July 29, 2014

Lloyds Banking Group to Pay $370M Fine Over Libor Manipulation

The Commodity Futures Trading Commission, the U.S. Department of Justice, and U.K.’s Financial Conduct Authority are ordering Lloyds Banking Group PLC (LLOY) to pay $370 million in fines for trying to rig benchmark interest rates, including the rate that influenced how much the bank paid to be able to get emergency taxpayer funding during the financial crisis.

The regulators content that Lloyds attempted to manipulate the rates to enhance its financial position. Its HBOS unit is accused of attempting to lowball Libor submissions to make it seem as if it was in solid financial health when Lloyds was acquiring it.

Lloyds also purportedly tried to rig the U.S. dollar Libor rate, conspired with Rabobank NV to affect the Japanese yen Libor rate, and manipulated the BBA Repo Rate. The benchmark, which is now defunct, played a part in assessing fees that banks paid to the Bank of England to get U.K. government bonds in exchange for illiquid mortgage-backed securities. Lloyds says it repaid $13.6 million to the bank for what it didn’t pay to the “Special Liquidity Scheme,” which is the name of the taxpayer-backed facility.

In a letter earlier this month, Bank of England Governor Mark Carney called the manipulation by Lloyds “reprehensible, clearly unlawful.” He noted that the conduct might have even been criminal.

In a statement, the FCA said that the misconduct at Lloyd involved not just low-level employees but also managers who either knew of were directly involved in LIBOR manipulation. Issuing its own statement, Lloyds condemned those responsible and apologized for their actions. Its chairman, Norman Blackwell, said the traders’ behavior was “truly shocking.”

Lloyds’s deal with the DOJ is a deferred prosecution agreement. As part of that resolution, criminal information charging the bank with wire fraud will be submitted today but would be dropped as long as Lloyds complies with all of the terms, including admitting responsibility.

Contact The SSEK Partners Group if you suspect you were the victim of securities fraud.


Lloyds Pays $370 Million to Settle Rate Probe, The Wall Street Journal, July 28, 2014

Lloyds Attacked by Carney as Bank Fined for Libor-Rigging, Bloomberg, July 28, 2014

Read Blackwell's Letter to Carney (PDF)


More Blog Posts:
Lloyds Could Pay Over $500M To Settle LIBOR Rigging Allegations, Institutional Investor Securities Blog, July 25, 2014

Barclays Settles Two Libor-Related Securities Cases, Institutional Investor Securities Blog, April 16, 2014

Lloyds, Barclays, to Set Aside Hundreds of Millions of Dollars for Allegedly Mis-Selling to Victims, Stockbroker Fraud Blog, August 27, 2013

July 25, 2014

Lloyds Could Pay Over $500M To Settle LIBOR Rigging Allegations

According to the Financial Times, Lloyds Banking Group (LYG) is expected to soon announce that it has agreed to pay up to $509M to settle London Interbank Offered Rate rigging allegations. The settlement would include moneys to be paid to UK’s Financial Conduct Authority and The U.S.’s Commodity Futures Trading Commission and Department of Justice.

The British bank is just one of a number of financial institutions accused of manipulating major interest rate benchmarks. Lloyds belonged to the panel that turned in rates to yen-Libor and was a member of dollar-Libor, euro-denominated Libor, and sterling Libor panels.

Several authorities around the world have been probing numerous entities over allegations that traders colluded to gather to benefit their own trading books while their employers benefited from giving off an inflated impression of their actual financial health. Other banks that have settled include UBS (UBS), Barclays (BARC), Royal Bank of Scotland (RBS), ICAP, RP Martin, and Rabobank.

Some 17 ex-traders and brokers have been subjected to criminal charges over their involvement in Libor rigging. Deutsche Bank (DB), HSBC, Citigroup (C), and JPMorgan (JPM) are still under investigation for possible Libor manipulation.

Also, there is another possible rate manipulation scandal brewing. This is one that could prove even more costly to the banking industry than Libor.

Authorities in the U.K. and the U.S. are looking at possible manipulation by banks of the global currency markets. Some 15 authorities around the world are trying to determine whether price manipulation and collusion ensued. The foreign exchange market is a $5 trillion/day industry.

According to allegations, traders from rival banks got together in Internet chat rooms to fix benchmark prices used to reference rates for global investment and trade. Focus is being placed on the benchmark price that is set at 4pm, which is called the “fixing.” This is the price a lot of clients ask for when they perform foreign exchange trades primarily because it is thought to be transparent.

RBS CEO Says Currency-Rigging Scandal Could Top Libor, Bloomberg, July 18, 2014

Lloyds to Pay Up to $300M Libor Fine, Financial Times, July 24, 2014

Foreign exchange trading faces SFO criminal investigation, The Guardian, July 21, 2014


More Blog Posts:

US Supreme Court Will Hear Appeal Over Libor Antitrust Claims, Institutional Investor Securities Blog, July 2, 2014

Barclays Settles Two Libor-Related Securities Cases, Institutional Investor Securities Blog, April 16, 2014

Lloyds, Barclays, to Set Aside Hundreds of Millions of Dollars for Allegedly Mis-Selling to Victims, Stockbroker Fraud Blog, August 27, 2013

July 23, 2014

Morgan Stanley to Pay $275M to Settle SEC RMBS Fraud Charges

Morgan Stanley (MS) has consented to resolve Securities and Exchange Commission residential mortgage-backed securities charges by paying $275 million. The regulator had accused the firm of misrepresenting the delinquency status of mortgage loans behind two subprime RMBS during the peak of the financial crisis.

According to the SEC, not only did the firm understate how many delinquent loans were underwriting the securitizations, but also it failed to inform investors of the full scope of the facts that they needed to make informed choices. As a result, investors were defrauded.

The securitizations at issue were collateralized by mortgage loans that had an aggregate principal value balance greater than $2.5 billion. The offerings were the:

· Morgan Capital 1 Inc. Trust 2007-HE7

· Morgan Stanley ABS Capital 1 Inc. Trust 2007-NC4

These were the final subprime RMBSs sponsored, underwritten, and issued by Morgan Stanley.

According to the SEC, the securitization’s underwriting documents said that less 1% of every pool’s aggregate principal balance was more than 30 days (but no more than 60 days) delinquent from the cut off date of each securitization. The firm told investors that except for these loans, no payments on any mortgage loan were ever over 30 days delinquent. However, contends the regulator, the truth was that about 17% of the loans found in the HE7 securitization had at some point been delinquent. 4.5% of the loans in the NC4 securitization were delinquent.

The SEC also charged affiliates Morgan Stanley Mortgage Capital Holdings and Morgan Stanley ABS Capital in this matter. Morgan Stanley is settling without denying or admitting to the SEC allegations. The $275M RMBS settlement includes disgorgement, prejudgment interest, and a penalty. Investors who suffered financial harm in the securitizations will get their money back.

In other mortgage-backed securities news, credit rating agency Standard & Poor’s could soon face SEC securities fraud charges over ratings it gave to six commercial MBSs that were issued in 2011. The McGraw Hill unit says the regulator sent it a Wells notice indicating that its enforcement division plans to recommend that civil charges be filed against the credit rater.

The notice is over CMBS sold a few years back. S & P withdrew ratings on a $1.5 billion commercial mortgage-backed security after finding that there were inconsistencies in the way its rating methodology was used. The withdrawal resulted in an internal review, which unconvered methodology inconsistencies involving six other CMBSs that S & P had rated.

While a Wells notice does not mean there will definitely be a lawsuit, if the SEC does decide to file civil charges, this will be the first time that regulator will have sued a credit-rating agency.

Morgan Stanley to Pay $275 Million in Mortgage Bond Settlement, The Wall Street Journal, July 24, 2014

S&P fails to split up $5 billion U.S. fraud lawsuit, Reuters, April 15, 2014

S&P faces securities fraud charges over mortgage ratings, Financial Services, July 23, 2014


More Blog Posts:

Morgan Stanley Must Pay Connecticut Regulators $5M for Supervisory Violations, Stockbroker Fraud Blog, June 18, 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

July 18, 2014

Bank of America Settles RMBS Allegations with AIG for $650M

Bank of America Corp. (BAC) has paid American International Group Inc. (AIG) $650 million to settle residential mortgage-backed securities fraud claims. The insurer had originally asked for $10 billion when it filed its RMBS fraud lawsuit in 2011.

According to the complaint, Bank of America’s mortgage company Countrywide Financial, misrepresented the quality of mortgage securities it was selling to investors. The settlement resolves the securities fraud litigation brought by the insurer against the bank. This includes lawsuits in California and New York accusing Bank of America of fraudulently causing billions of dollars in losses.

It also takes away the largest obstacle to Bank of America’s $8.5 billion mortgage securities settlement with institutional investors over the financial instruments that Countrywide issued. The investors in that case are 22 institutions, including BlackRock Inc. (BLK.N), and MetLife Inc. (MET.N).

AIG had argued that the settlement with the institutional investors did not value its claims. Now, however, the insurer will accept a pro rata share of what the institutional investors get back.

Bank of America like other banks, continues to deal with the fallout from the 2007 financial crisis that led to the housing market’s collapse. It recently resolved a mortgage securities dispute with the Federal Housing Financing Agency that will cost it $9.33 billion. The bank is still in the middle of talks with the Department of Justice over high-risk subprime mortgages involving Countrywide and its Merrill Lynch unit.

The two sides have been able to agree on how much Bank of America should be penalized for mortgage securities that were sold by Countrywide. The bank wants prosecutors to factor in that it tried to get out of the Merrill purchase but felt pressured by regulators to go on with the deal during the financial crisis.

Media sources are reporting that with no resolution in sight, federal prosecutors are preparing to file a mortgage-backed securities case against Bank of America.

If you suspect your company or entity is the victim of institutional investor fraud, contact The SSEK Partners Group today.

Bank of America’s Settlement Negotiations Hit a Snag, NY Times, July 16, 2014

Bank of America Takes $4 Billion Litigation Hit, ABC News, July 16, 2014

BofA pays AIG $650 million to settle mortgage disputes, Reuters, July 16, 2014


More Blog Posts:
Broker Headlines: Former Wells Fargo Broker Must Pay Back Firm $1.2M, Morgan Stanley CEO Wants to Lower Broker Compensation, & Representatives Oppose Best Interest Rules, Stockbroker Fraud Blog, June 13, 2014

Bank of America, Its Ex-CEO To Pay $25M to Settle Securities Case with NY Over Merrill Lynch Deal, Stockbroker Fraud Blog, March 31, 2014

Citigroup Settles Mortgage-Backed Securities Probe with DOJ for $7 Billion, Institutional Investor Securities Blog, July 14, 2014

July 17, 2014

Barclays and Deutsche Bank Under Scrutiny Over Barrier Options Transactions

The U.S. Senate Permanent Subcommittee on Investigations plans to conduct a hearing over what it believes are abusive transactions made by financial institutions. Bloomberg is reporting that Deutsche Bank AG (DBK), Barclays PLC (BARC), and hedge fund manager Renaissance Technologies LLC will have representatives testifying at the hearing.

The July 22 hearing is expected to focus on barrier options transactions between the banks and the hedge fund manager. There are tax benefits that allegedly came from the options, which the Internal Revenue Service and Renaissance are in dispute over.

Bloomberg reports that the transactions let the hedge fund manager’s Medallion fund borrow up to $17 for every dollar the fund owned, which is more than it could have in a traditional margin-lending relationship. Under Federal Reserve rules, stockbrokers are not allowed to lend over $1 for each client money dollar. Usually, hedge funds can borrow no more than $5 or $6 for each dollar it has and only if there is a special agreement with the banks.

In one type of barrier-option transaction, Barclays purchased a pool of securities and paid Renaissance a small fee to run them. It then put the securities in Palomino Ltd., a subsidiary.

Barclays also sold a two-year option to the hedge fund that moved any losses or gains from the pool to Medallion without financing expenses. Since the bank legally owned the assets, the option changed the short-term trading profits of the hedge funds’ investors into long-term capital gains, which have a lower tax rate. The IRS claims the option deal was a deception and that Medallion was the actual owner of the assets.

Meantime, Deutsche Bank sold options to Renaissance not unlike the ones that Barclays provided. It also sold a similar structure to an investment vehicle under the management of hedge-fund manager George A. Weiss.

According to a Government Accountability Office report, the IRS found out about the options arrangement practices after Securities and Exchange Commission did in 2008. In 2010, the IRS made a case against the technique. Bloomberg say that according to sources, Deutsche Bank then stopped offering option arrangement transactions that offered a tax benefit.

In other Barclays news, trading is down in its dark pool after New York prosecutors accused the financial firm of misleading clients. The state’s attorney general claims that Barclays fraudulently misled customers about the way its LX dark pool was run. After the dark pool lawsuit was submitted, other brokers, including Deutsche Bank, Credit Suisse (ADR), and Royal Bank of Canada (RY) started closing their links to LX and taking it out of routing algorithms.

As for Deutsche Bank, the U.S. Court of Appeals for the Second Circuit has dismissed an appeal by plaintiffs accusing Deutsche Bank National Trust Company and its trusts of residential mortgage-backed securities fraud. The complaint questioned the defendants’ ownership of the loans and mortgage. The plaintiffs had mortgaged their homes and borrowed money. Now, they are challenging the defendants’ rights to collect payment on the loans and start foreclosures proceedings when payments weren't made.

The plaintiffs believe the assignments were defective because the mortgage loans could not be found listed in the attachments that came with the assignment agreements. In their appeal, they said that the district court made a mistake in tossing their complaint.
Now, however, the Second Circuit has concluded that the plaintiffs’ alleged facts don’t give them standing to go after their claims. The appeals court affirms the district court’s judgment to dismiss.

Barclays, Deutsche Facing U.S. Senate Hearing, Bloomberg, July 16, 2014

Trading in Barclays Dark Pool Down 37%, The Wall Street Journal, July 14, 2014

Second Circuit dismisses class action against Deutsche Bank, Washington Examiner, July 14, 2014


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

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

Deutsche Bank AG Settles Shareholder Lawsuit Over Mortgage Debt, Stockbroker Fraud Blog, January 2, 2014

July 14, 2014

Citigroup Settles Mortgage-Backed Securities Probe with DOJ for $7 Billion

Citigroup (C) has reached a $7 billion settlement with the U.S. Department of Justice over allegations it misled investors about mortgage-backed securities in the time leading up to the 2008 financial meltdown. The settlement includes a $4 billion penalty to be paid to DOJ, $2.5 billion in consumer relief, and $500 million to a number of states and the Federal Deposit Insurance Group.

According to the U.S. government, Citigroup knew it was selling mortgage-backed securities with loans that had “material defects” and hid this information from investors. Attorney General Holder called this misconduct “egregious.” He said the bank played a role in spurring the economic crisis.

The government released a statement of fact to which Citibank consented. In it are details about how the bank ignored its own warning signs that certain mortgages were subpar and made misrepresentations about the loans that were securitized. One U.S. attorney told The Wall Street Journal that the DOJ discovered 45 mortgage-backed security deals between 2006 and 2007 where inaccuracies about underlying loans’ and their quality were made.

More than once bank employees discovered a significant junk of mortgage loans were defective yet Citigroup packaged the loans into residential-mortgage backed securities and sold them. The bank even told due diligence firms to modify loan grades so that they went from rejected to accepted

While the settlement releases Citibank from liability for collateralized debt obligations and residential mortgage-backed securities that it issued between 2003 and 2008, criminal charges could still come from the government against both the bank and individuals who were involved. The bank also is under investigation over whether its Banamex USA did what it should have to bar suspected money laundering in transactions that occurred near the border of U.S. and Mexico.

While the Justice Department had sought $12 billion from Citigroup, the bank had wanted to pay just $363 million in cash, in addition to “consumer relief. Citigroup said it wasn’t a huge player in the mortgage-securities industry and didn’t think its penalty should be so high. The DOJ, however, believes that Citigroup's egregious behavior warranted a substantial penalty. As for the $2.5 billion in consumer relief, this includes financing for building and preserving multifamily rentals that are affordable, forbearance and principal reduction for residential mortgages, and other direct consumer benefits.

Citigroup is the second big US bank to settle with the government over mortgage securities. J.P. Morgan (JPM) settled MBS fraud charges last year for $13 billion. The government is also engaged in mortgage-backed securities settlement talks with Bank of America.

In other recent MBS fraud news, an ex-Credit Suisse (CS) banker was told to forfeit $900,000 and sentenced to time served. David Higgs pleaded guilty in February 2012 to conspiring to falsify Credit Suisse’s records. This lead the bank to take a $265 billion write-down for 2007.

The case is related to a plan to conceal over $100 million in losses in an MBS trading book at the Swiss bank. At issues were subprime residential mortgaged-backed securities and commercial mortgage-backed securities. Co-conspirators, including Higg, were charged with artificially rising bond prices to give the impression of profitability.

The SSEK Partners Group is a mortgage-backed securities fraud law firm. We represent institutional investors and high net-worth individuals.

Ex-Credit Suisse Banker Gets Time Served in Mortgage-Backed Securities Scheme, The Wall Street Journal, June 24, 2014

Citigroup Settles Mortgage Inquiry for $7 Billion, The NY Times, July 14, 2014


More Blog Posts:
Second Circuit Overturns Judge's Decision to Block Citigroup's $285M Settlement With the SEC, Stockbroker Fraud Blog, June 4, 2014

SEC Prepares Money-Fund Rules, Will Review Alternative Mutual Funds, Institutional Investor Securities Blog, July 10, 2014

SignalPoint Asset Management to PAY SEC Fine for Breach of Fiduciary Duty, Stockbroker Fraud Blog, July 7, 2014

July 10, 2014

SEC Prepares Money-Fund Rules, Will Review Alternative Mutual Funds

Sources tell The Wall Street Journal that the U.S. Securities and Exchange Commission is getting ready to vote on rules that are supposed to stop investors from bailing out of money-market mutual funds, which is the reason that corporate lending became imperiled during the 2008 financial meltdown. Under the plan, certain money funds that cater to big institutional investors would have to lose the fixed price of $1/share an float in value the way other mutual funds do.

Municipalities, businesses, and individuals use money funds. Under the new rules, money funds would be allowed to place a temporary block on investors to keep them from taking their money out during stressful times. They would also be allowed to ask for a fee for share redemption.

The rules are set to make the money-fund industry less at risk of investor runs when the market is tumultuous. They would get investors accustomed to value fluctuations in their investments while making sure that funds are able to stop any outflows from turning into a flood.

The rules provide a floating share price for prime institutional funds. There would also be redemption “gates” and fees. Most of the SEC’s commissioners are expected to back the plan.

In 2008, Reserve Primary, a fund valued at $62 billion “broke the buck” when it fell below the $1 share/price that money funds try to keep up. The fund’s exposure to Lehman Brother Holdings Inc.’s debt after the latter filed for bankruptcy had caused the fund to suffer losses. The bankruptcy also led to a run on other money funds that only abated when the U.S. government got involved.

The U.S. Treasury Department and the SEC are also reportedly close to a deal that would ease tax rules on the smaller loses and gains sustained by floating-rate funds investors.

In 2010, the SEC put into place widespread changes to give the industry a stronger constitution. These included stricter rules on the types of securities funds could contain. However, critics said that there remained structural features that could compel investors to flee during early warnings of trouble.

In other SEC news, SEC’s Division of Investment Management Director Norm Champ says that the Commission will examine fund companies to take a closer look at alternative mutual funds’ liquidity, leverage, and other matters. The sweep will also assess whether the funds are in compliance with the industry’s regulations and laws. Champ spoke at an attorneys’ seminar early this month. Issues to be examined include whether the funds are properly assessing securities’ worth and if investors were properly apprised of the risks.

Alternative mutual funds usually use investment strategies similar to those of hedge funds. The probe is to take place just as retail investors, hungry for yield, rush to alternative funds.

Some 15 to 20 fund families will be examined. Areas of assessment are expected to include question of compliance when determining the value of assets, such as illiquid assets, derivatives, and private start-up company shares. The agency expects alternative funds to abide by a regulation that usually mandates that mutual funds pay investors within seven days after shares are redeemed. Fund governance will also be examined.

The SSEK Partners Group is a securities fraud law firm. We represent high net worth individual investors and institutional investors.

U.S. SEC review of alternative mutual funds is imminent-official, Reuters, July 8, 2014

Prime Money Funds Said to Float $1 Price Under SEC Plan, Bloomberg, July 10, 2014


More Blog Posts:
SignalPoint Asset Management to PAY SEC Fine for Breach of Fiduciary Duty, Stockbroker Fraud Blog, July 7, 2014

Some Advisers Choose Alternative Investments Using Poorly Suited Benchmarks, Says Morningstar, Institutional Investor Securities Blog, July 9, 2014

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

July 9, 2014

Some Advisers Choose Alternative Investments Using Poorly Suited Benchmarks, Says Morningstar

According to a survey issued by Morningstar Inc., financial advisers may be using the wrong benchmark when evaluating and choosing alternative investments. The research firm and Barron’s magazine questioned 301 advisers and 372 institutional investors.

Right now, the most popular way that advisers assess their investments’ performance is with a standard benchmark index and not by measuring performance against customized benchmarks, competitor funds, or risk-adjusted analysis. While about 25% are using the Russell 2000, the S & P 500, or similar benchmarks, the rest of those who were surveyed work with different methods.

Now, however, there are industry executives and analysts who are saying the index benchmarks are not up to the job of assessing the funds’ performance. Alternative investments typically employ different strategies and may have distinct goals.

For example, says InvestmentNews, a lot of long-short equity funds that participate in hedging and have a tendency to get into large-cap stocks are frequently measured against indexes, which are even more volatile than the actual funds. It seems that advisers are evaluating the funds using standards for products that are supposed to go beyond market benchmarks. Natixis Global Asset Management chief market strategist David Lafferty told Investment News that advisers should work with multiple risks measures, such as downside capture and maximize drawdown, to tell customers about investments.

Even with the misevaluations, assets in alternative funds have grown, exceeding $300 billion in May. Assets in alternative funds saw a 43% rise in 2013, making it the most rapidly growing mutual fund product. Nontraditional bond funds, long-short stock funds, and multi-alternative funds are among the fastest growing subcategories.

Morningstar’s survey showed that advisers have been turning toward alternative investments even with substantial gains in long-only equity market exposure. Almost a quarter of advisers admitted to allocating up to 15% of client portfolios in these investments. Over 75% of advisers said they wanted the diversification benefits, no correlation, and broader market returns.

Please contact our institutional investor fraud law firm today. The SSEK Partners Group represents investors who have sustained losses due to alternative investment fraud.

Some advisers using ill-suited benchmarks to measure alts performance, Investment News, July 7, 2014

Morningstar/Barron's Survey


More Blog Posts:

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

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

SignalPoint Asset Management to PAY SEC Fine for Breach of Fiduciary Duty, Stockbroker Fraud Blog, July 7, 2014

July 7, 2014

Non-Traded REITs, Structured Products, and Private Placements Remain Under Regulator Scrutiny

According to state regulators, non-traded real estate investment trusts, structure products, and private placements, are some of the financial instruments that the states and insurance regulators are watching closely. First Deputy Commissioner of the Iowa Insurance Division Jim Mumford and Alabama Securities Commission director Joseph P. Borg recently spoke at a panel at the Insured Retirement Institute's Government, Legal and Regulatory Conference.

Borg noted that a growing number of agents are now selling unlicensed financial products, with insurance agents selling private placements and getting clients away from insurance products and into Regulation 506 of Regulation D. The rule establishes a safe harbor for securities’ private offerings. Such instruments are only supposed to be made available to accredited investors and non-accredited investors that have enough sophistication to be able to assess this type of investment. Agents, however, have tried to circumvent securities laws by claiming that a (nonexistent) attorney gave them a letter stating that the private offering actually wasn’t a security.


Also up for sale lately are self-directed IRAs and promissory notes. Structured products have also been quite popular, although unfortunately, Borg noted, many agents and brokers don’t even understand what they are selling.

Certain investments just aren’t for everyone. We represent investors that have suffered losses related to fraud involving non-traded REITs, mortgaged-backed securities, alternative investments, collateralized debt obligations, private placements, and other financial products. Contact our complex investment fraud lawyers today.

State regulators on high alert for complex investment and insurance sales, InvestmentNews, July 2, 2014

SEC Regulation 506 of Regulation D


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

Non-traded REITS Exhibit Unbelievable Resistance to FINRA Disclosure Rules
, Institutional Investor Securities Blog, March 19, 2014

FINRA Suspends and Fines GlobaLink Securities Principal, Stockbroker Fraud Blog, September 19, 2013

July 3, 2014

Deutsche Bank, Wells Fargo, Citigroup Sued by Pimco and Blackrock Over Trustee Roles Involving Mortgage Bonds

Pacific Investment Management Co. and BlackRock Inc. (BLK) are leading a group of investors, including Charles Schwab Co. (SCHW), Prudential Financial Inc. (PRU), DZ Bank AG, and Aegon in suing trust banks for losses they sustained related to over 2,000 mortgage bonds that were issued between 2004 and 2008. Defendants include units of US Bancorp (USB), Deutsche Bank AG (DBK), Wells Fargo (WFC), HSBC Holdings (HSBA.LN), Citigroup (C), and Bank of New York Mellon Corp (BK).

The investors are accusing the banks of breaching their duty as trustee when they did not force bond issuers and lenders to buy back loans that did not meet the standards that buyers were told the bonds possessed. It is a trustee’s job to make sure that principal payments and interest go to bond investors. They also need to make sure that mortgage servicing firms are abiding by the rules that oversee defective loans or homeowner defaults.

Trustees, however, have said that their duties are restricted to tasks like supervising the way payments are made to investors and giving regular reports about bond servicing. They disagree about having a wider oversight duty to fulfill.

Blackrock and Pimco contend that the trustees knew the bonds had defective loans but that they had a conflict because the issues who appointed them had stakes in the firms servicing the loans. Loans in the bonds that were issued by the defendants included subprime lenders Morgan Stanley (MS), Countrywide Financial Corp, First Franklin Financial Corp, New Century Financial Corp., Royal Bank of Scotland Group (RBS), Goldman Sachs Group (GS), and PLC's Greenwich Capital.

Investors have already won settlements from JPMorgan Chase Co. (JPM) and Bank of America Corp. (BAC) for the banks’ part in originating and selling mortgage securities. The trustee lawsuit deals with bonds that were not part of this settlement. The plaintiffs want damages for bond losses that exceeded $250 billion.

BlackRock, Pimco Sue Deutsche Bank, U.S. Bank Over Trustee Roles, The Wall Street Journal, June 18, 2014

BlackRock, Pimco Sue Banks for Mortgage-Bond Trustee Role, Bloomberg, June 18, 2014


More Blog Posts:

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

US Supreme Court Will Hear Appeal Over Libor Antitrust Claims, Institutional Investor Securities Blog, July 2, 2014

FINRA Official Says Variable Annuity Sales Top Investor Complaint List, Stockbroker Fraud Blog, July 3, 2014

July 2, 2014

US Supreme Court Will Hear Appeal Over Libor Antitrust Claims

The United States Supreme Court has agreed to hear an appeal in Ellen Gelboim et al v. Bank of America Corp. The lawsuit was filed by bond investors who lost money in securities tied to the London Interbank Offered Rate and the manipulation of the global benchmark interest rate. Now, the nation’s highest court is granting their request to let their claims go forward and will hold oral arguments on the lawsuit during its next term.

For the last three years, different kinds of investors have filed numerous securities fraud cases against the largest banks in the world claiming that they manipulated Libor. Last year, a district court judge allowed investors to pursue certain claims but threw out their antitrust claims.

Judge Naomi Reice Buchwald said that the settling of Libor was not competitive but, rather, cooperative; it involved banks providing data to a trade group that established the rate. Plaintiffs therefore could not prove that anticompetitive behavior harmed them.

However, a group of bond investors whose claims only had to do with antitrust violations filed an appeal to Buchwald’s ruling with the 2nd U.S. Circuit Court of Appeals. That court threw out the appeal over lack of appellate jurisdiction. The reason for this, said the 2nd circuit, was that the district court did not dismiss all related consolidated complaints.

The investors then went to the Supreme Court. They noted that appeals courts are split over if and when dismissing a consolidated action is an “appealable final order.” The investors believed that their Libor lawsuit was the “ideal” one for resolving this divide.

Also last month, Judge Buchwald ruled that Eurodollar futures traders could accuse Rabobank Group and Barclays Plc (BARC) of using Libor to obtain trading advantages. Buchwald granted the traders request to include these claims in their securities lawsuit.

The plaintiffs are investments funds. They claim that banks, including Citigroup Inc. (C), Credit Suisse Group AG (CSGN), and Bank of America (BAC), artificially suppressed the rate to conceal the risie in borrowing costs. Buchwald said that the funds could argue that they either didn’t earn enough for selling Eurodollar futures contracts on certain dates or they paid too much for them. Their lawsuit is one of a multitude of lawsuits that interrelated and claim that banks acted to depress Libor.

Buchwald however, dismissed Societe Generale SA (GLE) as a defendant. She said that the allegations against the bank were submitted too late. She noted that the plaintiffs must still contend with numerous obstacles, including showing that actual damages resulted because of the banks’ “improper conduct.”

Please contact our securities fraud lawyers today so we can help you determine whether you have reason to pursue a claim. The assessment is free.

Eurodollar Traders Can Revise Libor Manipulation Claims, Bloomberg, June 24, 2014

U.S. Supreme Court to hear Libor antitrust appeal, Reuters, June 30, 2014


More Blog Posts:
R.P. Martin To Pay $2.2M in Libor Rigging, Institutional Investor Securities Blog, May 22, 2014

Barclays Settles Two Libor-Related Securities Cases, Institutional Investor Securities Blog, April 16, 2014

Deutsche Bank, Royal Bank of Scotland Settle & Others for More than $2.3B with European Union Over Interbank Offered Rates, Institutional Investor Securities Blog, December 24, 2013

July 1, 2014

Goldman Sachs Execution & Clearing Ordered to Pay $800K FINRA Fine for Not Preventing Trade-Throughs in its Dark Pool

FINRA is fining Goldman Sachs Execution & Clearing, L.P. (GS) $800,000. The self-regulatory organization says that for almost three years the firm did not have written procedures and policies that were reasonably designed enough to keep trade-throughs of protected quotations in National Market System stocks from taking place through its SIGMA-X dark pool. As a result, over an 11-day period in 2011, almost 400,000 trades were carried out at SIGMA-X through a quotation that was protected with a price that was lower than the NBBO.

Trading centers are supposed to either direct orders to trading centers with the best price quotes or trade at the prices that are the best quotes. The SRO says that the firm did not know this was happening in part because latencies in market information at Goldman’s dark pool were not detected soon enough.

Goldman Sachs has already given back $1.67M to customers who were disadvantaged. By settling, the firm is not denying or admitting to the FINRA charges. However, it agreed to the entry of the SRO’s findings.

Recently, our securities lawyers reported in another blog post that Barclays (BARC.LN) PLC is also facing dark pool charges. The New York Attorney General sued the bank, accusing it of fraudulently misleading trading clients about how its LX alternative trading system was run. Barclays is also accused of giving preference to high-frequency traders.

There is purportedly a link between the Goldman and Barclays dark pool incidents in a man named David C. Johnsen. He was “discharged” from Goldman Sachs in 2012 because of concerns about the way he performed his supervisory duties. He then went to work at Barclays where he served as as the electronic trading group’s business development director. That’s the group that runs SIGMA-X.

If you believe you were the victim of dark pool trading fraud, contact our securities law firm today.

FINRA Fines Goldman Sachs Execution & Clearing, L.P. $800,000 for Failing to Prevent Trade-Throughs in its Alternative Trading System, FINRA, July 1, 2014

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

FINRA Headlines: SRO Fines Goldman Sachs, Merrill Lynch, and Barclays Capital $1M Each & Makes Dark Pool Data Available, Stockbroker Fraud Blog, June 7, 2014

SEC Sues Wedbush Securities and Dark Pool Operator Liquidnet Over Regulatory Violations, Institutional Investor Securities Blog, June 6, 2014

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