February 3, 2016

RMBS Cases and Institutional Fraud: Morgan Stanley to Pay $62.9M, Hedge Funds File Lawsuit Against TWC Asset Management, and Deutsche Bank Must Contend With Allegations Claiming Investor Losses of $3.1B

Morgan Stanley Settles RMBS Case with FDIC
Morgan Stanley (MS) will pay $62.9M to resolve allegations that it misrepresented residential mortgage-backed securities prior to the 2008 financial crisis. The deal was reached with the Federal Deposit Insurance Corp., which sued the investment bank on behalf of Colonial Bank in Alabama, Security Savings Bank in Nevada, and United Western Bank in Colorado. All three banks failed after or during the crisis. By settling, Morgan Stanley is not denying or admitting liability.

According to the FDIC, in offering documents Morgan Stanley misrepresented claims for 14 RMBS mortgage backed securities. This is not the first time the investment bank has reached a deal over RMBS with the FDIC. In 2015, the firm resolved similar claims brought on behalf of Franklin Bank in Texas for $24M.

Also last year, Morgan Stanley arrived at a deal for $2.6B to resolve a U.S. Department of Justice probe into mortgage bonds. The government accused the investment bank of misrepresenting the quality of home loans packed into bonds.

Assett Management Firm Must Face RMBS Lawsuit Brought by Hedge Funds
A New York Court refused to grant TCW Asset Management Company’s motion to dismiss RMBS fraud claims brought Basis Yield Alpha Fund and Basis Pac-Rim Opportunity Fund. The Cayman Island hedge funds claim that TWC Asset Management marketed a system for dealing with the RMBS market that it claimed could determine which were the good investments. The purported strategy involved the collateralized debt obligation Dutch Hill Funding II, Ltd., which took a net long position on high-risk RMBS.

The two hedge funds invested over $28.1M in Dutch Hill in May 2007. By July, their investment had become worthless. They sued TCW Asset Management Company in 2012, accusing the firm of fraudulent misrepresentations and a failure to choose Dutch Hill’s RMBS collateral in the ways that it promised. The Basis Funds contended that the defendant knew that the investment strategy couldn’t get the job done.

Continue reading " RMBS Cases and Institutional Fraud: Morgan Stanley to Pay $62.9M, Hedge Funds File Lawsuit Against TWC Asset Management, and Deutsche Bank Must Contend With Allegations Claiming Investor Losses of $3.1B " »

February 2, 2016

Citigroup to Pay $23M to Resolve Yen Libor and Euroyen Tibor Rigging Claims

Citigroup (C) Inc. has agreed to pay $23M in an institutional investor fraud lawsuit accusing the bank of conspiring to manipulated the Euroyen Tibor and yen Libor benchmark interest rates and Euroyen Tibor futures contracts. Plaintiff investors included hedge fund Hayman Capital Management LP and the California State Teachers' Retirement System. They contend that Citigroup and other banks benefited their trading positions from ‘06 through at least ’10 when they conspired to manipulate rates. As part of the settlement Citigroup said it would cooperate with the plaintiffs, whose lawsuits are still pending against other banks.

Also settling but without having to anything is broker-dealer RP Martin. Defendants that have yet to settle include Barclays Plc (BARC), JPMorgan Chase & Co. (JPM), Deutsche Bank AG (DB), UBS AG (UBS), HSBCA Holdings Plc (HSBC), Sumitomo Mitsui Trust Holdings Inc., and Mitsubishi UFJ Financial Group Inc.

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January 31, 2016

Senator Warren Accuses the SEC of Poor Enforcement

U.S. Senator Elizabeth Warren has issued a report in which she claims that the U.S. Securities and Exchange Commission and the U.S. Department of Justice have been doing a poor job on enforcement when it comes to going after companies and individuals for corporate crimes.

In Rigged Justice: How Weak Enforcement Lets Corporate Offenders off Easy, Warren takes a closer look at what she describes as the 20 worst federal enforcement failures of 2015. The Senator noted that that when federal agencies caught large companies in illegal acts, they failed to take substantial action against them. Instead, companies were fined for sums that in some cases could be written off as tax deductions.

Some of the 2015 cases that Warren Mentions:
• Standard & Poor’s consented to pay $1.375B to the DOJ, DC, and 19 states to resolve charges that it bilked investors by putting out inflated ratings misrepresenting the actual risks involved in collateral debt obligations and residential mortgage-backed securities. Warren Points out that the amount the credit rater paid is less than one-sixth of the fine the government and states had sought against it, and at S & P did not have to admit wrongdoing. No individuals were prosecuted in this case.

Citigroup (C), Barclays (BARC), JPMorgan Chase (JPM), Royal Bank of Scotland (RBS), and UBS AG (UBS) paid the DOJ $5.6B to resolve claims that their traders colluded together to rig exchange rates. As a result, the firms made billions of dollars while investors and clients suffered. While admissions of guilt were sought, no individuals were prosecuted. Also, the SEC gave the banks waivers so they wouldn’t have to deal with collateral damages from pleading guilty.

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January 30, 2016

Credit Suisse and Barclays Settle Dark Pool Cases for $150M

Credit Suisse Securities (USA) LLC (CS) and Barclays Capital Inc. (BARC) will settle their respective cases brought against them by the U.S. Securities and Exchange Commission and the New York Attorney General. The firms are accused of violating federal securities laws will running dark pools. At issue is whether the banks disclosed enough information to clients about the trading that took place in their dark pools.

Barclays will pay $35M to the SEC and $70M to the NY AG. It has admitted wrongdoing in the Commission’s case. The bank had said that a Liquidity Profiling feature in its LX dark pool was going to “continuously police” the alternative trading system. The firm also stated that it would conduct weekly surveillance reports to look for order flow that was toxic.

Instead, contends the SEC, Barclays did not continuously regulate the dark pool with the tools it promised it would use nor did it conduct the surveillance runs. The firm also failed to properly disclose that it occasionally overrode the Liquidity Profiling feature when it transferred subscribers from categories that were the most aggressive to the ones that were the least aggressive. Because of this, said the regulator, subscribers that chose to block trading with subscribers that were aggressive ended up dealing with them anyways. Barclays is also accused of misrepresenting the kinds and amounts of market data feeds that it utilized to determine the Best Bid and Offer in the dark pool.

Meantime, Credit Suisse, which is not denying or admitting to the charges against it, will pay $84.3M I total—$24.3M to the SEC as disgorgement and prejudgment interest, along with a $30M penalty, and $30M to the NY AG.

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January 27, 2016

JPMorgan Chase to Resolve Mortgage Fraud Case by Ambac for $995M

JPMorgan Chase & Co. (JPM) has consented to pay $995M to settle claims brought by Ambac Financial Group claiming that the insurance company was fooled into insuring hundreds of mortgage bonds that were backed by poor quality loans. As part of the settlement, Ambac will withdraw its opposition to a $4.5B deal reached between the firm and investors, such as Pacific Investment Management Co. (PiMCO) and BlackRock Inc (BLK), over faulty home loans.

One of Ambac's units was the number two largest bond insurer in the world eight years ago, when the growing number of mortgage defaults caused it to become inundated with claims. The settlement with JPMorgan will conclude two lawsuits over the quality of loans backing mortgage bonds that were sold by Bear Stearns & Co., which JPMorgan purchased in 2008. It also resolves the insurer’s efforts to recover payments of principal plus interest on approximately $3.3B of nearly a dozen MBS trusts sponsored by Bear Stearns unit EMC Mortgage LLC.

According to Bloomberg, this latest settlement opens the door for a judge to approve the settlement between JPMorgan and institutional investors.

Continue reading " JPMorgan Chase to Resolve Mortgage Fraud Case by Ambac for $995M" »

January 26, 2016

Citigroup, Morgan Stanley, Goldman Sachs, and Other Big Banks to pay $63M to Virginia to Settle RMBS Fraud Claims

The state of Virginia has arrived at a $63M settlement with 11 banks to resolve claims that they bilked the state’s retirement system by purportedly misrepresenting the quality of residential mortgage-backed securities in the run up to the 2008 financial crisis. The resolution settles all claims against the financial firms accused of causing financial harm to the Virginia Retirement system and its taxpayers and pensioners.

The banks involved will pay the following amounts respectively to settle, including:

· UBS Securities for $850K
· Bank of America’s Merrill Lynch, Pierce, Fenner & Smith, Inc. and Countrywide Securities Corp. (BAC) for $19.5M
· Credit Suisse Securities (CS) for $1.2M
· RBS Securities (RBS) for $10M
· HSBC Securities (HSBC) For $2.5M
· Barclays Capital (BARC) for $9M
· Goldman Sachs & Co. (GS) for $2.9M
· Morgan Stanley & Co. (MS) for $6.9M
· Citigroup Global Markets (C) for $4.8M
· Deutsche Bank Securities (DB) for $5.6M

The state lost $383M over RMBS it purchased from 2004 to before 2010 and it had to sell most of these securities, which were toxic and constructed on junk mortgages. The settlement is the largest non-healthcare related financial recovery in a case involving Virginia Fraud Against Taxpayers Act-related violations. However, according to the state’s Attorney General Mark Herring, even though the firm is settling it is not denying or admitting liability.

Continue reading " Citigroup, Morgan Stanley, Goldman Sachs, and Other Big Banks to pay $63M to Virginia to Settle RMBS Fraud Claims " »

January 22, 2016

Banks Work To Settle Libor Rigging Probe With Switzerland

Bloomberg says that according two sources, at least six banks are working to resolve a Swiss probe into Libor rigging allegations. COMCO, the competition regulator in Switzerland, is reportedly looking to conclude its probe by July. It has been looking into possible collusion by traders to manipulate the London Interbank Offered Rate and the Tibor, Libor's Japanese counterpart.

While the names of the firms that COMCO hopes to conclude its probe with have not been disclosed, a dozen banks were originally named at the start of its investigation in 2012, including Deutsche Bank (DB), UBS (UBS), HSBC (HSBC), Royal Bank of Scotland Group Plc (RBS), and Credit Suisse (CS). UBS, which is a Swiss bank, was granted limited immunity, however, because it was the first to step forward and assist in the Libor rigging investigation.

The maximum that Comco is allowed to impose in cases like this one is 10% of a Company’s revenue in Switzerland over the past three years in the area under investigation. Already, some of the firms mentioned in this probe have settled investigations with regulators in the U.K. and the U.S. for about $9 billion. And there are other probes still. Comco continues to look into allegations of Forex manipulation.

In other Libor rigging news, two ex-Rabobank (RABO) traders are trying to get a federal judge in the U.S. to toss out their convictions for manipulating the interest benchmark.

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January 19, 2016

Securities Fraud Headlines: Ne-Yo Sues Citibank, SEC Awards Whistleblower $700K, U.S. Supreme Court Takes on Insider Trading, and Morgan Stanley Must Deal with $500M CDO Case

Performer Ne-Yo Files Countersuit Against Citibank Over Alleged $5.4M Securities Fraud
Singer Ne-Yo is suing Citibank (C), claiming that the financial institution should have had the proper safeguards and procedures in place that could have prevented his ex-money manager Kevin Foster from allegedly bilking him of $4.5M. The performer had filed a securities case against Foster and the latter’s employer, V. Brown & Co., in 2014.

Ne-Yo sought $8M. $4.5M of which Foster had purportedly swindled by moving funds out of the singer's accounts to the money manager’s own accounts and the accounts of others. Ne-Yo sought $3.5M for service payments he says that he paid Foster and V. Brown between ’05 and ’13.

The performer claims that Foster forged his name on loan documents and took the money, including $1.4M from Citibank that the singer claims he never signed off on. Right before Ne-Yo sued his ex-manager, however, Citi filed its own lawsuit against him for the loan.

Now, Ne-Yo is saying that Citibank never told him of the numerous transactions made by Kevin, some of which involved his overdrawn account at the bank.

Sec Issues Over $700K Award to Whistleblower
The Securities and Exchange Commission is issuing an over $700K award to an individual who blew the whistle on a company. The information that the person provided led to a successful enforcement action. The whistleblower, an industry expert, was not employed at the company. This is the first time a company outsider has been issued this type of award since the SEC opened its whistleblower office in 2011.

Because the regulator protects the confidentiality of whistleblowers, the individual’s identity has not been revealed. SEC Enforcement Division Director Andrew Ceresney said that the agency values voluntary submissions by industry experts with ‘first-hand” information of wrongdoing committed by company insiders.”

Continue reading " Securities Fraud Headlines: Ne-Yo Sues Citibank, SEC Awards Whistleblower $700K, U.S. Supreme Court Takes on Insider Trading, and Morgan Stanley Must Deal with $500M CDO Case" »

January 18, 2016

SEC Sues Ex-Superior Bank Executives and Board Members

The U.S. Securities and Exchange Commission has filed a lawsuit against eleven ex-Superior Bank executives and board members. The regulator says that the bankers took part in numerous scams to hide just how bad the loan losses were at the bank after the financial crisis struck. Nine of the individuals have consented to settle the SEC’s charges.

The SEC is accusing the directors and officers of purposely misleading regulators and investors by using fake appraisals, straw borrowers, and insider deals to make the bank's financial health seem more robust than what was actual. Bank officials are accused of improperly renewing, extending, and rolling over loans that were bad, in part to avoid having to report loan and lease losses.

Because of this, Superior Bank overstated its net income by 99% in public filings for 2009 and by 50% in 2010. The bank failed in 2011 and the Office of Thrift Supervision closed it last year. The Federal Deposit Insurance Corporation was appointed as its receiver.

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January 16, 2016

State Street To Pay $12M To Resolve Pay-to-Play Scam Charges Involving Ohio Pension Funds

The SEC said that State Street Bank and Trust Company will pay $12M to resolve civil charges accusing the firm of involvement in a pay-to-play scam. The regulator is accusing State Street of trying to gain contracts so it could do business with Ohio pension funds.

Vincent Debaggis, who helmed the public funds group of State Street Corp., is accused of entering into a deal with the deputy treasurer of Ohio. The arrangement allegedly included both illicit payments and political campaign contributions. In return for the money, State Street is accused of obtaining sub-custodian contracts that involved keeping the investment assets of certain Ohio pension funds safe and effecting the securities transaction settlements of the funds.

DeBaggis and State Street have agreed to the SEC’s order without denying or admitting to the regulator's findings. The $12M that State Street will pay includes an $8M penalty and $4M in prejudgment interest and disgorgement. Meantime, DeBattis will pay over $174K in disgorgement plus prejudgment interest and a $100K penalty.

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January 15, 2016

Goldman Sachs to Pay $5.1B in Mortgage-Backed Securities Investigation, $15M Over Purported Improper Securities Lending Practices

Goldman Sachs Group Inc. (GS) has consented to pay approximately $5.1B to resolve a government investigation into the way it dealt with mortgage-backed securities leading up to the 2008 financial crisis. The settlement was reached in principal with the Residential Mortgage-Backed Securities Working Group of the U.S. Financial Fraud Enforcement Task Force. It must be finalized, still, with definitive documentation to be agreed upon by the parties involved.

The settlement resolves potential and current claims made by attorneys general in Illinois and New York, the US Justice Department, Federal Home Loan Banks of Chicago and Seattle, and the National Credit Union Administration. Goldman is accused of packaging mortgage securities it knew would do badly and selling them off to investors. At issue are the bank’s underwriting, securitization, and sale of bonds from ’05 to ’07.

As part of the settlement, Goldman will pay a $2.39B civil penalty, $1.8B in consumer relief, and $875 million in cash payments. The consumer relief includes loan forgiveness for beleaguered borrowers and homeowners, affordable housing support, construction financing, debt restructuring support, improvement programs related to housing quality, and foreclosure prevention.

Continue reading "Goldman Sachs to Pay $5.1B in Mortgage-Backed Securities Investigation, $15M Over Purported Improper Securities Lending Practices" »

January 14, 2016

Closing Arguments in UK Libor Trial Against Ex-RP Martin, Tullet Prebon, and Icap Brokers

Wrapping up its case, the UK’s Serious Fraud Office accused former ICAP (IAP) brokers Danny Wilkinson, Darrell Read, and Colin Goodman, ex-Tullet Prebon employee Noel Cryan, and ex-RP Martin brokers Terry Farr and James Gilmour of behaving like a “well-oiled machine” as they allegedly helped former Citi (C) and UBS (UBS) trader Tom Hayes manipulate the London interbank offered rate (Libor). The office’s lawyer said that the six men are guilty of conspiracy to defraud.

In addition to purportedly assisting Hayes to Libor’s yen variant by deceiving clients about the market’s conditions, the men are also accused of trying to convince traders at other banks to submit false Libor rates. The prosecution has said that for the ex-brokers alleged wrongdoing, they received hundreds of thousands of pounds in kickbacks. The SFO said that the former traders agreed to to try to manipulate Libor in return for “wash trades,” which are transactions intended to make it look as if a sale and purchase have happened even though there has been no change in ownership.

All of the men have pleaded not guilty, with five of them maintaining that they were never involved in the Libor rigging scam at all. Ex-RP Martin trader Terry Farr is the only one who has admitted that he tried to help Hayes. However, his defense team argued that Farr was not aware that his actions were wrong because he only had a basic understanding of the finance industry and didn’t understand derivatives. Also, Cryan said that he lied when he told Hayes he was helping him manipulate Libor. He claims that he never actually engaged in the wrongdoing alleged. Hayes, who recently succeeded in getting his 14-year prison sentence reduced to 11 years following an appeal, made over $300M for his former employers by rigging Libor.

Continue reading "Closing Arguments in UK Libor Trial Against Ex-RP Martin, Tullet Prebon, and Icap Brokers " »

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