVEST advisers. They don’t want the brokerage firm to process related new business.

However according to the memo from INVEST CEO Steve Dowden, the brokers also are not allowed to solicit trades in ARCP and RSC Capital Corp, Capital Healthcare Trust Inc., and another company associated with Schorsch. Unsolicited trades in securities may still go through but they need to be marked. Also, the NPH brokerage firms want American Reality Capital to discontinue dividend reinvestments on ARC nontraded REITs that are not for sale anymore.

Earlier this week, American Realty Capital Properties revealed that its financial statements are not accurate and that there had been a $23 million error. The company said the audit committee believes that when the mistake was first was discovered it was purposely not remedied and other financial statements and errors were created to cover up the initial mistake. Because of this, noted the company, a measure of flow was overstated while net losses were understated.

American Realty Capital Properties said that it would reduce adjusted funds from operations by some $12 million for the three months that concluded this past March, as well as $10.9 million for the following three months. According to ARCP once the audit committee found out about the mistake, the error was fixed right away.

Following this latest news, American Realty Capital Property’s chief financial officer, Michael Brian Block resigned. A new chief accounting officer, Gavin Brandon, was also named. He replaces Lisa McAlister.

Since the error disclosure was made public, American Realty Capital Properties’ stock has plunged 28%. Meantime, the U.S. Securities and Exchange Commission said it intends to start an inquiry into the matter. Schorsch, however, has downplayed the mistake for its potential to have any spillover effect. He said the issue would not affect his unlisted real estate investment trusts.

Yet, according to the Wall Street Journal, brokers are reporting a rise in the number of investors wanting to sell their shares in some of the unlisted REITs that are sponsored by companies that have an affiliation to Schorsch. Also, LPL Financial Holdings Inc. (LPLA), which is the biggest network of independent financial advisers in the country, has said that it is placing certain unlisted REITs on its “watch list.”

Our nontraded REIT fraud lawyers represent investors seeking to recoup their losses.

Schorsch's American Realty Capital discloses serious accounting errors; CFO out, InvestmentNews, October 29, 2014

Investors Rethink American Realty-Linked REITs, The Wall Street Journal, October 31, 2014

Investors Rethink American Realty-Linked REITs, The Wall Street Journal, October 31, 2014

More Blog Posts:
SEC Approves Regulations Involving REIT Prices and Arbitration Fraud Intervention, Stockbroker Fraud Blog, October 18, 2014

California Regulators Probe Inland American Real Estate Trust REIT, Stockbroker Fraud Blog, May 15, 2014

Non-Traded REITs, Structured Products, and Private Placements Remain Under Regulator Scrutiny, Institutional Investor Securities Blog, July 7, 2014

October 30, 2014

Shareholders Settle with Fannie Mae for $170M

Fannie Mae (FNMA) and its shareholders have reached a $170M settlement in a lawsuit accusing the entity of misleading the plaintiffs about its risk management, finances, and mortgage exposure prior to its seizure by the U.S. government during the financial crisis of 2008. Now, a court must approve the agreement.

The lead plaintiffs are the Tennessee Consolidated Retirement System, the State-Boston Retirement Board, and the Massachusetts Pension Reserves Investment Management Board, which are trying to obtain class action securities status for their case. The shareholders claim that Fannie Mae defrauded them, as well as inflated its stock via misleading and false statements about capitalization, internal controls, exposure to low-documentation “Alt-A” mortgages, subprime mortgages, and accounting.

Per the agreement, $123.8 million would go to common stockholder and Preferred stockholders would get $46.2 million. The stockholders would come from the period running from 11/8/06 to 9/5/08. During that time, Fannie Mae’s market value hit a peak of over $60 billion. Its current market value is $2.71 million.

In September 2008, the government placed Fannie Mae and Freddie Mac (FMCC) into a conservatorship under the supervision of the Federal Housing Finance Agency, which oversees them to this day. Together, both mortgage financing companies drew around $187.5 billion of bailout funds. They’ve given back about $218.7 billion as dividends to taxpayers.

Meantime, the U.S. Securities and Exchange Commission’s lawsuit against Fannie Mae’s ex-Chief Risk Officer Enrico Dallaveccia and Chief Executive Officer Daniel Mudd over the mortgage lender’s disclosures is still pending. The regulator claims that the men knew about and approved misleading statements that claimed the company had minimal holdings of high-risk mortgages.

Freddie Mac, Fannie Mae, and the Federal Housing Finance Agency recently drew up rules to loosen constricted lending standards. The purpose for this is to make mortgages more affordable and accessible even when a party has less than perfect credit. The rules follow criticism that banks have become too strict about loan criteria because they don’t want to be held liable for mortgages they sell to Freddie or Fannie that later fail.

When the mortgage market started to plunge in 2007, both Freddie and Fannie blamed lenders for loans that they said were poorly underwritten. Since then, banks have had to pay tens of billions of dollars to resolve claims that the faulty loans did not abide by the warranties and representations that were made when the loans were sold. The banks were ordered to buy back the loans.

According to the Los Angeles Times, the new guidelines are supposed to persuade lenders to lend to borrowers that are higher risk. For example, per the terms, financing firms would provide the criteria for when a bank should have to buy back a loan. The minimum down payment to qualify for selling the loans to Freddie and Fannie would be lowered to 3%, down from 5%. Bankers, however, have said that lawsuits over loans are still the biggest obstacle to widening credit.

Freddie and Fannie guarantee 59% of all mortgages.

Contact our institutional investor fraud law firm today.

Fannie Mae, Freddie Mac reach deal to ease mortgage lending, Los Angeles Times, October 17, 2014

Fannie Mae settles shareholder lawsuit for $170 million
, Reuters, October 24, 2014

More Blog Posts:
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
Fannie Mae Sues UBS, Bank of America, Credit Suisse, JPMorgan Chase, Citigroup, & Deutsche Bank, & Others for $800M Over Libor, Institutional Investor Securities Blog, December 14, 2013

Wells Fargo Reaches $591 Million Mortgage Deal with Fannie Mae
, Stockbroker Fraud Blog, December 29, 2014

October 28, 2014

FINRA Fines Merrill Lynch $6M For Supervisory Failures and REG SHO Violations

The Financial Industry Regulatory Authority is fining and censuring Merrill Lynch, Pierce, Fenner & Smith Incorporated $2.5M for not setting up, maintaining, and enforcing supervisory procedures and systems related to certain areas, including Regulation SHO. The self-regulatory organization is fining Merrill Lynch Professional Clearing Corp. $3.5M, also for Reg SHO violations. Bank of America (BAC), which acquired Merrill Lynch in 2008, will pay the $6M fines to FINRA.

Reg SHO is an SEC rule governing short sales. One of its purposes is to curb abusive naked short selling. The regulation also seeks to lower the incidents of sellers neglecting to deliver securities in a timely manner by requiring firms to timely “close out” fail-to-deliver positions by purchasing or borrowing securities of similar type and quantity. It lets firms reasonably allocate fail-to-deliver positions to brokerage firm clients that contributed or caused those positions.

According to the SRO, from 9/08 through 7/12, Merrill Lynch PRO failed to close out certain fail-to-deliver position, and, for most of that period, lacked the necessary procedures and systems to handle REG Show close-out requirements. FINRA said that from 09/08 through 3/011, the firm’s supervisory systems and procedures were not sufficient, making it possible for the firm to improperly allocate fail-to-deliver positions to the brokerage firm’s clients on the basis of clients’ short positions while not having to heed clients played a part in the fail-to-deliver positions.

In August, it was the U.S. Commodity Futures Trading Commission that imposed a $1.2 million fine against Merrill Lynch. The regulator charged the brokerage firm with inadequate supervision that led to customers being charged excessive fees from at least 1/10 through 4/13. The settlement was reached without admission or denial of the findings.

The CFTC claims that for over two years, there were problems with firm’s process for fee reconciliation, which involves noting and fixing discrepancies between the invoices from exchange clearinghouses and how much customers were charged. Because of this, some Merrill clients were undercharged and others were overcharged. This resulted unexplained extra fees of $451,318 that were paid by 196 clients.

The agency said that Merrill Lynch failed to hire qualified staff to oversee and perform fee reconciliations and did not provide completed manuals to staff on how to perform fee reconciliations until at least last year. Staff was inadequately trained on how to conduct fee reconciliations.

FINRA Fines Merrill Lynch a Total of $6 Million for Reg SHO Violations and Supervisory Failures, FINRA, October 27, 2014

Please contact our securities lawyers if you suspect you were the victim of financial fraud.

More Blog Posts:
SEC Investigates Merrill Lynch & Charles Schwab Over Allegations of Failures that Allowed Mexican Drug Cartels to Launder Money, Stockbroker Fraud Blog, May 22, 2014

FINRA Conducts 170 Probes Into Possible Algorithmic Abuse, Institutional Investor Securities Blog, May 21, 2014

FINRA Arbitration Panel Orders Stifel Nicolaus to Pay $2.7M to Ex-Head Trader, Institutional Investor Securities Blog, May 24, 2014

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