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Brian S. Block, the ex-CFO of American Realty Capital Properties Inc., now called Vereit, has pleaded not guilty to criminal charges that accuse him making false filings with the SEC, making false certifications, securities fraud, and conspiracy to commit securities fraud. His criminal trial is scheduled for May 2017.
 
The U.S. Department of Justice had filed the charges against Block earlier this month. He was arrested at his home in September.
 
 According to a statement issued by Manhattan U.S. Attorney Preet Bharara, Block is accused of knowingly misleading the public and doing so through material misrepresentations about a key metric for evaluating the real estate investment trust’s 2014 financial performance. The government claims that Block overstated, by approximately $13M, the “adjusted funds from operations” for that year. As a result, the public thought that ARCP was performing better than how it was actually doing.  
 

Royal Bank of Scotland Group (RBS) will settle two civil residential mortgage-backed securities lawsuits for $1.1B.  The payment will go to the National Credit Union Administration (NCUA) and resolves claims accusing the bank of selling faulty MBSs to two corporate credit unions, causing their failure.  The federal actions were brought in California and Kansas, respectively. This is one of the largest settlements reached in mortgage-backed securities cases brought against banks.
 
The allegedly toxic RMBSs were sold to Western Corporate Federal Credit Union and the Central Federal Credit Union. By settling, however, RBS is not admitting fault.
 
It was just last year that Royal Bank of Scotland agreed to pay $129.6M to NCUA to resolve claims over its sale of mortgage-backed securities to Members United Corporate Federal Credit Union and Southwest Corporate Federal Credit Union. Both are now defunct, too. 

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Merrill Lynch, a Bank of America Corp. (BAC) unit must pay a $12.5M fine to resolve Securities and Exchange Commission allegations accusing the brokerage firm of having weak controls that led to mini-flash crashes. This is the largest penalty ever imposed for alleged market access rule violations.

According to the SEC, at least 15 times from 2012 to 2014, the bank established internal trading limits that were too high and, as a result not effective. These caused disruptions in the market.

Even though there were red flags, said the regulator, Merrill Lynch purportedly did not adequately assess whether it had controls that were reasonably designed and the brokerage firm did not remedy the issues when they arose fast enough. In one example cited by the SEC, Merrill Lynch purportedly applied a 5-million shares/order limit for one stock that traded at only about 69,000 shares/day. Because of this erroneous orders compelled certain stock prices to drop and then recover abruptly within seconds. For example, nearly 3% of Google’s stock dropped in under a second.

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The Financial Industry Regulatory Authority has expelled the real estate firm formerly called DT Securities and its owner/CEO Markel Newton. According to the regulator, the firm and Newton engaged in negligent misrepresentations involving private placements. Markel is also barred for alleged violations involving two of the firm’s offerings to purchase real estate in Georgia and Florida, as well as a third one involving alcoholic treatment facilities in California.

According to FINRA, in the private placement offerings Fresh Start, DT Atlanta, and DT Florida, Markel and DT should have disclosed that the California Department of Real Estate had submitted a complaint against him in 2010. The complaint against Markel and DT Ventures Real Estate Investments accused them of performing certain activities without the required real estate license, as well as making misrepresentations about deposits made for purchase to sellers. In 2011, Markel consented to a 30-day suspension.

In addition to accusing Markel of not alerting the state, FINRA also accused Markel of improperly releasing escrow proceeds to purchase properties prior to satisfying funding-raising goals that were delineated in two of the private offerings. The settlement document said that although DT Florida had originally aimed to raise at least $3M by the end of November in 2009, that closing date was extended to 1/29/10. The funds were to go back to investors if that figure wasn’t achieved. The private placement offering put into effect by DT Atlanta in 2011 came with the goal to raise a minimum of $1.7M—a figure that was later lowered to $400K. That lower figure was reportedly never properly fulfilled.

 

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Aozora Bank Ltd. has asked a New York appeals court to allow it to sue Credit Suisse (CS) again over losses that it claims it sustained from a $1.5B collateralized debt obligation.  The Japanese lender claims that a lower court erred in dismissing the claims it had previously brought on the grounds that they were submitted too late.
It was last year  that New York Supreme Court Judge Charles E. Ramos  threw out the CDO fraud lawsuit on the grounds that the state’s statute of limitations had already passed.  In New York, fraud claims can be brought within two years from when a plaintiff could have, with reasonable diligence, realized that it was defrauded or within six years of when a transaction had closed.
Aozora believes that Credit Suisse employed a “trash bin” for its assets that were toxic. The Japanese lender purchased the Jupiter High-Grade CDO V Ltd CDO notes for $40M on 5/11/07 but did not file it’s case until 6/26/13. Ramos said that Aozara failed to prove that there was no way  it could have discovered the problems with the Jupiter V notes that it purchased from Credit Suisse before that filing date.
 

The 2nd U.S. Circuit Court of Appeals has revived the lawsuit brought by a whistleblower who accused JPMorgan Chase & Co. (JPM) of firing her for cautioning that a client might be engaging in money laundering and fraud. Jennifer Sharkey was a private wealth manager and vice president at the firm when she was let go in August 2009.

Sharkey claims that she was terminated a week after telling JPMorgan that they needed to pay attention to “red flags” and let go of the client who was responsible for about $600K of yearly billings. She sued her former employer after she was fired.

Last year, U.S. District Judge Robert Sweet in Manhattan threw out the case. Sweet said that the firm may have let Sharkey go for other reasons, including allegations that she lied about communications with another client or her performance was poor. Sharkey has countered that she did not lie.

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The SEC has filed insider trading civil charges against Leon G. Cooperman and his Omega Advisors. According to the regulator, the hedge fund manager made illicit profits when he bought Atlas Pipeline Partners  securities right before it sold its natural gas processing facility in Oklahoma.
 
Cooperman is accused of using his position as one of Atlas Pipeline’s biggest shareholder to obtain confidential information about the upcoming sale.  This, even after Cooperman and his firm had agreed not to to make trades using the information he was given. When the sale of the facility, for $682 million, was announced publicly, Atlas Pipeline’s stock price went up by over 31%. 
 
The SEC, in its complaint, said that when Cooperman’s firm was sent a subpoena regarding its trading involving Atlas Pipeline securities, Cooperman allegedly spoke to the executive who had given him the nonpublic information and attempted to make up a story about the trading. The executive was reportedly upset to find out that Cooperman had traded before the announcement of the sale. 
 

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The U.S. Securities and Exchange Commission is awarding over $4M to a whistleblower for providing original information that led to a successful fraud case. This is individual is the 34th whistleblower that the SEC’s program has awarded since 2011, upping the total amount granted in such awards to over $111M.
 
In what was the second biggest award issued by the regulator to date, he SEC awarded $22M to an to an ex- Monsanto Co. financial executive last month. The individual had reported alleged accounting violations involving Roundup, the company’s weed killer. According to media reports, Monsanto offered distributor rebates to raise sales but moved the costs into the following fiscal year. As a result, the company moved up its revenue while postponing the reduction that resulted from the costs. 
Under the SEC Whistleblower program, individuals who voluntarily give the regulator unique information that leads to a successful enforcement case are entitled to 10-30% of the sanctions collected when that amount is over $1M. Since the program’s inception five years ago, the Commission has received over 14,000 tips. 

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Deutsche Bank (DB) and the U.S. Department of Justice have yet to reach a settlement over allegations about the way that the German lender packaged toxic mortgages leading up to the 2008 financial crisis. According to The Wall Street Journal, The DOJ wants the bank to pay $14B. Deutsche Bank, however, said it has no plans to pay “anywhere near the number cited” and sees that figure as a starting point in negotiations.

In a statement, the firm said that it expected the final figure to be much lower and closer to what other banks have paid over similar allegations. InvestmentNews reports that it has not been uncommon for the DOJ in its investigation into MBSs to first put forward higher penalties than the eventual settlement that is reached.

Other firms and their deals over their mortgage lending activities include Bank of America (BAC) for $16.7B, Citigroup (C) for $7B, JPMorgan Chase (JPM) for $9B, Goldman Sachs (GS) for $5.1B, and Morgan Stanley (MS) for $3.2B. Goldman Sachs admitted to wrongdoing when it settled claims that it did not properly vet MBS before selling them as quality debt to investors.

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Former SAC Trader To Close Down Hedge Fund In The Wake of Losses
Andrew Bazarian will close down his Pinyin Capital Management Hong Kong Ltd.’s hedge fund in the wake of massive losses sustained by the fund, a lack of investor interest, and the exodus of Blue Pool Capital, its largest backer. Bazarian, a former SAC trader, started the fund in 2014 with Blue Pool’s $100M pledge. He left SAC to start the pan-Asian portfolio before the firm pleaded guilty to charges of insider trading.
 
Bazarian’s hedge fund is not the only one to shutter because of poor returns and investors leaving the industry. In July alone, investors throughout the world withdrew about $25.2B from hedge funds.  According to Bloomberg, others that have closed down hedge funds in Asia AMP Capital, Lazard Asset Management, and Pine River Capital Management. 
 
Telecommunications Company to Pay $1.25M for Not Disclosing Credit Risks 
The Securities and Exchange Commission said that Portugal Telecom SGPS S.A. will pay a $1.25M penalty for not properly disclosing the degree of credit risk involved in investments in debt instruments issued by Grupo Espirito Santo’s companies. By settling, Portugal Telecom is not denying or admitting to the findings. It has, however, consented to the regulator’s cease-and-desist order.

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