April 3, 2014

PNC Bank Sues Morgan Stanley & Ex-Trust Adviser For “Surreptitious Conspiracy”

In U.S. District Court for the Western District of Pennsylvania, PNC Bank (PNC) is suing Emily Daly, one of its ex-trust advisers, and her employer Morgan Stanley (MS). According to InvestmentNews, The bank contends that Daly allegedly stole trade secrets, solicited its clients, and violated her employment agreement when she switched firms. Meantime, Morgan Stanley is accused of helping her bring over the confidential data about clients.

Banks don’t like it when advisers take their customers with them when they go to another firm and nonsolicitation agreements can be violated as a result. Also, under PNC’s employment contract, employees are not allowed to take data that isn’t general industry knowledge or from a public source when they leave a firm. The bank contends that Daly helped transfer over $250 million in client assets to Morgan Stanley, which allowed the firm to make fees of about $ 1 million.

Daly even purportedly used her cell phone to take pictures of her computer screen when internal measures made it impossible to download lists of clients. Boxes of client data that were in Daly’s office are said to have gone missing.

PNC wants millions of dollars in damages and back wage payments from Daly because she allegedly recruited some of hear colleagues to go work with Morgan Stanley.

Securities Fraud
At the SSEK Partners Group, we are here to represent investors that have sustained losses because of the negligence or wrongdoing of their representatives or their firms. We work with institutional and high net worth clients.

PNC sues former adviser, Morgan Stanley for "surreptitious conspiracy", Investment News, April 3, 2014

PNC Bank claims former employee, Morgan Stanley stole information, TribLive.com, March 14, 2014


More Blog Posts:
$550M Securities Fraud Case Between Texas’ Wyly Brothers & SEC Goes to Trial, Stockbroker Fraud Blog, April 2, 2014

SEC Says Investment Advisors Can Publish Third-Party Endorsements Online, Stockbroker Fraud Blog, April 1, 2014

Bank of America Settles Mortgage Bond Claims with FHFA for $9.3B, Institutional Investor Securities Blog, March 29, 2014

March 29, 2014

Bank of America Settles Mortgage Bond Claims with FHFA for $9.3B

Bank of America (BAC) will pay $9.3 billion to settle securities claims that it sold faulty mortgage bonds to Freddie Mac (FMCC) and Fannie Mae (FNMA). The deal, reached with the Federal Housing Finance Agency, includes $3.2 billion in securities that the bank will buy from the housing finance entities and a cash payment of $6.3 billion.

The mortgage bond settlement resolves securities lawsuits against the bank, Countrywide, and Merrill Lynch (MER). FHFA, which regulates both Freddie Mac and Fannie Mae, accused Bank of America of misrepresenting the quality of the loans behind residential mortgage-backed securities that the mortgage financing companies purchased between 2005 and 2007.

This is the 10th of 18 securities lawsuits reached by the FHFA over litigation involving around $200 billion in mortgage-backed securities. To date, it has gotten back over $10 billion over such claims.

During the housing boom, Freddie and Fannie bought privately issued securities in the form of investments and became two of the biggest bond investors. The US Treasury was forced to rescue the two entities in 2008 as their mortgage losses grew.

Also, Bank of America and its ex-CEO Kenneth Lewis have settled for $25 million a NY mortgage lawsuit accusing them of deceiving investors about the firm’s acquisition of Merrill Lynch. The state’s Attorney General Eric Schneiderman accused Lewis of hiding Merrill’s growing losses from Bank of America shareholders before the merger vote in 2008 and getting the US government to give over another $20 billion in bailout money by making false claims that he would step out of the merger without the funds. Another defendant, ex-CFO Joe Price, has not settled yet.

NY officials had sued Bank of America, Lewis, and Price under its Martin Act. The US Securities and Exchange Commission also sued the bank over Merrill losses and bonus disclosures. That securities lawsuit was settled for $150 million. Another case, a shareholder class action lawsuit, was settled for $2.43 billion.

Contact our mortgage-backed securities lawyers if you suspect you may have been the victim of securities fraud.

Bank of America to Pay $9.5 Billion to Resolve FHFA Claims, The Wall Street Journal, March 26, 2014


Bank of America to pay $9.3 billion to settle mortgage bond claims, Reuters, March 26, 2014

Federal Housing Finance Agency


More Blog Posts:
$500M MBS Settlement Reached Between Countrywide and Investors, Stockbroker Fraud Blog, May 10, 2013

Bank of America and Countrywide Financial Sued by Allstate over $700M in Bad Mortgage-Backed Securities, Stockbroker Fraud Blog, December 29, 2010

Bank of America’s $8.5B Mortgage Bond Settlement Gets Court Approval, Institutional Investor Securities Blog, January 31, 2014

March 26, 2014

Citigroup and Royal Bank of Scotland Fail Federal Stress Test

A capital plan to reward investors with stock buybacks and dividends by Citigroup Inc. (C) was one of five to fail Federal Reserve stress test. The others that did not succeed were those involving the US units of Royal Bank of Scotland Group Plc. (RBS), HSBC Holdings Plc. (HSBA), Zions Bancorporation (ZIONS) and Banco Santander SA (SAN). The central bank, however, did approve plans for 25 banks, including those from Bank of America (BAC) and Goldman Sachs (GS) after both lowered their dividend and buyback requests.

Regulators have been trying to prevent another financial crisis like the one in 2008 by conducting yearly tests on the way the biggest banks would do in a similar crisis. According to analysts, banks had intended to pay out about $75 billion in excess capital to raise returns and reward shareholders. This is the second year in a row that the Fed has taken issue with certain plans.

While Citigroup requested the least capital return among the five biggest banks in the country last year after its plan was turned down in 2012, this year it could have passed on just quantitative grounds. However, the central bank found numerous deficiencies in Citigroup’s planning practices, including whether it could project revenues and losses while under stress, as well as be able to properly measure exposures.

Now, Citigroup and the other institutions that weren’t approved must turn in revised capital plans and suspend increased dividend payments until they get formal approval by the Fed. The foreign banks will not be allowed to pay greater dividends to their parent firm. And while the Fed approved the shareholder-reward plans of Goldman and Bank of America, they had to resubmit them after the strategies initially fell under minimum capital levels in the ‘severely adverse’ stress testing conditions.

Banks usually announce buybacks and dividend raises soon after the stress test results are issued. Collectively this year, banks got approval to pay out about 60% of estimated net income for the upcoming four quarters.

Last week, the Fed disclosed the way banks are projected to perform in a hypothetical recession with unemployment in this country at 11.3%, stock prices dropping nearly 50%, and the costs of homes dropping 25%. Projected losses for the 30 banks was at $377 billion over 9 nine quarters.

At The SSEK Partners Group, our securities lawyers are continuing to work with investors who suffered losses from the last economic crisis because of the negligent investment advice and inadequate broker services they received. We handle securities fraud cases involving mortgage-backed securities, residential mortgage-backed securities, auction rate securities, real estate investment trusts, non-traded real estate investment trusts, collateralized debt obligations, alternative investments, collateralized mortgage obligations, derivative securities, credit default swaps, and other investments that failed. Our securities attorneys represent clients in arbitration and in the courts.

Fed Kills Citi Plan to Pay Investors, The Wall Street Journal, March 26, 2014

Federal Reserve Board announces approval of capital plans of 25 bank holding companies participating in the Comprehensive Capital Analysis and Review, Board of Governors of the Federal Reserve, March 26, 2014

Dodd-Frank Act Stress Tests, Board of Governors of the Federal Reserve, March 24, 2014


More Blog Posts:
Madoff Ponzi Scam: Five Ex-Aides Convicted of Securities Fraud, Victims to Recover $349 Million, Stockbroker Fraud Blog March 26, 2014

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

Securities Class Action Lawsuits Don’t Help Investors Recover, Says New Study, Institutional Investor Securities Blog, March 24, 2014

March 22, 2014

Credit Suisse to Pay $885M To Settle RMBS Fraud Lawsuit with FHFA, Continues to Face Allegations It Hid US Accounts from Internal Revenue Service

Credit Suisse (CS) will pay $885 million to resolve securities allegations related to the sale of approximately $16.6B in residential mortgage-backed securities that it made to Freddie Mac (FMCC) and Fannie Mae (FNMA) prior to the financial crisis. The RMBS settlement is with the Federal Housing Finance Agency, which oversees both government-controlled financing companies. It closes the books on two lawsuits.

The mortgage cases accused Credit Suisse of making misrepresentations when selling the RMBS to the two companies. Because the deal was reached prior to Credit Suisse submitting its financial results for 2013, the Swiss bank says it will take a related $312 million charge for last year, as well as post a loss for the most recent fourth quarter.

In other Credit Suisse news, one of the firm’s ex-bankers has pleaded guilty in federal court to assisting US clients so that they could avoid paying taxes to the IRS. Andreas Bachmann is one of seven employees at the firm indicted on a criminal charge that he helped Americans conceal assets of about $4 billion.

Since agreeing to work with prosecutors, Bachmann has implicated his superiors at Credit Suisse by saying that they allowed US law and a deal between the firm and the IRS (to withhold and pay taxes on the accounts of clients that are US citizens) to be violated. Bachmann claims that when he spoke about the practices internally, an executive told him to make sure he wasn’t caught. Also, in his statements of fact, Bachmann said that compliance workers at Credit Suisse did not act to make sure compliance was taking place per a prohibition made in a deal with the IRS that its bankers were prohibited from talking about investments in US securities.

Bachman said that of his 100 clients, at least 25 of them were based in the US. He contends that that the IRS wasn’t notified about many of the US accounts and sham structures were used to hide who actually owned them.

The ex-Credit Suisse banker’s plea comes after a Senate subcommittee issued a report finding that the firm helped 22,000 Americans conceal up to $10 billion from the IRS.

Ex-Credit Suisse Banker Bachmann Admits Guilt in Tax Case, Bloomberg, March 12, 2014

Credit Suisse Settles Mortgage Litigation for $885 Million, The Wall Street Journal, March 21, 2014


More Blog Posts:
Credit Suisse Admits Wrongdoing and Will Pay $196M to Settle SEC Charges That It Provided Unregistered Services to US Customers, Stockbroker Fraud Blog, February 22, 2014

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

Credit Suisse Officials Accused of Telling Staff to Ignore Due Diligence Standards, Accept Questionable Loans Involving, Institutional Investor Securities Blog, March 11, 2014

March 14, 2014

Ex-Goldman Trader Tourre Must Pay $825M in Securities Fraud Involving CDO Abacus 2007-AC1

Following a jury finding ex-former Goldman Sachs Group (GS) trader Fabrice Tourre liable for bilking investors in a synthetic collateralized debt obligation that failed, U.S. District Judge Katherine Forrest ordered him to pay over $825,000. Tourre is one of the few persons to be held accountable for wrongdoing related to the financial crisis. In addition to $650,000 in civil fines, Tourre must surrender $185,463 in bonuses plus to interest in the Securities and Exchange Commission’s case against him.

The regulator accused Tourre of misleading ACA Capital Holdings Inc., which helped to select assets in the Abacus 2007-AC1, and investors by concealing the fact that Paulson & Co., a hedge fund, helped package the CDO. Tourre led them to believe that Paulson would be an equity investor, instead of a party that would go on to bet against subprime mortgages. Paulson shorted Abacus, earning about $1 billion. This is about the same amount that investors lost.

Judge Forrest noted that for the transaction to succeed, the fraud against ACA had to happen. She said that if ACA had not been the agent for portfolio selection, Goldman wouldn’t have been able to persuade others to get involved in the transaction’s equity. It was last year that the jury found Tourre liable on several charges involving Abacus.

Also, in 2010 Goldman settled for $550 million with the SEC a related securities fraud case. The regulator accused the firm of misleading investors about the Abacus 2007-AC1 and misstating and leaving out key information about the CDO, which depended on subprime residential mortgage-backed securities.

The firm, however, resolved the charges without deny or admitting wrongdoing—although it did admit and regret the inadequacy of its marketing materials. $250 million was designated for investors and the rest was to go to the US Treasury.

Please contact our securities attorneys at The SSEK Partners Group today and ask for your free case assessment.

Big fine imposed on ex-Goldman trader Tourre in SEC case, Reuters, March 12, 2014

Goldman Sachs to Pay Record $550 Million to Settle SEC Charges Related to Subprime Mortgage CDO, SEC, July 15, 2010


More Blog Posts:
Goldman Sachs Must Contend with Proposed Class-Action CDO Lawsuit, Institutional Investor Securities Blog, January 22, 2014

Ex-Goldman Sachs Trader Fabrice Tourre’s Request for New Civil Trial in RMBS Fraud Case is Denied, Institutional Investor Securities Blog, January 10, 2014

Goldman Sachs Cleared in Securities Fraud Case Against Dragon Systems for Losses Related to $250M Loss in Sale to Lernout & Haspie, Stockbroker Fraud Blog, January 31, 2013

March 11, 2014

Credit Suisse Officials Accused of Telling Staff to Ignore Due Diligence Standards, Accept Questionable Loans Involving

According to documents filed by Credit Suisse (CS) in Massachusetts state court, reports The New York Times, top officials at the financial firm encouraged subordinates to ignore due diligence standards and approve questionable loans that ended up packaged into mortgage investments. Also included in the papers are finding that there were internal audits showing that activities at the mortgage unit got progressively worse in 2004 and the firm knew it could end up being exposed to higher risks as a result. The documents are part of a mortgage securities case in which Credit Suisse is a defendant.

In this mortgage securities lawsuit, brought nearly four years ago, Cambridge Place Investment Management is seeking $1.8 billion in damages on about 200 mortgage securities that it purchased from over a dozen banks leading up to the economic crisis. The asset management company has settled with most of the banks, with Credit Suisse among the few exceptions.

Issuing a statement, a spokesperson for Credit Suisse said that the firm felt confident that the evidence in its totality would demonstrate that its due diligence practices were dependable and healthy. However, the documents, once confidential, are causing some to wonder why the bank decided to combat rather than settle the different mortgage securities cases filed against it, including those submitted by the New York attorney general and the Federal Housing Finance Agency.

While the housing market was booming, Credit Suisse bundled about $203 billion of mortgages into securities that it then sold to private investors between 2005 and 2007. Now, Credit Suisse is under scrutiny. In 2013, ex-Credit Suisse mortgage trader Kareem Serageldin was found guilty of concealing over $100 million in mortgage bond losses at the firm. He did this by inflating the value of the bonds at the housing market failed.

In February, four of the banks’ leading executives testified in front of Congress about the firm’s role in helping US citizens conceal their money abroad so they wouldn’t have to pay taxes. Earlier this month, US senators blamed the Justice Department for obtaining just 238 of the 22,000 names of Americans with credit Suisse accounts.

Credit Suisse may have helped these account holders hide up to $10 million. Meantime, prosecutors and Credit Suisse are still working out a settlement that would compel the firm to give over more names of account holders and end the investigation. There will likely be a deferred prosecution deal after any charges that are filed and the bank is expected to pay a fine.

Our mortgage-backed securities lawyers represent investors with securities claims against banks and their financial representatives. Many investors sustained losses as a result of broker negligence—especially during the 2008 financial crisis. Our securities fraud law firm represents institutional and individual investors.

Credit Suisse Documents Point to Mortgage Lapses, The New York Times, March 10, 2014

Credit Suisse U.S. Clients in Limbo as Probe Inches Ahead, Bloomberg, March 7, 2014


More Blog Posts:
Credit Suisse Admits Wrongdoing and Will Pay $196M to Settle SEC Charges That It Provided Unregistered Services to US Customers, Stockbroker Fraud Blog, February 22, 2014

Credit Suisse Could Settle with US Over Tax Evasion Allegations for Over $800M, Institutional Investor Securities Blog, January 18, 2014

UBS’s Anticipated Defenses in the UBS Puerto Rico Fund Cases, Stockbroker Fraud Blog, January 21, 2014

March 4, 2014

Detroit, MI to Pay UBS and Bank America $85M Over Interest Swaps Settlement

The city of Detroit has agreed to pay Bank of America Corp.’s (BAC) Merrill Lynch (MER) and UBS AG (UBSN) $85 million as part of a settlement to end interest-rate swaps, which taxpayers have had to pay over $200 million for in the last four years. Now, US Bankruptcy Judge Steven Rhodes must decide whether to approve the deal.

The swaps involved are connected to pension obligation bonds that were issued in ’05 and ’06. They were supposed to protect the city from interest rates going up by making banks pay Detroit if the rates went above a certain level. Instead, the rates went down, and Detroit has owed payments each month.

Under the swaps deal, the city owed $288 million. The settlement reduces the amount by 70%, which should help, as Detroit had to file for protection last year over its $18 billion bankruptcy.

The decision by the banks to support the settlement grants the city the legal authority to ask Judge Rhodes to implement its restructuring plan despite creditors’ objections. However, according to Detroit’s legal team, which submitted a in a court filing, the city won’t necessarily choose to exercise that option.

The swaps agreement, however, will liberate more funds so that Detroit has the ability to make more consensual deals with creditors. If a deal had not been reached, the city might sued Bank of America and UBS to protect its casino tax revenues, which are collateral for the interest-rate swaps.

It was just in January that Judge Rhodes rejected another proposed deal. Detroit had proposed to pay $175 million—a 43% reduction from the obligation it owed. Rhodes, however, said the price was too high for the city. However, the judge said that it would be better for the city to settle than get embroiled in expensive litigation. Judge Rhodes had also rejected an earlier proposed agreement, in which the city would have paid $230 million.

Now, seeking Rhodes approval once more, Detroit submitted its filing arguing that the deal with Merrill Lynch Capital Services and UBS could help it gain the federal court approval needed for a plan to leave bankruptcy and deal with its debt.

Please contact The SSEK Partners Group if you suspect that you were the victim of financial fraud. Our securities lawyers work with high net worth individuals and institutional clients.

Detroit reaches settlement over controversial debt deal, USA Today, March 4, 2014

U.S. judge rejects deal to end Detroit rate swap accords, Reuters, January 16, 2014


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

Lehman Makes Deal with SAP Founder, Frees Up Another $1.8B for Creditors, Institutional Investor Securities Blog, February 27, 2014

Puerto Rico Senate Votes to Sell $3.5B in Bonds, Stockbroker Fraud Blog, February 28, 2014

February 27, 2014

Lehman Makes Deal with SAP Founder, Frees Up Another $1.8B for Creditors

Lehman Brothers Holdings Inc. has arrived at an agreement with Klaus Tschira, the founder of SAP AG (SAP). The German software company had been the only holdout to a multibillion-dollar settlement with the firm’s former Swiss derivatives unit Lehman Brothers Finance AG. The deal should free up another $1.8 billion that can now go to the firm’s creditors.

When Lehman failed in September 2008, this became the largest bankruptcy in our nation’s history. Markets became troubled and the global financial crisis was started. Barclays PLC (BCS) bought Lehman’s main business.

Tschira had been in a dispute with the subsidiary for years over derivatives contracts that were canceled after Lehman collapsed in 2008. The disagreement was over the way the unit calculated dames related to the termination of certain forward contracts. While two entities, a nonprofit that Tschira controls and an investment vehicle that manages his money, accused the derivatives unit of owing them $798.7 million, the unit said that the entities were the ones that owed it money.

Now that Tschira is dropping his appeal in the matter, another $1.8 billion can go to Lehman’s creditors. Per the deal, Lehman Brothers Finance will transfer over $1 billion to the holding company in New York. $1.8 billion will be distributed to creditors.

This latest securities settlement comes following other settlements reached between Lehman and Freddie Mac (FMCC0, Fannie Mae (FNMA), and its own foreign subsidiaries. This should hopefully speed up the timing of when creditors can get paid.

Already, Lehman has issued over $60 billion of the more than $70 billion that creditors are expecting. The next distribution is scheduled for April and more are likely to happen over the next several years.

The SSEK Partners Group is a securities law firm that represents institutional and high net worth investors. Please contact our securities fraud lawyers today.

SAP Founder Drops Lehman Appeal, The Wall Street Journal, February 27, 2014

Lehman Settles Court Fight With SAP Founder, Frees Up Cash, Bloomberg, February 27, 2014


More Blog Posts:
Lehman Brothers Holdings’ $767M Mortgage Settlement to Freddie Mac is Approved by Judge, Institutional Investor Securities Blog, February 19, 2014
Ex-Lehman Brothers Holdings Chief Executive Defends Request that Insurance Fund Pay Legal Bills, Stockbroker Fraud Blog, October 19, 2011

Hedge Funds Interested in Upcoming Puerto Rico Bond Offering Want The Territory to Borrow Money To Last Two Years, Stockbroker Fraud Blog, February 17, 2014

February 25, 2014

Morgan Stanley to Pay $275M to SEC to Settle Subprime MBS Investigation

Morgan Stanley (MS) has agreed to pay $275 million to the Securities and Exchange Commission to resolve the regulator’s investigation into the firm’s sale of subprime mortgage-backed securities seven years ago. The settlement reached is an “agreement in principal” and, according to the firm in its annual filing this week, it does not have to admit wrongdoing. However, the accord still needs SEC approval to become final.

The regulator had been probing the bank’s roles as an underwriter and sponsor of subprime mortgage-backed bonds that sustained losses after it was issued in 2007. Other firms that have reached similar agreements with the SEC include Citigroup Inc. (C), JPMorgan Chase & Co. (JPM), Goldman Sachs Group Inc. (GS).

Morgan Stanley is still facing litigation from government entities and private parties over derivatives and mortgage bonds that were set up leading up to the mortgage crisis. Last year, it’s litigation expenses reached $1.95 billion, which is a significant increase from $513 million in 2012.

Since October, Morgan Stanley has settled and resolved nine legal matters, including the $1.25 billion it said it would pay last month to resolve the Federal Housing Finance Agency’s securities claims accusing the bank of selling faulty MBSs to Freddie Mac (FMCC) and Fannie Mae (FNMA), as well as deals with Cambridge Investment Management Inc. and MetLife Inc.

Please contact our mortgage-backed securities lawyers at The SSEK Partners Group today. Your initial case consultation with us is free. Our securities law firm represents institutional investors and high net worth individuals.

Morgan Stanley Agrees to Pay $275 Million to End SEC Probe, Bloomberg, February 25, 2014

Morgan Stanley to pay $1.25 billion to resolve mortgage lawsuit, Reuters, February 4, 2014


More Blog Posts:
Merrill Lynch, Morgan Stanley Call A Broker Recruiting Truce, Stockbroker Fraud Blog, October 26, 2013

Judge Reject’s AIG’s Bid to Delay $8.5B Billion Mortgage Backed-Securities Settlement with Bank of America Corp. “Hostage”, Institutional Investor Securities Blog, February 21, 2014

Morgan Stanley to Pay $1.25B in Mortgage-Backed Securities Lawsuit by FHFA, Institutional Investor Securities Blog, February 4, 2014

February 19, 2014

Lehman Brothers Holdings’ $767M Mortgage Settlement to Freddie Mac is Approved by Judge

A judge in US bankruptcy court has approved the $767 million mortgage securities settlement reached between Lehman Brothers Holdings Inc. and Freddie Mac (FMCC). The deal involves a $1.2 billion claim over two loans made by the mortgage giant to Lehman prior to its collapse in 2008.

As part of the accord, Freddie will provide loan data to the failed investment bank so that Lehman can go after mortgage originators over alleged misrepresentations. Lehman will pay the $767 million in a one-time transaction.

Its bankruptcy was a main trigger to the 2008 global economic crisis. According to Matthew Cantor, chief general counsel of the unwinding estate, the bank has already paid creditors $60 billion, with more payouts.

This settlement comes less than a month after Lehman settled with Fannie Mae (FNMA) over that mortgage firm’s $18.9 billion mortgage-backed securities claim, also related to MBS and mortgage loans that the bank sold to the mortgage giant before the 2008 crisis. Under that deal, Fannie Mae is to get general unsecured claim of $2.15 billion against the estate of the holding company.

Per the terms of Lehman’s Chapter 11 payment plan, Fannie is also getting $537.5 million. This should free up around $5 billion for creditors. Also, Lehman will be able to pay another $400 million as part of among its distribution to creditors. The settlement resolves its dispute with Fannie, which has held Lehman accountable for the loans.

Please contact our securities lawyers at The SSEK Partners Group today if you are an institutional investor or high net worth investor that suspects you may have been the victim of mortgage fraud.

Lehman settles with Freddie Mac over $1.2 billion claim, Reuters, February 13, 2014

Lehman Reaches Deal With Fannie Mae Over Mortgages, The Wall Street Journal, January 23, 2014


More Blog Posts:
UBS to Pay Fannie Mae and Freddie Mac $885M to Settle RMBS Lawsuit, Institutional Investor Securities Blog, July 27, 2013

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

Hedge Funds Interested in Upcoming Puerto Rico Bond Offering Want The Territory to Borrow Money To Last Two Years, Stockbroker Fraud Blog, February 17, 2014


February 18, 2014

Three Ex-Barclays Employees Charged by UK Prosecutors in Libor Rigging Scandal

Prosecutors in the United Kingdom are charging three ex-Barclays Plc (ADR) employees with conspiring to manipulate the London interbank offered rate. The Serious Fraud Office charged Jonathan James Mathew, Peter Charles Johnson, and Styilianos Contogoulas with conspiring to defraud. These are the first criminal charges involving the manipulation of the US dollar Libor.

Over a dozen firms are under investigation by regulators and prosecutors around the world over collusion in rigging the London interbank offered rate and related benchmarks. Mathew and Johnson were employed by Barclays, the first firm fined ($450 million) over Libor by UK and US authorities two years ago, between 2001 through September 2012. Contogoulas, who worked with Barclays from 2002 through 2006, was with Merrill Lynch (MER) after that through September 2012.

Previous to the allegations against Contogoulas, Johnson, and Mathew, criminal charges against persons in the UK and the US solely had involved an alleged rate-manipulating ring led by trader Tom Hayes, a former Citigroup Inc. (C) and UBS AG (UBS) employee. He pleaded not guilty to US charges. With this latest criminal case against the three men, 13 individuals now face criminal cases in the UK probe into Libor.

Also, the Wall Street Journal is reporting that the SFO is also expected to file charges against three ex-ICAP (IAP) PLC brokers for allegedly assisting traders to manipulate rates. Colin Goodman, Daniel Wilkinson, and Darrell Read already have been charged with fraud over related charges in the US. All three of them live abroad.

In September, the US Justice Department charged the ex-ICAP employees with wire fraud and conspiracy to commit wire fraud related to manipulating benchmark interest rates with Hayes and other traders, “undermining financial markets” globally, and compromising the integrity of interest rate benchmarks. The three men earned larger bonus checks in the process from the alleged misconducts.

Meantime, other alleged Libor manipulation rings remain under investigation.

The SSEK Partners Group is a securities fraud law firm. Contact our institutional investor fraud lawyers to find out whether you have grounds for a securities claim.

Charges Open New Front in Libor Probe, The Wall Street Journal, February 17, 2014

Former Barclays Employees Charged Over Libor Rigging, Bloomberg, February 18, 2014

ICAP Brokers Face Felony Charges for Alleged Long-Running Manipulation of LIBOR Interest Rates, DOJ.gov, September 25, 2013


More Blog Posts:
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

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

SEC Charges Two Wall Street Traders With Securities Fraud in “Parking” Scam, Stockbroker Fraud Blog, February 15, 2014

February 12, 2014

Ex-Bank of America Corp. Executive Enters Guilty Plea in Municipal Bond Rigging Scam

Phillip D. Murphy, an ex-Bank of America Corp. (BAC) executive that used to run the municipal derivatives desk there, has pleaded guilty to wire fraud and conspiracy charges in a muni bond rigging case accusing him of conspiring to bilk the US government and bond investors. In federal court, he admitted to manipulating the bidding process involving investment agreements having to do with municipal bond proceeds.

The illegal activity was self-reported by his former employer. Bank of America has been cooperating with prosecutors that have accused bankers of paying kickbacks to CDR Financial Products to fix bids on investment contracts purchased by local governments. The contracts were bought using money from bond sales.

According to the indictments, from 1998 to 2006, Murphy and CDR officials conspired to up the amount and profitability of investment deals and municipal finance contracts that went to Bank of America. Murphy purportedly won actions for certain contracts after other banks consented to purposely turn in losing bids.

Prosecutors say that brokers that took care of the bidding gave insider information to bankers who were favored. “Fees” for derivative transactions, which were actually kickbacks, were paid.

For example, in 2001, CDR set it up for another bank to turn in a bid that was certain to lose so that “financial institution A,” which is how the company was referred to in the indictment, won an investment contract for J. David Gladstone Institutes. Murphy, in return, paid CDR a $70K kickback that was supposedly a fee connected to a swap that was not related to the deal for a contract with J. David Gladstone Institutes.

David Rubin, the founder of CDR, has also pleaded guilty in connection to the bid rigging scam.

Please contact our securities lawyers at The SSEK Partners Group if you suspect that you were the victim of municipal bond fraud.

Ex-BofA Executive Pleads Guilty in Muni Bond Rigging Case, Bloomberg, February 10, 2013

David Rubin Pleads Guilty in Muni-Bond Trial, The Wall Street Journal, December 30, 2011


More Blog Posts:
$500M MBS Settlement Reached Between Countrywide and Investors, Stockbroker Fraud Blog, May 10, 2013

Standard and Poor’s Reduces Puerto Rico Obligation Debt to Junk Status, Stockbroker Fraud Blog, February 6, 2014

Three Ex-GE Bankers Convicted of Municipal Bond Bid Rigging Are Set Free, Institutional Investor Securities Blog, December 12, 2013

February 10, 2014

$13B MBS Fraud Settlement Between JPMorgan and the US is Under Dispute in New Securities Lawsuit

Better Markets, a non-profit group, is suing the US Department of Justice to block the $13 billion mortgage-backed securities settlement reached between the federal government and JP Morgan Chase (JPM). The group wants the deal to undergo judicial review.

The settlement resolves DOJ mortgage bond claims with a$2 billion civil penalty and includes $4 billion of consumer relief, another $4 billion to settle claims related to Freddie Mac and Fannie Mae, and another $1.4 billion to settle a National Credit Union Administration-instigated securities case. JPMorgan sold the mortgage bonds in question in the years heading into the housing market collapse. The loans that were involved lost value or defaulted when the bubble burst.

As part of the agreement, the firm acknowledged that it made “serious misrepresentations” about the MBS to investors. While the deal doesn’t release bank from criminal liability, it grants civil immunity for its purported actions. Now, Better Markets, which describes itself as a “Wall Street” watchdog, is saying that the record settlement between the US government and JP Morgan was “unlawful” because a court did not review the deal.

According to Better Markets CEO Dennis Kelleher, the DOJ served as “investigator, prosecutor, judge, juror, sentencer and collector” when negotiating the securities settlement and he wonders whether the payment is sufficient to offset the harm suffered by the economy. His group also claims that the government agency and U.S. Attorney General Eric Holder have a “conflict of interest” and are using the $13 billion deal to repair their “reputations.”

In other JPMorgan-related news, the Securities and Exchange Commission says two of the bank’s former traders that are accused of concealing over $2 billion in losses involving wrong-way derivatives bets don’t have the right to see evidence gathered by the government because they are fugitives. Julien Grout and Javier Martin-Artajo have yet to show up in this country to face civil and criminal claims and should therefore not be granted evidence or be able to question witnesses in the regulator’s case. Martin-Artajo, who oversaw the synthetic portfolio’s trading strategy, now resides in Spain. Grout, who worked under him as a trader, now lives in France.

The office of Manhattan U.S. Attorney Preet Bharara is accusing the two men of securities fraud related to trades by Bruno Iksil, who was central to the London Whale debacle. The SEC says the ex-JPMorgan employees sought to improve portfolio performance to gain approval at work.

At the SSEK Partners Group, our mortgage-backed securities lawyers represent high net worth clients and institutional investors. Your initial case assessment is a no obligation, free consultation.

Feds sued over $13B deal with JPMorgan Chase, CBS News, February 10, 2014

Ex-JPMorgan Traders Not Entitled to Evidence, SEC Says, Bloomberg, February 10, 2014

Better Markets Inc. v. U.S. Department of Justice

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


More Blog Posts:

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

FDIC Sued by JPMorgan Chase in $1B Securities Case Involving Washington Mutual Purchase & Mortgage-Backed Securities, Institutional Investor Securities Blog, December 23, 2013

J.P. Morgan’s $13B Residential Mortgage-Backed Securities Deal with the DOJ Stumbles Into Obstacles, Stockbroker Fraud Blog, October 28, 2013

January 31, 2014

Bank of America’s $8.5B Mortgage Bond Settlement Gets Court Approval

A judge has approved an $8.5B mortgage-bond settlement between Bank of America (BAC) and investors. The agreement should settle most of the bank’s liability from when it acquired Countrywide Financial Corp. while the financial crisis was happening and resolves contentions that the loans behind the bonds were not up to par in quality as promised. Included among the 22 investors in the mortgage-bond deal: Pacific Investment Management Co., BlackRock Inc. (BLK), and MetLife Inc. (MET.N). Under the agreement, investors can still go ahead with their loan-modification claims.

The trustee for over 500 residential mortgage-securitization trusts is Bank of New York Mellon Corp. (BK), which had turned in a petition seeking approval for the deal nearly three years ago for investors who had about $174 million of mortgage-backed securities from Countrywide. Now, Judge Barbara Kapnick of the New York State Supreme Court Justice has approved the mortgage-bond deal.

Kapnick believes that the trustee had, for the most part, acted in good faith and reasonably when determining the settlement and whether it was in investors’ best interests. However, she is allowing plaintiffs to continue with their claims related to loan-modification because, she says, Bank of New York Mellon Corp “abused its discretion” on the matter in that even though the trustee purportedly knew about the issue, it didn’t evaluate the possible claims. Also, the judge said that it makes sense for this one-time payment because it was evident that Bank of New York Mellon was worried Countrywide wouldn’t be able to pay a judgment in the future that came close to the $8.5 billion settlement.

Home loans securitized into bonds played a big role in the housing bubble that helped push the US into its largest recession since in decades. As the housing market failed and securities dissolved, investments banks and lenders also were dragged into the crisis.

It was Countrywide as the top securities lender that created $405 billion of the $3.04 trillion of bonds that were sold in the few years leading up to the financial meltdown. Meantime, Bank of America put out $76.9 billion of bonds and Merrill Lynch (MER) and First Franklin issued about $116 billion collectively.

American International Group (AIG), one of the bigger investor in the mortgage bonds, is part of a small group that opposed the settlement with Bank of America. AIG attorneys claim that the settlement shortchanges investors and the trustee should have done more to get a greater sum of money from BofA. The insurer contends that $8.5 billion is not much compared to how much was actually lost.

If you are an institutional investor that has suffered bond or mortgage-backed securities losses, contact The SSEK Partners Group today to speak with one of our securities lawyers.

Court approves Bank of America's $8.5 billion mortgage settlement, Reuters, January 31, 2014

Bank of America Settlement on Bonds That Soured Is Approved, NY Times, January 31, 2014


More Blog Posts:
$500M MBS Settlement Reached Between Countrywide and Investors, Stockbroker Fraud Blog, May 10, 2013

FDIC Objects to Bank of America’s Proposed $8.5B Settlement Over Mortgage-Backed Securities, Stockbroker Fraud Blog, August 30, 2011

Bank of America’s Countrywide to Pay $17.3M RMBS Settlement to Massachusetts, Institutional Investor Securities Blog, December 30, 2013

January 25, 2014

Ex-Oppenheimer Fund Manager to Pay $100K To Settle Private Equity Fund Fraud Charges

Brian Williamson, a former Oppenheimer & Co. (OPY) portfolio manager, has consented to a securities industry bar and will pay $100,000 as a penalty to the Securities and Exchange Commission. The settlement resolves private equity fund fraud charges accusing him of making misrepresentation about one the value of one fund. In March, Oppenheimer paid over $2.8 million to settle SEC charges related to this matter.

According to the SEC, Williamson allegedly put out information that falsely claimed that the reported value of the largest investment of one of the funds came from the underlying fund’s portfolio manager when actually, Williamson as the manager of the funds, was the one who gave value to the investment. He purportedly marked up the value significantly higher than what the portfolio manager of the underlying fund had estimated. Williamson then gave prospective fund investors marketing collateral that included a misleading internal return rate that failed to subtract the fund’s expenses and fees. The Commission says Williamson made statements that were misleading and false to different parties to conceal the fraud.

The SEC’s order says that Williamson was in willful violation of sections and rules of the Securities Exchange Act of 1934, the Securities Act of 1933, and the Investment Advisers Act of 1940. The industry bar against him will run for at least two years. The ex-Oppenheimer fund manager consented to settle without deny or admitting to the securities charges.

It is important that financial advisors provide complete, truthful, and accurate information about investments to investors. They also need to make sure that their clients understand the nature of the investment and any risks involved.

At the SSEK Partner Group, we represent investors that have been the victims of securities fraud and want to get their money back. Contact our securities law firm today.

Former Oppenheimer Fund Manager Agrees to Settle Fraud Charges, SEC, January 22, 2014

Read the SEC's order (PDF)

SEC Charges New York-Based Private Equity Fund Advisers with Misleading Investors about Valuation and Performance, SEC, March 11, 2013


More Blog Posts:
Oppenheimer Told by FINRA to Pay $675,000 Fine, $246,000 Restitution over Municipal Securities Transaction Pricing, Supervisory Violations, Stockbroker Fraud Blog, December 12, 2013

Former Merrill Lynch, Oppenheimer, Deutsche Bank Broker is Ordered by FINRA To Pay Investor $11M Over Alleged Securities Fraud, Stockbroker Fraud Blog, April 19, 2013

Two Oppenheimer Investment Advisers Settle for Over $2.8M SEC Fraud Charges Over Private Equity Fund, Institutional Investor Securities Blog, March 14, 2013

January 22, 2014

Goldman Sachs Must Contend with Proposed Class-Action CDO Lawsuit

U.S. District Judge Victor Marrero says that Goldman Sachs Group Inc. (GS) must face a proposed class action securities case accusing it of defrauding customers that purchased specific collateralized debt obligations at the beginning of the financial crisis. The lead plaintiff, Dodona I LLC, contends that the firm created two Hudson CDOs that were backed by residential mortgage backed-securities even though Goldman knew that subprime mortgages were doing badly.

The hedge fund claims that Goldman tried to offset its prime risk, even betting that subprime mortgages and the securities constructed around them would lose value—essentially making the CDOs to lower its own subprime exposure and simultaneously shorting them at cost to investors. Dodona purchased $4 million of Hudson CDOs.

Meantime, Goldman said that the proposed class action case should be dropped and that instead, Hudson CDO claims should be made independently. The bank said that the current case has too many conflicts and differences. Judge Marrero, however, disagreed with the bank.

Marrero said he is not convinced that the differences within this case are different from any other class action securities case. He also noted that subclasses could be created later if needed.

Throughout the US, our CDO fraud lawyers represent institutional investors that have lost money stemming from the way financial firms handled their investments leading up to and during the financial crisis. Please contact The SSEK Partners Group today.

Goldman to Institute Computer Messaging Ban
In other Goldman news, the firm reportedly intends to bar traders from using computer-messaging services to better protect proprietary information. Instant messaging created by Yahoo (YHOO), Bloomberg LP, AOL Inc. (AOL), Pivot Inc. and other third-party providers will no longer be allowed. Instead, traders will only be able to communicate over Goldman approved chat systems, including Blackberry’s (BB.T) Enterprise IM and Microsoft’s (MSFT) Lync.

The firm wants to keep information from internal exchanges to be filtered and sent externally. According to the Wall Street Journal, this plan is a sign of the growing distrust of messaging-service technology and how it can make private communications about closely guarded intelligence accessible to outsiders.

This ban is to better protect data related to selling and trading securities, which is one of Goldman’s biggest moneymakers. In 2013, the firm made $15.72 billion from the selling and trading of stocks, currencies, commodities, and bonds, as well as from other trading services and commissions.

Goldman and other banks and financial firms have been in the process of reassessing their policies for electronic communications, including chat rooms, which played a big role in traders manipulating the London interbank offered rate and manipulating currency markets. Goldman, Deutsche Bank AG (DBK), Citigroup (C), and JP Morgan Chase (JPM) are just some of the banks to bar chat rooms.


Judge rules Goldman must face class-action lawsuit by investors, Reuters, January 23, 2014

Goldman Looks to Ban Some Chat Services Used by Traders, The Wall Street Journal, January 23, 2014


More Blog Posts:
FINRA NEWS: Goldman Sachs Appeals Vacating of Securities Award, Non-Customers of Brokerage Firm Can’t Compel Arbitration, & Three Governors Named To FINRA Board, Stockbroker Fraud Blog, August 21, 2013

Ex-Goldman Sachs Trader Fabrice Tourre’s Request for New Civil Trial in RMBS Fraud Case is Denied, Institutional Investor Securities Blog, January 10, 2014

Goldman Sachs Settles SEC Subprime Mortgage-CDO Related Charges for $550 Million, Stockbroker Fraud Blog, July 30, 2010

January 21, 2014

Detroit, MI Can’t Pay $165M to UBS & Bank of America For Swaps Deal, Rules Judge

A bankruptcy judge says is refusing to grant the city of Detroit, MI permission to pay $165 million to Bank of America (BA) and UBS AG (UBS) to end an interest-rate swaps deal that taxpayers have been paying $202 million for since 2009. U.S. Bankruptcy Judge Steven Rhodes says the payment, in addition to a fee of over $4 million, is too costly for the beleaguered city.

Rhodes said he doesn’t believe it is in the city’s best interests to make this deal. Detroit filed the biggest municipal bankruptcy in US history due to its $18 billion debt. Prior to seeking bankruptcy protection, the city had arrived at a deal to terminate the swaps contract that it had signed with Bank of America unit Merrill Lynch (MER), UBS, and SBS Financial Products Co. for $230 million.

According to their 2009 deal, the banks are entitled to seek control of Detroit’s casino taxes, which the city pledged as cash to UBS and Bank of America. Now, Detroit may have to submit an emergency motion asking the court to protect the cash so that the banks don’t take the funds.

UBS and Bank of America contend that their swaps claims are protected under the US Bankruptcy Code’s safe harbor provisions, which make it easier for creditors to seize certain collateral when a debtor goes into bankruptcy.

Detroit wanted to buy out the swaps contracts to avoid a lawsuit and free up the casino taxes, which is a huge source of revenue for it. Last month, a deal was reached to terminate the contract for $165 million. The city asked Rhodes to approve a $285 million loan for this, but the court only approved $120 million, which are to go toward city services.

The SSEK Partners Group is an institutional investor fraud law firm that represents institutions and high net worth individuals with fraud claims against members of the securities industry. Contact our securities lawyers today.

Detroit's available cash drying up more slowly than feared: report, Chicago Tribune/Reuters, January 21, 2014

Detroit files for bankruptcy protection, USA Today, July 18, 2013


More Blog Posts:

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

RCS Capital Corp to Buy Brokerage Firm J.P. Turner for $27 Million & Cetera Financial for $1.15B, Institutional Investor Securities Blog, January 18, 2014

How UBS Breached Its Duties with Puerto Rico Bond Funds, Stockbroker Fraud Blog, January 17, 2014

January 18, 2014

Credit Suisse Could Settle with US Over Tax Evasion Allegations for Over $800M

Credit Suisse Group AG (ADR) is currently in talks with the US Department of Justice to settle allegations that the Swiss bank helped American citizens evade taxes. Credit Suisse is one of a dozen Swiss banks under criminal investigation for allegedly helping US citizens use the bank secrecy laws of Switzerland to hide their assets so they wouldn’t have to pay taxes on them.

The financial institution is no longer taking private-banking clients from the US as authorities in this country continue to crack down on offshore tax cheats. Other Swiss banks under investigation include HSBC Holdings (HSBC) PLC and Julius Baer Group AG (JBAXY).

Because of the scrutiny, these banks cannot take part in a new US DOJ program that lets Swiss banking institutions disclose undeclared US assets in exchange for the possibility of huge fines but also the guarantee of no prosecution. Penalty is 20% of the maximum aggregate dollar value of non-disclosed US accounts still held on 8/1/08. This amount would go up to 30% for secret accounts established after that time but before February 2009. The penalty is 50% for secret accounts set up after this date.

Also part of the deal, the banks would have to give information about accounts of US taxpayers that have indirect or direct interest, work with treaty requests, disclose information about other financial institutions that either moved money into secret accounts or accepted the money when these accounts were closed, and terminate accounts of holders who don’t agree to comply with US reporting duties.

In 2009, it was UBS (UBS) that entered into a deferred prosecution deal with the DOJ in which it admitted to helping American citizens hide their money outside this country. Not only did the bank pay the US government $780 million but also UBS gave the authorities over 4,000 names to avoid prosecution.

The SSEK Partners Group is an institutional investment fraud law firm.

Credit Suisse Settlement with U.S. Could Top $800 Million, January 22, 2014

Swiss banks agree to U.S. plan on tax evasion, MarketWatch, December 10, 2013


More Blog Posts:
New Jersey Files Securities Lawsuit Against Credit Suisse Over $10B in MBS Sales, Stockbroker Fraud Blog, December 20, 2013

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

UBS’s Anticipated Defenses in the UBS Puerto Rico Fund Cases, Stockbroker Fraud Blog, January 21, 2014

January 18, 2014

RCS Capital Corp to Buy Brokerage Firm J.P. Turner for $27 Million & Cetera Financial for $1.15B

Nicholas Schorsch, the executive chairman of RSC Capital Corp.’s (RCAP) board of directors, has just announced that the brokerage firm is going to buy independent broker-dealer J.P. Turner for $27 million. The news comes one day after RSC announced it was buying brokerage firm Cetera Financial Group for $1.15 billion from Lightyear Capital LLC.

To acquire J.P. Turner, RSC Capital will pay 70% of the buying price in cash and the remainder in stock. This will add 325 advisers to the RSC’s roster.

RSC’s CEO is William Kahane. He co-founded American Realty Capital, a non-traded real-estate investment trust sponsor, with Schorsch, of which the latter is the head. Schorsch entered the independent brokerage scene last year when he acquired Legend Group, First Allied Securities, Investors Capital Holding, and Summit Brokerage Services.

These latest acquisitions now make RSC Capital the second biggest independent brokerage network in the US after LPL Financial (LPLA). It was just last month that the Financial Industry Regulatory Authority told J.P. Turner to pay $707,000 in restitution to more than 80 customers over leveraged and inverse exchange-traded funds. The regulator said that the brokerage firm did not establish and maintain a supervisory system that could reasonably oversee these types of ETFs. It also said that J.P. Turner failed to properly train its representatives.

Broker Fraud
The SSEK Partners Group is a stockbroker fraud law firm that represents individual and institutional investors that have lost their investments due to the negligence of brokerage firms, independent broker-dealers, brokers, registered representative, investment advisors, and others. Contact our securities attorneys today.

RCS Capital Corporation Announces Agreement to Acquire J.P. Turner, PRNewswire, January 17, 2014

Schorsch’s RCS Capital to Buy Second Broker-Dealer in Two Days, BusinessWeek, January 17, 2014

RCS Capital to Acquire Cetera Financial for $1.15 Billion, WSJ, January 16, 2014


More Blog Posts:
FINRA Orders J.P. Turner to Pay $707,559 in Exchange-Traded Fund Restitution to 84 Clients, Stockbroker Fraud Blog, December 10, 2013

Nontraded REIT News: Securities America Stops Selling American Realty Capital Trust V and Advisor Group Ends Selling Deal with Cole Holding, Stockbroker Fraud Blog, July 18, 2013

SEC Charges Filed Against Stifel, Nicolaus & Co. and Former Sr. VP David Noack Over CDO Sales to Wisconsin School Districts, Institutional Investor Securities Blog, August 11, 2013

January 10, 2014

Ex-Goldman Sachs Trader Fabrice Tourre’s Request for New Civil Trial in RMBS Fraud Case is Denied

The federal district court in Manhattan has turned down former Goldman Sach’s (GS) trader Fabrice Tourre’s request that he get a new civil securities fraud trial after he was found liable on seven counts of federal securities law violations related to his involvement in the firm’s sale of the Abacus 2007-AC1, which is a synthetic collateralized debt obligation that was backed by residential mortgage-backed securities. Goldman has already paid a $550 million fine over the matter.

The district court is saying that his claim that there was no evidence backing a finding that he violated Section 17(a)(20) of the Securities Act by getting property or money via the alleged fraud can’t be supported. The court noted that to prove liability this section of the Act does not make it necessary for the SEC to show that Tourre got a “fraud bonus”—only that he got the property or money through omission or material statement. The court said Tourre could have given evidence to show that the compensation he received from Goldman would have been the same without such a transaction, but since he didn’t put on a case during his trial the jury was free to infer otherwise.

The court noted that there was sufficient evidence backing the jury’s finding that the ex-Goldman Sachs trader’s conduct abetted and aided violations of SEC regulations. Also, the court is rejecting Tourre’s contention that he should get a new trial because he believes that the other court acted inappropriately when it took away from the jury the question of whether the swaps agreements involved were security based swap agreements within the meaning of securities law. This court said that for securities law purposes, the swap agreements were security-based swap agreements, and it granted summary judgment to the SEC on this.

The SSEK Partners Group represents RMBS fraud and CDO fraud customers that have lost money due to the negligence of members of the securities industry.

'Fab' Trader Liable in Fraud, The Wall Street Journal, August 2, 2013

Tourre's Request for New Trial Denied, Fox Business, January 7, 2014


More Blog Posts:

Goldman Sachs Cleared in Securities Fraud Case Against Dragon Systems for Losses Related to $250M Loss in Sale to Lernout & Haspie, Stockbroker Fraud Blog, January 31, 2013

Investor in Goldman Sachs Special Opportunities Fund 2006 to Get $2.5M FINRA Arbitration Award For Allegedly Unsuitable Investment, Stockbroker Fraud Blog, May 27, 2013

SEC Antifraud Lawsuit Against Goldman Sachs Executive Fabrice Tourre Won’t Be Reinstated, Says District Court, Institutional Investor Securities Blog, December 3, 2012

January 8, 2014

SEC in Action: Finds Nomura Holdings Not Ineligible Issuer Even with Judgment, Will Consider Redrafted Shareholder Proposal Regarding Exelon, & Puts Out Regulation M, Rule 105 Violation Sanctions

The Securities and Exchange Commission’s Division of Corporation Finance has given relief to Nomura Holdings, Inc. over an entry in the final judgment issued against its subsidiary Instinet, LLC last month. The staff said that Nomura made a good cause showing under 1933 Securities Act Rule 405(2), and now the SEC says it won’t consider the company an ineligible issuer even with the entry of that final judgment.

The SEC opened up an administrative proceeding action against Instinet, accusing it of purposely abetting and aiding and violating sections of the Investment Advisers Act. The claims involved purported soft dollar payments.

J.S. Oliver Capital Management, L.P., an Instinet customer, had asked for the payments for expenses it did not tell clients about. The Commission says that Instinet made the payments per JS Oliver’s request, even though there were red flags indicating that the requests for payment approval were improper. The Nomura subsidiary turned in a settlement offer that led to a cease-and-desist order against the brokerage firm, & the regulator accepted the settlement offer.

Responding to a no-action request from Exelon Corp. to leave out from the latter’s proxy materials a shareholder proposal for a pay ratio cap for certain named executives, this SEC division said the proposal would be excluded unless it is redrafted (or a request is made to the board of directors). SEC staff did not agree with Exelon that the proposal, which concentrates on senior executive compensation-related policies, was misleading, false, or pertained to mere ordinary business.

Canadian-registered portfolio management firm Qube Investment Management Inc. turned in the proposal, asking that the compensation committee or the board restrict how much each named Exelon executive officer could make to no more than 100 times the median annual total paid to all company employees. Qube said that at least one Exelon executive is making 200 times the pay of the average American worker.

Exelon argued that the proposal would properly limit the power of tis board to decide compensation, and under Pennsylvania law this subject was not appropriate for action by shareholders.

SEC staff agreed that there was some ground’s for Exelon’s argument about the proposal not being appropriate subject for shareholder action or that it could cause the company to violate state law. That said, staff noted that the defect could be fixed if it was reframed as a request or a recommendation.

In other SEC news, the Commission has just issued final rules to make clear the roles of its ethics counsel and general counsel. The regulator’s general counsel is to advise staff lawyers about professional duties arising from their official duties, as well as probe allegations of professional misbehavior. As for its ethic’s counsel, the SEC said its job did not include looking into allegations about professional misconduct or making referrals to the authorities. The rules and accompanying modification/clarifications will go into effect once they appear in the Federal Register.

Also, the SEC has sanctioned Axius Holdings, LLC. for violating Regulation M’s Rule 105. The Commission claims that Axius took part in 13 offerings that the rule covers between June 2008 and March 2010 and then went on to short the stock of the companies during the restricted periods.

As a result of these alleged trading activities, Axius and its owner Henry Robertelli purportedly made profits of about $31,000. Now, the two of them must pay disgorgement in that approximate amount, plus prejudgment interest and a monetary payment.

The SSEK Partners Group is a securities fraud law firm that represents institutional investors and high net worth individuals in recovering their money.

Read the SEC Order Regarding Nomura (PDF)

Letter from the SEC's Division of Corporation Finance Over Qube, Exelon, Shareholder Proposal (PDF)

Responsibilities of the General Counsel, SEC (PDF)


More Blog Posts:
RBS Securities’ Japan Unit to Pay $50M Criminal Fine Over Libor Manipulation, Institutional Investor Securities Blog, January 7, 2014

JPMorgan To Pay $2.6B in Penalties in Bernard Madoff Ponzi Scam Settlements, Stockbroker Fraud Blog, January 7, 2013

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

January 7, 2014

RBS Securities’ Japan Unit to Pay $50M Criminal Fine Over Libor Manipulation

A US judge has ordered Royal Bank of Scotland Group Plc’s (RBS) banking unit in Japan to pay a $50 million fine over its involvement in manipulating LIBOR. RBS Securities Japan Ltd. entered a guilty plea to wire fraud as part of its parent company’s $612 million securities settlements to resolve civil and criminal charges over the rate manipulation.

On December 31, RBS Securities Japan and the US government turned in a joint court filing stating that from at least between 2006 and 2010 some of the bank’s traders tried to move Libor in a manner that would benefit their positions. The attempted manipulation of over a hundred Yen Libor submissions was reportedly involved.

Authorities say that as a result traders profited at counterparties’ expense. The filing noted that investigations uncovered wrongful behavior involving Libor submission for the yen and another currency and that about 20 RBS traders, including four at the RBS unit in Japan were involved.

Breaking down the $612 million total that RBS and RBS Securities Japan are paying to resolve these Libor claims: $325 million is from a Commodity Futures Trading Commission action, $137 million is from a U.K. Financial Conduct Authority (FCA) action. Aside from the $50 million that the RBS unit in Japan is also paying, $100M is from RBS plc.

LIBOR
LIBOR is the main benchmark for short-term interest rates around the world. It is the reference rate for a lot of interest rate contracts, credit cards, mortgages, student loans, and other lending products for consumers. Other banks have already paid fines for also allegedly manipulating LIBOR, including Deutsche Bank (DB), JPMorgan Chase (JPM), Citigroup (C), and others. Traders at these banks are accused of manipulating LIBOR to their benefit, while making themselves appear more liquid and financially healthier than what was actual. Meantime, other parties sustained losses as a result.

RBS Securities Japan Ltd Sentenced for Manipulation of Yen Libor, US DOJ, January 6, 2014

U.S. judge orders RBS unit in Japan to pay $50 million over Libor, Reuters, January 6, 2014


More Blog Posts:
JPMorgan To Pay $2.6B in Penalties in Bernard Madoff Ponzi Scam Settlements, Stockbroker Fraud Blog, January 7, 2013

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

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

January 2, 2014

Deutsche Bank AG Settles Shareholder Lawsuit Over Mortgage Debt

Deutsche Bank AG (DB) has settled a securities lawsuit filed by shareholders accusing the financial institution of misrepresenting the degree of risk it could manage related to mortgage debt before the financial crisis of 2008. The deal, of which the terms have not yet been revealed, were disclosed in a filing made by the firm’s lawyers in the U.S. District Court in Manhattan.

Shareholders, including two mutual funds and the Building Trades United Pension Trust Fund of Elm Grove, claim Deutsche Bank misled them about the management of risk and the underwriting on the mortgage debt that it put together and sold. They also contend that the firm was too slow to take write-downs. They believe that this resulted in an 87% decline in the bank’s share price between May 2007 and January 2009.

They also claim that Deutsche Bank maximized its profit at risk to investors, even as it failed to appraise these customers of the risks they were taking on. When the financial markets failed, it was investors that ended up paying the price.

The securities agreement was reached in the wake of a US district judge refusing to let the shareholder lawsuit become a class action case. Judge Katherine Forrest said that there were problems with the methods and conclusions arrived at by an expert that the plaintiffs had retained.

The settlement comes right after Deutsche Bank agreed to pay $1.9 billion to the Federal Housing Finance Agency over the mortgage-backed securities it sold to Fannie Mae and Freddie Mac. FHFA believes that the bank and other financial firms misled the two government-sponsored mortgage companies about borrowers’ creditworthiness and the quality of loans. It also contends that the firms sold Fannie and Freddie flawed securities.
(The two entities, which sold these mortgage as securities to investors, suffered huge mortgage losses when the economic crisis struck in 2008.)

Also, Deutsche Bank, along with others banks, has just agreed to settle with the European Union over interbank offered rate manipulation allegations. The banks are accused of manipulating the Yen London interbank offered rate and the Euribor. Of the $2.3B in total that is to be paid, $992 million will come from Deutsche Bank.

At The SSEK Partners Group, our securities lawyers are still working with institutional and individual investors to get their money back from this tumultuous time in our economic history.

Contact our securities fraud lawyers to request your free case consultation. You may have grounds for a claim involving mortgage-backed securities, residential mortgage-backed securities, auction-rate securities, real estate investment trusts, municipal bonds, and other financial instruments. You want to work with an experienced law firm that knows how to pursue your claim and is not afraid to go after the big banks.

Deutsche Bank Reaches Settlement With US Shareholders, Dow Jones, January 3, 2014

Deutsche Bank, U.S. shareholders settle lawsuit over mortgages
, Reuters, January 2, 2014


More Blog Posts:
Deutsche Bank to Pay $1.9B to FHFA Over Mortgage-Backed Securities Sold to Freddie Mac and Fannie Mae, Institutional Investor Securities Blog, December 26, 2013

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

Former Merrill Lynch, Oppenheimer, Deutsche Bank Broker is Ordered by FINRA To Pay Investor $11M Over Alleged Securities Fraud, Stockbroker Fraud Blog, April 19, 2013

December 30, 2013

Bank of America’s Countrywide to Pay $17.3M RMBS Settlement to Massachusetts

According to Massachusetts Attorney General Martha Coakley, Countrywide Securities Corp. (CFC) will pay $17 million to settle residential mortgage backed securities claims. The settlement includes $6 million to be paid to the Commonwealth and $11.3 million to investors with the Pension Reserves Investment Management Board. Countrywide is a Bank of America (BAC) unit.

Coakley’s office was the first in the US to start probing and pursuing Wall Street securitization firms for their involvement in the subprime mortgage crisis. Other RMBS settlements Massachusetts has reached include: $34M from JPMorgan Chase & Co. (JPM), $36M from Barclays Bank (ADR), $52 million from Royal Bank of Scotland (RBS), $102 million from Morgan Stanley (MS), and $60 million from Goldman Sachs. (GS).

Meantime, a federal judge is expected to rule soon on how much Bank of America will pay in a securities fraud verdict related to the faulty mortgages that Countrywide sold investors. A jury had found the bank and ex-Countrywide executive Rebecca Mairone liable for defrauding Freddie Mac and Fannie Mae via the sale of loans through that banking unit. The US government wants Bank of America to pay $863.6 million in damages. Mairone denies any wrongdoing.

The case focused on "High Speed Swim Lane," a mortgage lending process that rewarded employees for the volume of loans produced rather than the quality. Checkpoints that should have made sure the loans were solid were eliminated.

In other recent Countrywide news, a federal judge has given final approval to Bank of America’s $500 million settlement with investors who say the unit misled them, which is why they even invested in high-risk mortgage debt. A number of investors, including union and public pension funds, said they were given offering documents about home loans backing the securities that they purchased and that the content of this paperwork was misleading. They contend that a lot of securities came with high credit ratings that ended up falling to “junk status” as conditions in the market deteriorated.

This payout is the biggest thus far to resolve federal class action securities litigation involving mortgage-backed securities. The second largest was the $315 million reached with Merrill Lynch (MER), which is also a Bank of America unit. That agreement was approved in 2012.

Also, Bank of America was recently named the defendant in a lawsuit filed by the California city of Los Angeles over allegedly discriminatory lending practices that the plaintiff says played a part in causing foreclosures. LA is also suing Citigroup (C) and Wells Fargo (WFC).

The city says that Bank of America offered “predatory” loan terms that led to discrimination against minority borrowers. This resulted in foreclosures that caused the City’s property-tax revenues to decline. BofA, Wells Fargo, and Citibank have said that the claims are baseless.

AG Coakley Announces $11 Million Payment to State Pension Fund From Settlement with Countrywide Securities Corporation, Mass.gov, December 30, 2013

Bank of America's record $500 million accord over Countrywide wins approval, Chicago Tribune, December 6, 2013

U.S. seeks $864 million from Bank of America after fraud verdict, Reuters, November 9, 2013

Bank of America Added to Los Angeles's Lawsuit, The Wall Street Journal, December 6, 2013


More Blog Posts:
$500M MBS Settlement Reached Between Countrywide and Investors, Stockbroker Fraud Blog, May 10, 2013

New Jersey Files Securities Lawsuit Against Credit Suisse Over $10B in MBS Sales, Stockbroker Fraud Blog, December 20, 2013

AIG Drops RMBS Lawsuit Against New York Fed, Fights Bank of America’s $8.5B MBS Settlement, Institutional Investor Securities Blog, June 5, 2013

December 29, 2013

Wells Fargo Reaches $591 Million Mortgage Deal with Fannie Mae

Wells Fargo & Co. (WFC) has arrived at a $591 million mortgage settlement with Fannie Mae (FNMA). The arrangement resolves claims that the banking institution sold faulty mortgages to the government run-home loan financier and covers loans that Wells Fargo originated more than four years ago.

Fannie Mae and Freddie Mac (FMCC) were taken over by the US government five years ago as they stood poised to fail due to faulty loans they bought from Wells Fargo and other banks. The two mortgage companies had bundled the mortgages with securities.

With this deal, Wells Fargo will pay $541 million in cash to Fannie Mae while the rest will be taken care of in credits from previous buy backs.

It was just a couple of months ago that Wells Fargo settled its disputes over faulty loans it sold to Freddie Mac with an $869 million mortgage buyback deal. According to Compass Point Research and Trading LLC, between 2005 and 2008, Wells Fargo sold $345 billion of mortgages to Freddie Mac. Compass says the bank sold another $126 billion to Freddie in 2009.

Also settling with Freddie Mac today is Flagstar Bank (FBC) for $10.8M over loans it sold to the mortgage company between 2000 and 2008. That agreement comes following Flagstar and Fannie Mae settling mortgage claims for $93 million over loans the former sold to the latter between January 2000 and December 31, 2008.

Fannie Mae and Freddie Mac have been trying to get banks to repurchase these trouble loans for some time now. In light of this latest settlement with Wells Fargo, Fannie Mae has reached settlements of about $6.5 billion over loan buy backs, including a $3.6 billion deal with Bank of America Corp. (BAC) and Countrywide Financial Corp. and $968 million with Citigroup (C). Earlier this month, Deutsche Bank (DB) consented to pay $1.9 billion to the Federal Housing Finance Agency over claims that it misled Freddie and Fannie about the mortgage backed securities that the latter two purchased from the bank. http://www.securities-fraud-attorneys.com/lawyer-attorney-1835405.html

Wells Fargo agrees to $541 million loan settlement, Reuters, December 30, 2013

Flagstar settles with Fannie Mae on mortgage loans, Detroit Free Press, November 7, 2013

Wells Fargo in $869 Million Settlement With Freddie Mac, Bloomberg News, October 1, 2013


More Blog Posts:
FINRA Arbitration Panel Says Wells Fargo Must Repurchase $94M of Auction-Rate Securities from Investors, Stockbroker Fraud Blog, December 29, 2013

Credit Suisse Must Face ARS Lawsuit Over Subsidiary Brokerage’s Alleged Misconduct, Says District Court, Stockbroker Fraud Blog, January 11, 2013

RBS Securities Inc. Settles SEC’s Subprime RMBS Lawsuit for $150M, Institutional Investor Securities Blog, November 20, 2013

Continue reading "Wells Fargo Reaches $591 Million Mortgage Deal with Fannie Mae " »

December 26, 2013

Deutsche Bank to Pay $1.9B to FHFA Over Mortgage-Backed Securities Sold to Freddie Mac and Fannie Mae

Deutsche Bank (DB) will pay the Federal Housing Finance Agency $1.9 billion to settle securities claims that it misled Freddie Mac and Fannie Mae about the quality of loans bundled with mortgage-backed securities. Of the settlement, Fannie will get $300 million and Freddie will get $1.6 billion. However, this MBS settlement does not resolve a separate lawsuit filed by the two government-sponsored enterprises against Deutsche Bank and other firms over losses from the alleged manipulation interest rate.

FHFA claims that prior to the financial crisis, a number of financial institutions misled the two mortgage companies about borrowers’ creditworthiness. It wants to get back the $196 million Freddie and Fannie paid to buy what were supposed to be private label MBS.

The regulator says that losses sustained by Freddie and Fannie were from MBS that came from financial institutions selling flawed securities due to home loans in the bonds being more high risk than what the banks said they were. Although Freddie and Fannie didn’t make the loans directly they bought the mortgages from banks and sold them as securities to investors and provided guarantees. When the housing market exploded the two of them bought securities that were privately issued as investments. They also became two of the biggest bond investors. Unfortunately, when the economic crisis eventually hit in 2008, Freddie and Fannie suffered huge mortgage losses. The US Treasury had to lend them over $150 billion just so they could keep running.

Now, since suing 18 banks and financial institutions two years ago, the government agency has collected $885 million from UBS (UBS) and over $5 billion from JPMorgan Chase (JPM). It also settled with General Electric, Ally Financial, and Citibank, although the terms have not been disclosed terms. Among those that have yet to settle are Bank of America (BAC) and its Countrywide Financial and Merrill Lynch (MER).

Just recently, U.S. District Judge Denise Cote of the United States District Court for the Southern District of New York issued a decision undercutting the potential defenses of banks against certain FHFA brought-state securities claims, which could up how much money the agency could get should the cases go to trial. It was earlier this year a federal appeals court turned down arguments that FHFA’s claims were submitted too late.

This year has been one in which numerous financial firms have had to settle for their actions that resulted in massive losses for so many investors and others during the financial crisis. The SSEK Partners Group continues to work hard to help many of these investors get back their money. Over the years we have helped many institutional investors and high net worth individuals with their arbitration claims and securities lawsuits.

Deutsche Bank to Pay $1.93 Billion to Resolve FHFA Claims, Wall Street Journal, December 20, 2013

Deutsche Bank to Pay $1.9 Billion Over Troubled Mortgage Securities, The New York Times, December 20, 2013


More Blog Posts:
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

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

Former Merrill Lynch, Oppenheimer, Deutsche Bank Broker is Ordered by FINRA To Pay Investor $11M Over Alleged Securities Fraud, Stockbroker Fraud Blog, April 19, 2013

December 24, 2013

Deutsche Bank, Royal Bank of Scotland Settle & Others for More than $2.3B with European Union Over Interbank Offered Rates

Deutsche Bank (DB) has announced that as part of a collective settlement, it will pay $992,329,000 to settle investigations involving interbank offered rates, including probes into the trading of Euro interest rate derivatives and interest rate derivatives for the Yen.
Also paying fines as part of the collective settlement are Royal Bank of Scotland Group Plc (RBS) which will pay $535,173,000 and Society General SA (SLE), which will pay $610,454,000, and three others. In total, the financial firms will pay a record $2.3 billion.

The fines are for manipulating the Euribor and the Yen London interbank offered rate. EU Competition Commissioner Joaquin Almunia said that regulators would continue to look into other cases linked to currency trading and Libor. Also related to these probes, Citigroup (C) has been fined $95,811,100, while JPMorgan (JPM) is paying $108M. Because of Citigroup’s cooperation into this matter, it avoided paying an additional $74.6 million. The two firms reportedly admitted that they were part of the Yen Libor financial derivatives cartel.

Almunia said that transcripts of Internet conversations exist documenting collusion between traders. According to Bloomberg News, which obtained excerpts of charts that the EU used in its investigation, one trader usually requested that a few banks set low or high fixings for a benchmark rate. (This month, Deutsche Bank barred multi-party chat rooms at its currency trading and fixed-income outfits.)

The setting of Yen Libor and European Libor were part of attempts by financial firms to make money in the financial derivatives connected to the benchmarks. Because UBS (UBS) and Barclays (BARC) notified the authorities about these activities first, they were not fined in the cartel matter, although regulators had fined them previously over Libor manipulation.

The SSEK Partners Group represents institutional investors and high net worth individuals with securities claims against financial institutions, broker-dealers, investment advisers, brokers, hedge funds, mutual funds, and others. Your initial case assessment with us is free.

Deutsche Bank reaches agreement with European Commission as part of a collective settlement on interbank offered rates, Deutsche Bank, December 4, 2013

Deutsche Bank to RBS Fined by EU for Rate Rigging, Bloomberg, December 4, 2013

Euribor


More Blog Posts:
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

Barclays LIBOR Manipulation Scam Places Citigroup, Credit Suisse, Deutsche Bank, JP Morgan Chase, and UBS Under The Investigation Microscope, Institutional Investor Securities Blog, July 16, 2012

Former Merrill Lynch, Oppenheimer, Deutsche Bank Broker is Ordered by FINRA To Pay Investor $11M Over Alleged Securities Fraud, Stockbroker Fraud Blog, April 19, 2013

December 23, 2013

FDIC Sued by JPMorgan Chase in $1B Securities Case Involving Washington Mutual Purchase & Mortgage-Backed Securities

JPMorgan Chase (JPM) is suing the Federal Deposit Insurance Corp. for over $1 billion dollars related to the bank’s purchase of Washington Mutual (WMIH). The financial firm said that the FDIC did not honor its duties per the purchase agreement.

When Washington Mutual suffered the biggest bank failure in our nation’s history during the financial crisis in 2008, FDIC became its receiver and brokered the sale of assets. JPMorgan, which made the purchase for $1.9 billion, says that the FDIC promised to protect or indemnify the bank from liabilities. Regulators had encouraged the firm to buy Washington Mutual hoping this would help bring back stability to the banking system.

Since then, however, contends JPMorgan, the FDIC has refused to acknowledge mortgage-backed securities claims by investors and the government against the firm. The bank says that the cases should have been made against the receivership instead. (In its lawsuit, JPMorgan says there are enough assets in the receivership to cover a settlement with mortgage companies Freddie Mac (FMCC) and Fannie Mae (FNMA) and other claims, such as a slip and fall personal injury case involving a Washington Mutual branch.) Meantime, the FDIC maintains that JPMorgan is the one who should be accountable for any liabilities from its acquisition of Washington Mutual.

Since 2008, JPMorgan has agreed to multiple MBS settlements. Investors lost millions from bundled mortgages as the housing market crumbled and they wanted their money back. Recent settlements include last month’s $13 billion deal with the Justice Department and state regulators over mortgage-linked bonds, and another $4.5 million agreement with 21 institutional investors.

JPMorgan also says that it wants the FDIC receivership to separately take care of possible damages from the litigation brought by Deutsche Bank National Trust Company. The latter wants up to $10 billion on behalf of over 100 trusts that have Washington Mutual-issued bonds that have performed poorly.

If you suspect you sustained losses caused by institutional investor securities fraud, contact The SSEK Partners Group today.

JPMorgan Chase Sues FDIC for More Than $1B, JPMorgan/AP, December 18, 2013

JPMorgan sues FDIC over Washington Mutual, CNNMoney, December 18, 2013


More Blog Posts:
J.P. Morgan’s $13B Residential Mortgage-Backed Securities Deal with the DOJ Stumbles Into Obstacles, Stockbroker Fraud Blog, October 28, 2013

Volcker Rule is Approved by SEC, FDIC, Federal Reserve, CFTC, and OCC, Institutional Investor Securities Blog, December 10, 2013

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

December 17, 2013

The Volcker Rule May Already Be Affecting Financial Markets & The Economy

According to The Wall Street Journal, it’s just been a week since regulators approved the Volcker Rule and already investors and financial institutions are looking for new ways to finance municipal bond investments. The Volcker rule limits how much risk federally insured depository institutions can take, prohibiting proprietary trading, setting up obstacles for banks that take part in market timing, and tightening up on compensation agreements that used to serve as incentive for high-risk trading.

Now, says Forbes, Wall Street and its firms are undoubtedly trying to figure out how to get around the rule via loopholes, exemptions, new ways of interpreting the rule, etc. (One reason for this may be that how much executives are paid is dependent upon the amount they make from speculative trading.) The publication says that banks are worried that the Volcker Rule could cost them billions of dollars.

For example, with tender-option bond transactions, hedge funds, banks, and others employ short-terming borrowings to pay for long-term muni bonds. The intention is to make money off of the difference in interest they pay lenders and what they make on the bonds. While tender-option bonds make up just a small section of the $3.7 trillion muni debt market, it includes debt that has been popular with Eaton Vance (EV), Oppenheimer Funds, and others.

Under the Volcker Rule, big banks will no longer be able to deal in tender-option bonds the way they are structured, which is expected to curb new bond issuance and lower tradings (and why banks are likely scrambling to figure out how else they can finance municipal bonds). Already, the Securities Industry and Financial Markets Association is setting up a group to determine how its members can employ leverage to get into municipal debt.

Meantime, midsize and smaller banks are getting ready to sell collateralized debt obligations because of a provision under the rule that restricts certain risky investments. The Volcker Rule limits banks in their investing in collateralized debt obligations backed by securities that are trust-preferred. (A lot of smaller institutions issued these securities before the financial crisis.)

Now, banks such as Zions Bancorp (ZION) will have to sell some CDOs. Zion is expected to take a $387M charge to write down the securities’ value. The bank is concerned that under the Volcker Rule, the securities would be “disallowed investments.”

Per the rule, the deadline for banks to get rid of its risky assets is July 21, 2015—although an extension can be obtained via the Federal Reserve. That said, banks do need to make an adjustment right away to the accounting treatment they’ve been using for the securities.

If you suspect that you suffered financial losses because of municipal bond fraud, contact The SSEK Partners Group to find out whether you should file a securities fraud claim. Your case assessment with us is a no obligation, free consultation.

Volcker Rule Quickly Hits Utah Bank, New York Times, December 16, 2013

Wall Street Will Prepare Ways To Gut The Volcker Rule, Forbes, December 17, 2013

Volcker Rule Shows Its Wide Reach, Wall Street Journal, December 16, 2013

The Volcker Rule


More Blog Posts:
Volcker Rule is Approved by SEC, FDIC, Federal Reserve, CFTC, and OCC, Institutional Investor Securities Blog, December 10, 2013

Moody's Reassessment of Puerto Rico Bonds Does Nothing to Relieve Investor Worries, Stockbroker Fraud Blog, December 14, 2013

Merrill Lynch Settles with SEC Over CDO Disclosures for Almost $132M, Institutional Investor Securities Blog, December 16, 2013

December 16, 2013

Merrill Lynch Settles with SEC Over CDO Disclosures for Almost $132M

The Securities and Exchange Commission says that Merrill Lynch Pierce Fenner & Smith Inc. (MER) will pay $131.8M to settle charges involving allegedly faulty derivatives disclosures. The regulator claims that the firm, which is the largest broker-dealer by client assets, misled investors about certain structured debt products before the economic crisis. By settling, Merrill is not denying or agreeing to the allegations. Also, the brokerage firm was quick to note that the matter for dispute occurred before Bank of America (BAC) acquired it.

According to the Commission, in 2006 and 2007 Merrill Lynch did not tell investors that Magnetar Capital impacted the choice of collateral that was behind specific debt products. The hedge fund purportedly hedged stock positions by shorting against Norma CDO I Ltd. and Octans I CDO Ltd., which are two collateral debt obligations that the firm was selling to customers.

The SEC contends that Merrill used misleading collateral to market these CDO investments. According to Division of Enforcement co-director George Canellos, the materials depicted an independent process for choosing collateral that benefited long-term debt investors and customers did not know about the role Magnetar Capital was playing to choose the underlying portfolios.

Also sanctioned by the SEC were Joseph Parish and Scott Shannon, two managing partners of IR Capital Management LLC. This was the investment adviser that took care of choosing collateral for the CDO Norma. They are accused of compromising their supposed lack of bias by letting a third party with its own interests affect the portfolio-selection process. The SEC says Shannon accepted assets that Magnetar chose while Parish let the hedge fund impact how other assets were selected. The two men will pay over $472,000 to settle the allegations against them and they were suspended from the industry.

Meantime, the US government continues to pursue Wall Street firms over their alleged misconduct involving the mortgage-backed securities creation that is attributed to helping cause investor losses during the financial crisis and the housing slump. The SEC has also pursued claims against Citigroup Inc. (C), Goldman Sachs Group Inc. (GS), and JPMorgan Chase & Co. (JPM) over their involvement in structuring and promoting investments linked to home loans that were faulty.

If you suspect that you have been the victim of securities fraud, contact our CDO fraud lawyers today.

BofA’s Merrill to Pay $131 Million Over Norma CDO Marketing, Bloomberg, December 12, 2013

Merrill Lynch in $132 million SEC settlement over faulty disclosures on derivatives, InvestmentNews, December 12, 2013


More Blog Posts:
Massachusetts Securities Regulators Fine Merrill Lynch $500,000 For Alleged Failure to Stop Rogue Broker, Stockbroker Fraud Blog, October 29, 2013

AIG Wants to Stop Former CEO Greenberg From Naming It as a Defendant in Derivatives Lawsuit Against the US, Stockbroker Fraud Blog, April 13, 2013

JPMorgan’s Admission to CFTC of “Reckless” Trading Could Lead to More Securities Fraud Cases, Institutional Investor Securities Blog, November 4, 2013

December 14, 2013

Fannie Mae Sues UBS, Bank of America, Credit Suisse, JPMorgan Chase, Citigroup, & Deutsche Bank, & Others for $800M Over Libor

Fannie Mae is suing nine banks over their alleged collusion in manipulating interest rates involving the London Interbank Offered Rate. The defendants are Bank of America (BAC), JPMorgan Chase (JPM), Credit Suisse, UBS (UBS), Deutsche Bank (DB), Citigroup (C), Royal Bank of Scotland, Barclays, & Rabobank. The US government controlled-mortgage company wants over $800M in damages.

Regulators here and in Europe have been looking into claims that a lot of banks manipulated Libor and other rate benchmarks to up their profits or seem more financially fit than they actually were. In its securities fraud lawsuit, Fannie Mae contends that the defendants made representations and promises regarding Libor’s legitimacy that were “false” and that this caused the mortgage company to suffer losses in mortgages, swaps, mortgage securities, and other transactions. Fannie May believes that its losses in interest-rate swaps alone were about $332 million.

UBS, Barclays, Rabobank, and Royal Bank of Scotland have already paid over $3.6 billion in fines to settle with regulators and the US Department of Justice to settle similar allegations. The banks admitted that they lowballed their Libor quotes during the 2008 economic crisis so they would come off as more creditworthy and healthier. Individual traders and brokers have also been charged.

Libor
Libor is used to establish interest rates on student loans, derivatives, mortgages, credit card, car loans, and other matters and underpins hundreds of trillions of dollars in transactions. The rates are determined through a process involving banks being polled on borrowing costs in different currencies over different timeframes. Responses are then averaged to determine the rates that become the benchmark for financial products.

Also a defendant in Fannie Mae’s securities case is the British Bankers’ Association, which oversees the process of Libor rate creation.

Earlier this year, government-backed Freddie Mac (FMCC) sued over a dozen large banks and the British Bankers’ Association also for allegedly manipulating interest rates and causing it to lose money on interest-rates swaps. Defendants named by the government-backed home loan mortgage corporation included Bank of America, JP Morgan Chase, Citigroup, Credit Suisse, and UBS.

Freddie Mac Sues Big Banks, The Wall Street Journal, March 19, 2013

Fannie Mae Sues Banks for $800 Million Over Libor Rigging, Bloomberg, November 1, 2013


More Blog Posts:
Sonoma County Files Securities Lawsuit Over Libor Banking Debacle, Institutional Investor Securities Blog, July 2, 2013

Barclays LIBOR Manipulation Scam Places Citigroup, Credit Suisse, Deutsche Bank, JP Morgan Chase, and UBS Under The Investigation Microscope, Institutional Investor Securities Blog, July 16, 2012

December 10, 2013

Volcker Rule is Approved by SEC, FDIC, Federal Reserve, CFTC, and OCC

Five regulatory agencies in the US have voted to approve the Volcker Rule. The measure establishes new hurdles for banks that engage in market timing and will limit compensation arrangements that previously provided incentive for high risk trading.

While the Federal Reserve Board and the Federal Deposit Insurance Corporation voted unanimously to approve the Volcker Rule, the Securities and Exchange Commission approved it in a 3-2 vote, the Commodity Futures Trading Commission approved it in a 3-1 vote, and the Office of the Comptroller of the Currency’s sole voting member also said yes. President Barack Obama praised the rule’s finalization. He believes it will improve accountability and create a safer financial system.

Named after ex-Federal Chairman Paul Volcker, the rule sets up guidelines that impose risk-taking limits for banks with federally insured deposits. It mandates that they show the way their hedging strategies are designed to function, as well as set up approval procedures for any diversions from these plans. Per the rule’s preamble, banks have to make sure hedges are geared to mitigate risks upon “inception” and this needs to be “based on analysis” regarding the appropriateness of strategies, hedging instruments, limits, techniques, as well as the correlation between the hedge and underlying risks.

Banks with federal insured deposits won’t able to take part in proprietary trading, which involves engaging in risky investment endeavors for their own benefits. They also won’t be allowed to take ownership stakes in private equity funds and hedge funds.

Unlike an earlier version of the rule, which gave an exemption to the proprietary trading ban involving US Treasury securities, this final rule lets firms trade foreign debt. That said, foreign banks in the US will have to contend with stringent trading restrictions and overseas banks with US offices won’t be allowed to sell, buy or hedge investments for profit.

According to CNN.com, advocates of reform believe that with the Volcker Rule’s restrictions taxpayers wont have to bail out these institutions In the future. Meanwhile, representatives of the industry are calling measure burdensome and too complicated.

Banks wanted the rule to protect market timing (with the firms hold the securities to engage in customer transactions). They also wanted to keep their ability to trade for hedging purposes.

Now, with the Volcker Rule, to show that they are taking part in market making (rather than speculation), banks will need to demonstrate that trades are being determined by customers’ “reasonably expected near-term demands,” and that historic demand and existing market conditions have been factored into the equation. Also, although banks will now have to contend with more limits on foreign bond trading, they can still take part in the proprietary trading of federal, state, municipal, and government-backed entities’ bonds.

As for hedging, firms will have to identify specific risks that such activities would offset. Bankers involved in hedging won’t be compensated in a manner that rewards proprietary trading.

The SSEK Partners Group represents institutional investors and high net worth individual investors throughout the US. We help our clients recover their securities fraud losses

Financial regulators approve long-awaited Volcker Rule, CNN, December 10, 2013

Volcker Rule Challenges Wall Street, Wall Street Journal, December 10, 2013

READ: The Volcker Rule draft regulations and fact sheet, Washington Post, December 10, 2013


More Blog Posts:
Senate Democrats Want Volcker Rule’s “JP Morgan Loophole” Allowing Portfolio Hedging Blocked, Institutional Investor Securities Blog, May 22, 2012

Democrats Want to Volcker Rule to Be Clear About Banks Being Allowed to Invest in Venture Capital Funds, Institutional Investor Securities Blog, February 28, 2012

CFTC Securities Headlines: Goldman Sachs Fined For Inadequate Broker Supervision in $118M Fraud, Firms Named in Precious Metal Scam, & Defendants to Pay $1.8M Over Off-Exchange Foreign Currency Scheme, Stockbroker Fraud Blog, December 14, 2012


November 26, 2013

MF Global to Pay $1.2B to Customers

U.S. District Court Judge Victor Marrero has ordered MF Global to pay customers over $1.2 billion. The defunct brokerage firm left an about $1.6 billion shortfall for approximately 38,000 customers when it filed for bankruptcy protection in 2008.

Now, with this court order, along with the attempts of a liquidation trustee to get back the missing funds, customers are going to get almost all of their money back. Also, in addition to paying certain creditors and customers, MF Global will pay a $100 million penalty.

The brokerage tanked financially after it revealed that it had placed bets worth billions of dollars on high risk European debt. As customers started to leave MF Global in bulk and trading partners demanded bigger margin payments, the firm used customer funds for its own purposes (more than a billion dollars was taken out of their accounts) and did not replace them. This is not allowed. Also the estimated shortfall was about $1.6 billion.

It was the US Commodity Futures Trading Commission that got the federal court consent order against MF Global obligating the latter to pay the restitution. The CFTC filed its complaint against MF Global in June charging the firm and others with unlawfully using the funds of customers. The agency also accused the brokerage of making false statements to cover up the shortfall in filings it submitted to the regulator.

In the consent order, MF Global admits to the allegations related to its liability on the basis of omissions and actions committed by its employees. (Also, a bankruptcy judge has just cleared the firm to repay all the funds it owes to commodity customers both in the US and abroad.)

Just last week, Judge Marrerro rejected Corzine’s attempt to get a shareholder securities lawsuit against him and other MF Global executives dismissed. The plaintiffs are accusing them of misleading investors about the high-risk bets that were made on European debt. In his decision, Marrero commented on how the defendants appeared convinced that none of them did anything wrong. He speculated that maybe instead, “supernatural forces” or “stuff happens” was to blame for the firm’s spectacular “multi-billion dollar” crash. Meantime, the CFTC’s civil case against MF Global Holdings Ltd, ex-CEO John Corzine, and ex-Assistant Treasurer Edith O’ Brien have yet to be resolved.

While it is a positive that customers are finally getting their money back—it doesn’t mean that this makes up for the last two years when they were unable to access their funds. Some folks were shut out of trading while others lost their businesses.

Our securities lawyers at the SSEK Parters Group were among those that investigating MF Global claims of customers. We represent institutional and individual investors in getting their losses back.

Court Orders MF Global to Pay $1.2 Billion, The Wall Street Journal, November 18, 2013

MF Global Customers Will Recover All They Lost, The New York Times, November 5, 2013


More Blog Posts:
MF Global Holdings Bankruptcy Trustee Files Lawsuit Against Ex-CEO Corzine and Other Former Executives, Institutional Investor Securities Blog, April 26, 2013

Regulators Also At Fault in MF Global Debacle, Says House Report, Stockbroker Fraud Blog, November 16, 2012

MF Global Holdings Ltd. Files for Bankruptcy While Its Broker Faces Liquidation and Securities Lawsuit by SIPC, Institutional Investor Securities Blog, October 31, 2011

November 20, 2013

RBS Securities Inc. Settles SEC’s Subprime RMBS Lawsuit for $150M

RBS Securities Inc., which is a Royal Bank of Scotland PLC. Subsidiary (RBS), has agreed to pay $150 million to settle Securities and Exchange Commission allegations that it misled investors in a $2.2 billion subprime residential mortgage-backed security offering in 2007. The money will be used to pay back investors who were harmed.

The SEC claims the RBS said that the loans backing the offering “generally” satisfied underwriting guidelines even though close to 30% of them actually were so far off from meeting them that they should not have been part of the offering. As lead underwriters, RBS (then known as Greenwich Capital Markets,) had only (and briefly) looked at a small percentage of the loans while receiving $4.4 million as the transaction’s lead underwriter.

SEC Division Enforcement co-director George Cannellos said that inadequate due diligence by RBS was involved. The Commissions also says that because RBS was in a hurry to meet a deadline established by the seller, the firm misled investors about not just the quality of the loans but also regarding their chances for repayment.

Of the $150 million that RBS will pay, $80.3 million is disgorgement, $25.2 million is prejudgment interest, and $48.2 million is a civil penalty.

Our RMBS fraud lawyers are here to help investors get back their losses. Unfortunately, many investors lost money in different types of mortgage-backed securities during the economic crisis. Often the investments were recommended by stockbrokers and financial advisers even if they were unsuitable for the client or when not enough proper due diligence was conducted to make sure the investment was a wise one. Contact The SSEK Partners Group today.

SEC Charges Royal Bank of Scotland Subsidiary with Misleading Investors in Subprime RMBS Offering, SEC, November 7, 2013

RBS unit to pay $150 million to settle U.S. SEC charges, Reuters, November 7, 2013


More Blog Posts:
US Supreme Court Hears Oral Argument on the Impact of SLUSA on the Stanford Ponzi Scams, Institutional Investor Securities Blog, October 17, 2013

Securities Whistleblower Roundup: Retaliation Lawsuit Against Thompson Reuters Gets Go Ahead & SEC Issues Its Sixth Bounty Award, Stockbroker Fraud Blog, November 14, 2013

J.P. Morgan’s $13B Residential Mortgage-Backed Securities Deal with the DOJ Stumbles Into Obstacles, Stockbroker Fraud Blog, October 28, 2013

November 19, 2013

JPMorgan and the DOJ Finalize Their $13 Billion Settlement

After months of back-and-forth, the US Justice Department and JPMorgan Chase (JPM) have agreed to a $13 billion settlement. The historic deal concludes several of lawsuits and probes over failed mortgage bonds that were issued prior to the economic crisis. It also is the largest combination of damages and fines to be obtained by the federal government in a civil case with just one company. JPMorgan had initially wanted to pay just $3 billion.

The $13 billion deal is the largest crackdown this government had made against Wall Street over questionable mortgage practices. US Attorney General H. Eric Holder and other lead DOJ officials were involved in the settlement talks with JPMorgan CEO Jamie Dimon and other senior officials.

The settlement is over billions of dollars in residential mortgage backed securities involving not just the firm but also its Washington Mutual (WAMUQ) and Bear Stearns (BSC) outfits. The government claims that the RMBS were based on mortgages that were not as solid as what they were advertised to be.

As part of the agreement, JPMorgan acknowledged a statement of facts that delineated its wrongdoing and retracted its demand that prosecutors stop a related criminal probe directed at the bank. Also, the firm for the most part forfeited getting back some of the settlement from the Federal Deposit Insurance Corporation.

Of the $13 billion, $9 billion will pay state and federal civil lawsuit claims over residential mortgage-backed securities including:

• $2 million as a civil penalty to the DOJ
• $1.4 billion to resolve the National Credit Union Administration’s state and federal claims
• $4 billion for Federal Housing Finance Agency claims
• $515 million over Federal Deposit Insurance Corp. claims
• Almost $20 million resolves Delaware claims
• Almost $300 million is for California claims
• Almost $614 million resolves NY state claims
• $100 million is for Illinois claims
• $34 million settles claims made by Massachusetts

The rest of the settlement in the amount of $4 billion will be in the form of programs to help homeowners that suffered harm. JPMorgan says it would pay up to $1.7 billion to write down principal amounts of loans it held in which the borrower owes a sum greater than the value of the property.

Meantime, $300 million to $500 million will go to forbearance, which involves the restructuring of certain mortgages to lower monthly payments. The final $2 billion will go to a number of measures, including absorbing whatever principal is still owed on properties that haven’t foreclosed but were already vacated, as well as to new mortgage originators for certain income borrowers. JPMorgan might even use some of this money to pay for anti-blight work in beleaguered neighborhoods.

The SSEK Partners Group represents institutional investors and high net worth individual investors wishing to recoup their RMBS fraud losses. Contact our securities lawyers today.

Justice Department, Federal and State Partners Secure Record $13 Billion Global Settlement with JPMorgan for Misleading Investors About Securities Containing Toxic Mortgages, Justice.gov, November 19, 2013

$13 Billion Settlement With JPMorgan Is Announced, New York Times, November 19, 2013


More Blog Posts:

J.P. Morgan’s $13B Residential Mortgage-Backed Securities Deal with the DOJ Stumbles Into Obstacles, Stockbroker Fraud Blog, October 28, 2013

JPMorgan to Pay $920M to Settle London Whale Debacle & $80M Over Credit-Card Practice Allegations, Institutional Investor Securities Blog, September 19, 2013

California AG Files Lawsuit Against JP Morgan Chase Alleging Debt Collection Abuse Over 100,000 Credit Card Cases, Stockbroker Fraud Blog, May 16, 2013

November 15, 2013

Hedge Funds Are Moving in on Municipal Debt, Including Puerto Rico Debt

According to The Wall Street Journal, hedge funds are starting to bet big on municipal debt by demanding high interest rates in exchange for financing local governments, purchasing troubled municipalities’ debt at cheap prices, and attempting to profit on the growing volatility (in the wake of so many small investors trying to get out because of the threat of defaults). These funds typically invest trillions of dollars for pension plans, rich investors, and college endowments. Now, they are investing in numerous muni bond opportunities, including Puerto Rico debt, Stanford University bond, the sewer debt from Jefferson County, Alabama, and others.

Currently, hedge funds are holding billions of dollars in troubled muni debt. The municipal bond market includes debt put out by charities, colleges, airports, and other entities. (Also, Detroit, Michigan's current debt problems, which forced the city into bankruptcy, caused prices in the municipal bond market to go down to levels that appealed to hedge funds.)

Hedge fund managers believe their efforts will allow for more frequent trading, greater government disclosures, and transparent bond pricing and that this will only benefit municipal bond investors. That said, hedge fund investors can be problematic for municipalities because not only do they want greater interest rates than did individual investors, but also they are less hesitant to ask for financial discipline and better disclosure.

Now, hedge funds are reportedly suggesting short-term financing for Puerto Rico, which is in huge economic trouble with its $70 billion debt. These funds began buying up Puerto Rico bonds after their prices dropped a few months ago. Some of the bets are already paying off while other hedge funds are preparing for even bigger bets.

However, Puerto Rico’s debt crisis has become a huge problem for many investors, some of whom already have lost their life savings. At The SSEK Partners Group, our Puerto Rico bond lawyers have been meeting with investors that purchased muni bonds from brokerage firms, including Banco Popular, Banco Santander (SAN.MC), and UBS (UBS). Our securities attorneys are available to meet with you in Puerto Rico and the US. Hablamos Español.

Unfortunately, some brokers that sold Puerto Rico muni bonds reportedly suggested that investors borrow money to buy them, while other representatives told investors to buy the bonds and then borrow against their value. Already, UBS Puerto Rico has consented to pay $26M to settle SEC charges and pay fines and disgorgement over allegations that it sold mispriced closed end funds to customers. Unfortunately, investors will not get anything back from this, which is why you should contact our muni bond fraud lawyers.

Your initial case assessment with The SSEK Partners Group is free.

Individual investors flee US municipal bond market, Reuters, November 12, 2013

Hedge Funds Are Muscling Into Munis, The Wall Street Journal, November 11, 2013

Is Puerto Rico the next Detroit?, CNN, October 31, 2013

Individual investors flee US municipal bond market, Reuters, November 12, 2013

More Blog Posts:
SROs at Work: MSRB Prioritizes Fiduciary Duty When Setting Up New Muni Advisor Regime & FINRA Puts Out Closed-End Funds Alert to Investors, Stockbroker Fraud Blog, November 13, 2013

Advice to Advisors: Financial Advisors Taught Ways to Avoid SEC Scrutiny, Stockbroker Fraud Blog, November 11, 2013

SEC Members Discuss Agency’s Core Mission, New Penalty Policy, and Private Offerings in the Wake of General Solicitation, Institutional Investor Securities Blog, November 12, 2013

November 14, 2013

JPMorgan and Institutional Investors Agree to $4.5B Mortgage-Backed Securities Settlement

JPMorgan Chase & Co. (JPM) says it will pay $4.5 billion to investors for losses that they sustained from mortgage-backed securities that were purchased from the firm and its Bear Stearns Cos. during the economic crisis. The institutional investors include Allianz SE (AZSEY), BlackRock Inc. (BLK), Pacific Investment Management Group, MetLife Inc. (MET), Goldman Sachs Asset Management LP, Western Asset Management Co., and 16 of other known institutional entities. This is the same group that settled their MBS fraud case against Bank of America Corp. (BAC) for $8.5 billion.

The $4.5 billion will be given to 330 RMBS trusts’ trustees over investments that were sold by the two financial institutions between 2005 and 2008. A number of the trustees, including Bank of New York Mellon Corp. (BK) still have to approve the agreement, as does a court.

Still, the claims related to the Washington Mutual-sold MBS have yet to be resolved.
JPMorgan believes that Federal Deposit Insurance Corp., which seized Washington Mutual and sold it to the firm, should be responsible for covering those MBS fraud claims. Meantime, the FDIC is arguing that when JPMorgan acquired Washington Mutual it also inherited its liabilities.

Also still up for resolution is Deutsche Bank National Trust Company’s private securities lawsuit on behalf of over 100 trusts related bonds that were issued by JPMorgan, Washington Mutual (WAMUQ) and the FDIC. No one wants to agree on who should be liable after the bonds did badly. Deutsche Bank (DB), however, wants up to $10 billion for the trusts.

This latest securities fraud settlement is separate from the tentative $13 billion one reached between JPMorgan and the Justice Department over its mortgage practices leading up to the 2008 financial crisis. The firm also just settled with Freddie Mac (FMCC) and Fannie Mae (FNMA) for $5.1 million over 129 securities that the two mortgage financial companies bought from it for $33 million.

Our RMBS fraud lawyers represent institutional investors and high net worth investors. Contact The SSEK Partners Group today and ask us for your free case assessment.

JPMorgan Reaches $4.5 Billion Settlement With Investors, NY Times, November 15, 2013

J.P. Morgan Reaches $4.5 Billion Settlement With Investors, Wall Street Journal, November 15, 2013


More Blog Posts:
J.P. Morgan’s $13B Residential Mortgage-Backed Securities Deal with the DOJ Stumbles Into Obstacles, Stockbroker Fraud Blog, October 28, 2013

JPMorgan’s Admission to CFTC of “Reckless” Trading Could Lead to More Securities Fraud Cases, Institutional Investor Securities blog, November 4, 2013

Massachusetts AG Investigates JPMorgan’s Debt-Collection Practices, Stockbroker Fraud Blog, September 24, 2013

November 8, 2013

AIG Settles Ex-Executive’s $274M Lawsuit Over Alleged Failure to Pay Him During 2008 Economic Crisis

American Insurance Group (AIG) and one of its ex-executives, Kevin Fitzpatrick, have reached a settlement deal over his $274 million lawsuit against the insurer. Fitzpatrick, the former president of the AIG Global Real Estate Investment Corp. unit, claims that his then-employer would not pay him during the 2008 economic crisis. The insurer’s refusal to pay occurred not long after the US government said yes to the first part of what would turn into a $182 billion bailout.

Fitzpatrick, who worked for AIG for 22 years, said that AIG breached agreements it had with him and entities under his control. He claims the agreements entitled him to a share of profits made on the insurer’s real estate investments but that on October 2008 AIG stopped paying him and others who were entitled to profit distributions. Fitzpatrick then quit.

Fitzpatrick sued in 2009, claiming that AIG owed him $274 million and that he wanted interest and punitive damages, which is right around the time that the insurer was trying to get past public disapproval over $165 million in bonuses that were paid to employees in the AIG Financial Products unit. That is the group that handled the complex financial instruments that led to its huge losses.

AIG denied wrongdoing and said that Fitzpatrick was paid what he was owed. The insurer contended that Fitzpatrick actually was fired and that he stole data that was confidential and belonged to the company.

In other AIG-related news, a district court judge just threw out a shareholder lawsuit accusing Bank of America (BAC) of not telling them that the insurer was planning to sue the bank with a $10 billion fraud lawsuit. AIG accused Bank of America of misrepresenting the quality of more than $28 million of MBSs that AIG bought from the latter and its Countrywide and Merrill Lynch (MER) units.

Also, there are reports that AIG might file mortgage-backed securities case against Morgan Stanley (MS) over $3.7 billion of MBS.

Former AIG Real Estate Executive Settles $274 Million Pay Case, Businessweek, November 6, 2013

Morgan Stanley Says AIG May Sue Over Mortgage-Linked Investments, Bloomberg, November 4, 2013

Bank of America wins dismissal of lawsuit on AIG disclosures, Reuters, November 4, 2013


AIG Sued by Its Own Executive as Tragedy Turns to Farce
, CBS, December 10, 2009


More Blog Posts:
Judge Dismisses Shareholder Lawsuit Suing Bank of America For Allegedly Concealing AIG Fraud Case, Institutional Investor Securities Blog, November 6, 2013
Stakeholders With $55M Securities Fraud Case Against Government Over AIG Bailout Get Class Action Certification, Institutional Investor Securities Blog, March 19, 2013

AIG Wants to Stop Former CEO Greenberg From Naming It as a Defendant in Derivatives Lawsuit Against the US, Stockbroker Fraud Blog, April 13, 2013

Continue reading "AIG Settles Ex-Executive’s $274M Lawsuit Over Alleged Failure to Pay Him During 2008 Economic Crisis" »

November 6, 2013

Judge Dismisses Shareholder Lawsuit Suing Bank of America For Allegedly Concealing AIG Fraud Case

A judge has thrown out a securities lawsuit by shareholders accusing Bank of America Corp. (BAC) of concealing that insurer AIG (AIG) intended to file a $10 billion fraud case against it. U.S. District Judge John Koeltl in Manhattan said that BofA and four of its officers were not obligated to reveal in advance that the lawsuit was pending or that it was a large one.

AIG filed its securities fraud lawsuit against Bank of America in 2011. The insurer claimed that the bank misrepresented the quality of over $28 billion of mortgage-backed securities it purchased not just from the bank but also from its Merrill Lynch (MER) and Countrywide units. On the day that the complaint was filed, shares of Bank of America dropped 20.3% and Standard & Poor’s revoked the tripe-A credit rating it had issued.

The shareholder plaintiffs claim that the bank’s officers, including Chief Executive Brian Moynihan, knew about the MBS fraud case six months before the lawsuit was submitted and they should have given them advance warning.

Judge John Koeltl, however, said that the specifics about the securities case did not materially differ from what Bank of America already disclosed in its mortgage exposures. He also determined that the bank did not issue inaccurate or incomplete statements.

AIG’s mortgage-backed securities lawsuit is still pending.

Meantime, the media is reporting that the AIG may be getting ready to file another MBS fraud case, this one against Morgan Stanley (MS). The case would be over the $3.7 billion of mortgage securities that the bank sponsored and underwrote between 2005 to 2007 that AIG then bought. The insurer has submitted a regulatory filing about its plans to possibly file. AIG ended a “tolling agreement” with the firm that would have allowed them to resolve their disagreement outside a courtroom.

Our mortgage-backed securities lawyers represent institutional and individual investors that have sustained financial losses because of securities fraud. Contact our MBS fraud law firm today.

Judge Dismisses Suit Against Bank of America For Not Disclosing AIG Claims, Insurance Journal, November 4, 2013

AIG may sue Morgan Stanley over mortgage securities: SEC filing, Reuters, November 4, 2013


More Blog Posts:
Why did UBS Financial Advisors Recommend Muni Bonds to Elderly and Retired Investors?, Stockbroker Fraud Blog, November 6, 2013

Two Investment Advisers Sue Twitter for Secondary Market Fraud, Stockbroker Fraud Blog, November 5, 2013

JPMorgan’s Admission to CFTC of “Reckless” Trading Could Lead to More Securities Fraud Case, Institutional Investor Securities Blog, November 4, 2013

November 4, 2013

JPMorgan’s Admission to CFTC of “Reckless” Trading Could Lead to More Securities Fraud Cases

According to one brokerage executive who spoke with Advisen, JPMorgan Chase & CO.'s (JPM) admission to the Commodities Futures Trading Commission when settling securities allegations over its London Whale debacle that it engaged in “reckless” trading could get the financial firm into more legal trouble with investors.

The CFTC implied that because of certain “manipulative” actions, JPMorgan managed to sell $7B in derivatives in one day, including $4.6 billion in three hours. That the term “manipulate” was used could prove useful to plaintiffs (The regulator also accused the firm of using manipulative device related to credit default swaps trading, which violated a Dodd-Frank provision prohibiting such behavior). JPMorgan will pay $100 million to settle the securities fraud cause with the agency.

With the Securities and Exchange Commission also now seeking to obtain admission of wrongdoing from defendants in certain instances, such acknowledgments to regulators could impact firm’s insurance coverage terms. Right now, standard directors and officers coverage policies exclude personal profiting, fraud, and other illegal conduct. Admissions of fraud, however, could nullify such policies.

Now, in the wake of JPMorgan’s tentative $13B residential mortgage backed securities settlement with the federal government and the possibility that the firm might take the bulk of the penalty as a tax deduction, US Representatives Luis Gutierrez (D, Ill.) and Peter Welch (D., Vt.) have introduced the “Stop Deducting Damages Act,“ which would prevent companies from being able to deduct from their taxes damages that they paid to the government. The two lawmakers have even written JPMorgan CEO James Dimon asking him to not take a tax deduction and agree to be responsible for the full payment. Also expected to speak out against JPMorgan taking any tax deduction on CFTC settlement are Americans for Tax Fairness and the US Public Interest Research Group.

The Wall Street Journal says that the firm’s earlier $5.1 million settlement with Freddie Mac (FMCC) and Fannie Mae (FNMA) will be completely tax deductible and could save JPMorgan close to $1.5 billion in taxes. The firm has declined to confirm this.

Meanwhile, government authorities are continuing with certain probes into numerous business lines at some of the biggest banks in the country, as the number of investigations, settlements, and lawsuits against the latter continue to rise in numbers. For example, there are investigators who are looking into possible global foreign-exchange markets manipulation involving UBS (UBS), Credit Suisse (CS), Barclays, Deutsche Bank (DB), Royal Bank of Scotland (RBS), Citigroup (C), and JPMorgan.

Also under the microscope is Bank of America (BAC). The bank said that a US attorney intends to recommend that the Department of Justice file a civil RMBS lawsuit against it. The group looking into this matter is made up federal and state prosecutors. According to one source, they are also conducting similar probes into several other banks, including Citigroup, Wells Fargo (WFC), UBS (UBS), Goldman Sachs (GS), RBS, Morgan Stanley (MS), Credit Suisse, and Deutsche Bank.

Democrats’ Bill Would Block J.P. Morgan Settlement Deductions, The Wall Street Journal, November 1, 2013

More Inquiries of Major Banks Will Be Launched, ProgramBusiness, November 4, 2013

JPMorgan to pay $100 million to settle with CFTC on Whale trades: reports, Reuters, October 15, 2013


More Blog Posts:

J.P. Morgan’s $13B Residential Mortgage-Backed Securities Deal with the DOJ Stumbles Into Obstacles, Stockbroker Fraud Blog, October 28, 2013

Massachusetts AG Investigates JPMorgan’s Debt-Collection Practices, Stockbroker Fraud Blog, September 24, 2013

Is JPMorgan on the Verge of Settling A $5.75 Billion Mortgage-Backed Securities Case Filed by BlackRock & Neuberger Berman Group?, Institutional Investor Securities Blog, October 29, 2013

October 31, 2013

SAC Capital Advisors LP Expected to Plead Guilty to Insider Trading Criminal Charges

According to The Wall Street Journal, hedge fund SAC Capital Advisors is expected to plead guilty to criminal charges involving securities fraud allegations as early as next week. The multibillion-dollar hedge fund is owned by billionaire Stephen Cohen.

Sources told the WSJ that SAC will plead guilty as part of a settlement to resolve insider trading allegations made by federal prosecutors. Also, Cohen is expected to agree to stop managing money outside the fund and pay about $1.2 billion in government penalties—the largest penalty ever for insider trading.

Meantime, SAC and Cohen are still in the middle of hashing out the securities case filed by the Securities and Exchange Commission. That civil lawsuit also seeks a ban against Cohen from managing outside funds because he allegedly disregarded signs that insider trading was taking place at his firm. They say he inadequately supervised employees, allowing the fraud to happen.

Following any or either settlement, Cohen would still be under investigation for possible criminal charges, even though, say the same sources, charges are unlikely.

It was in July that federal prosecutors in Manhattan got an indictment against four SAC units, which is unusual seeing as hedge fund groups rarely face criminal charges for insider trading. The government accused the firm of “unlawful conduct by employees” and “institutional indifference” to the alleged misbehavior. Prosecutors believe there was insider trading going on far back as 1999 and that this resulted in illegal profits of hundreds of millions of dollars even as the fund avoided losses. At least eight ex-SAC employees were charged, with a number of them pleading guilty.

SAC denied the allegations.

SAC and Insider Trading Charges
Investigators have been looking into SAC and Cohen for some time now. In March, the firm agreed to pay about $615 million to the SEC to settle allegations of insider trading by now ex-portfolio managers Michael Steinberg and Mathew Martoma. Both, who have pleaded not guilty to the criminal charges, are schedule to go on trial next month.

Martoma allegedly sold and shorted shares of Wyeth and Elan shares using unpublicized information from drug trials. Steinberg is accused of insider trading involving Nvidia and Dell stocks. Meantime, the SAC profited (at least $276 million from Martoma’s purportedly illicit trades alone).

In the wake of the insider trading allegations against SAC, a number of large investors went on to redeem money from the hedge fund. In mid-February, about $1.67 billion was redeemed by investors. In March, over half of the $15 billion that SAC managed belonged to employees and Cohen.

Securities Fraud
Our insider trading lawyers represent investors seeking to recoup losses stemming from securities fraud. Your best bet if you want to recoup your losses is to speak with an experienced securities attorney and find out about your options.

SAC to Plead Guilty to Securities Fraud, Wall Street Journal, October 29, 2013

SAC Capital units pay $614 million for insider trading, CNN.com, March 15, 2013

Trial Delayed for Former SAC Executive, New York Times, September 24, 2013


More Blog Posts:
SEC Reaches $600M Insider Trading Settlement with SAC Capital Advisors-Affiliated Hedge Fund Advisory Firm, Stockbroker Fraud Blog, March 29, 2013

Texas Jury Clears Billionaire Mark Cuban of Insider Trading Charges, Stockbroker Fraud Blog, October 31, 2013

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

October 29, 2013

Is JPMorgan on the Verge of Settling A $5.75 Billion Mortgage-Backed Securities Case Filed by BlackRock & Neuberger Berman Group?

After its tentative $13 billion residential mortgage-backed securities settlement with the US Department of Justice, now JPMorgan Chase & Co (JPM) looks like it could be getting ready to settle yet another MBS fraud case, this time with bondholders, such as Neuberger Berman Group LLC, Allianz SE's Pacific Investment Management, and BlackRock Inc. (BLK). Investors want at least $5.75 billion dollars.

The group of over a dozen bondholders already had reached a settlement in 2011 in an $8.5 billion mortgage-backed securities case against Bank of America Corp (BAC) over similar allegations. Now, the institutional investors want restitution over bonds that JPMorgan sold—those from the firm itself and also from Washington Mutual (WAMUQ) and Bear Stearns (BSC).

JPMorgan has been settling a lot of securities cases lately. Its $13B RMBS deal with the DOJ resolves a number of matters, including Federal Housing Finance Agency claims for $4 billion. The FHFA believes that J.P. Morgan gave Fannie Mae (FNMA) and Freddie Mac (FMCC) inaccurate information about the quality of the loans they bought from the bank ahead of the decline of the economy in 2008. $5 billion of the proposed RMBS settlement is for penalties and the remaining $4 billion is for the relief of consumers.

As part of the deal a securities case filed by NY AG Eric Schneiderman against the firm over mortgage bonds that were packaged by Bear Stearns would be resolved. Schneiderman says that Bear Stearns misled investors about the quality of the loans backing the securities and was negligent over numerous other matters.

Also, JPMorgan has just agreed to pay the Commodity Futures Trading Commission $100 billion to settle securities fraud claims related to the London Whale debacle that cost the bank over $6 billion. That agreement is in addition to its deals with other US regulators and a regulator in the UK to settle similar allegations for $920 million.

If you are an investor that has sustained losses that you believe was a result of broker negligence, contact our securities law firm today.


REPORT: Another $6 Billion Settlement Looms For JP Morgan, Business Insider, October 23, 2013

JP Morgan may face new $6bn lawsuit, Belfast Telegraph, October 24, 2013


More Blog Posts:
J.P. Morgan’s $13B Residential Mortgage-Backed Securities Deal with the DOJ Stumbles Into Obstacles, Stockbroker Fraud Blog, October 28, 2013

JPMorgan to Pay $920M to Settle London Whale Debacle & $80M Over Credit-Card Practice Allegations, Institutional Investor Securities Blog, September 19, 2013

California AG Files Lawsuit Against JP Morgan Chase Alleging Debt Collection Abuse Over 100,000 Credit Card Cases, Stockbroker Fraud Blog, May 16, 2013

October 28, 2013

Puerto Rican Labor Groups Want the US Territory to Sue UBS over the Bond Debacle

UBS Financial Services, Inc. and its Puerto Rican divisions (UBS) continue to feel the heat in the Puerto Rico Bond crisis, as labor groups in the US territory call on its government to file a bond fraud claim against the bank. They are claiming that the financial firm “tricked” the Puerto Rican government into issuing products that they knew would fail.

Also, lawmakers from the New Progressive Party want the government to investigate UBS’ practices in Puerto Rico. Already Rep. Ricardo Llerandi Cruz is asking for a Capital Inquiry into the firm, while Rep. Ángel Muñoz Suárez announced he would file a bond fraud case with the Securities and Exchange Commission.

Meantime, Carlos Ubiñas, the CEO of UBS Puerto Rico, maintains that the firm is not accountable for “market events.” Issuing a statement, Ubiñas said that the loss in the Puerto Rico bonds’ value has more to do with the market and the lingering questions about the US Commonwealth’s credit.

Already, many investors are talking to Puerto Rico bond fraud lawyers about possibly filing securities fraud claims against UBS, Banco Santander (San.MC), Banco Popular, and other brokerage firms. Investors believe the bonds they purchased were not as stable and safe as brokers represented them to be and some customers say they suffered huge losses as a result.

The SSEK Partners Group is meeting with institutional investors on the mainland and in Puerto Rico who are exploring their options for legal recourse and to recover their lost investments. Please contact our Puerto Rico bond fraud attorneys today. Hablamos Español.

UBS faces more pressure over PR deals, Caribbean Business, October 15, 2013

Puerto Rico's bond losses hit local investors, Reuters, September 29, 2013


More Blog Posts:
Puerto Rican Bond Crisis Places Oppenheimer Funds at Risk, Institutional Investor Securities Blog, October 15, 2013

Puerto Rico Municipal Bonds, Stockbroker Fraud Blog, October 9, 2013

Muni Bond Funds Hit by Puerto Rico’s Debt Problems, Institutional Investor Securities Blog, October 9, 2013

October 15, 2013

Puerto Rican Bond Crisis Places Oppenheimer Funds at Risk

According to Investment News, along with the much publicized-UBS Puerto Rican Bond Funds, the municipal bond funds of OppenheimerFunds appear to have also been hit by Puerto Rico’s financial problems. The Oppenheimer Rochester Virginia Municipal Bond Fund (ORVAX), valued at $125 million, is down by over 15%, which places it last in the lineup of single-state municipal bond funds.

Such losses could prove an unpleasant surprise for investors in Virginia. The media publication blames the fund’s poor performance on the huge bet it placed on the Puerto Rico bond funds, which have not done very well in the wider municipal bond market because of the territory's financial issues and the bonds’ low rating.

Investment research firm Morningstar Inc. says that the single-state municipal bond funds with over 25% of assets in the beleaguered bonds are The Oppenheimer Rochester North Carolina, Massachusetts, Arizona, and Maryland funds, with each fund down through last week by over 11%. A median single-state municipal bond fund usually holds no more than 2.38% of assets in the bonds from Puerto Rico.

The Oppenheimer bond fund losses come five years after the Oppenheimer Core Bond Fund (OPIGX) got into huge trouble over CDS and mortgage-related debt. The fund dropped 35% that year. The SEC went on to file securities charges against the funds over issuing misleading statements to shareholders. The firm settled the charges for $35 million.

Additionally, customers of UBS (UBS), Banco Santander (SAN.MC), and Banco Popular, and other brokerage firms in Puerto Rico that that purchased municipal bond funds tied to Puerto Rico continue to meet with securities law firms to determine if they have legal claims. UBS alone may have packaged and sold over $10 billion of highly leveraged Puerto Rican municipal bonds and bond funds to individual investors. Its brokers there are accused of suggesting to clients that they borrow money from the firm in credit lines and margin accounts to purchase the bonds and bond funds.

Puerto Rico Bond Fund Cases
Our Puerto Rico bond fund lawyers are looking into claims for investors that purchased these municipal bonds and bond funds from Banco Santander, UBS, and Banco Popular. Additionally, our attorneys are also looking into losses involving Oppenheimer bond funds and the Franklin Double Tax-Free Income A (ticker: FPRTX). There are also other brokerage firms that may have sold the Puerto Rico municipal bonds to customers.

The Puerto Rico debt and bond problems are proving to be a huge problem, with some investors, including senior citizens and retirees, claiming massive losses. You want to work with a securities law firm has the experience to handle this type of bond fund case.

Contact Shepherd Smith Edwards and Kantas, LTD LLP today to receive your free case assessment. We are speaking with investors in Puerto Rico and on the mainland. Hablamos Español.

Storm Of Puerto Rican Bonds Hits U.S Mainland, Forbes, October 15, 2013

Oppenheimer's risky bond bets backfire — again, Investment News, October 11, 2013


More Blog Posts:

Massachusetts Regulator Makes Puerto Rican Municipal Debt-Related Inquiries to UBS, FIdelity, and Oppenheimer, Stockbroker Fraud Blog, October 14, 2013

Puerto Rico Municipal Bonds, Stockbroker Fraud Blog, October 9, 2013

Muni Bond Funds Hit by Puerto Rico’s Debt Problems, Institutional Investor Securities Blog, October 9, 2013

October 9, 2013

Muni Bond Funds Hit by Puerto Rico’s Debt Problems

The SSEK Partners Group is investigating claims by investors who bought Puerto Rico municipal bonds from UBS (UBS), Banco Santander (SAN.MC), Banco Popular and other brokerage firms. We are also looking into claims involving other muni funds that have been exposed to Puerto Rico, including the:

• Franklin Double Tax-Free Income A (ticker: FPRTX): 65% of its holdings involve Puerto Rico obligations.

• Oppenheimer Rochester VA Municipal A (ORVAX): 33% of its holdings in Puerto Rico bonds.

• Oppenheimer Pennsylvania Municipal A: 2.47% of its holdings in Puerto Rico bonds

Currently, Puerto Rico has about $70 billion in tax-free municipal bonds that are outstanding—a quantity much greater than the $18 billion in debt that prompted the city of Detroit to file for municipal bankruptcy.

The Puerto Rico bond troubles did not arise without warning. As far back as 2009 there were signs of problems. It was that year that the governor of Puerto Rico declared a fiscal emergency. Last year, the bond problems got worse, with many warning investors of the risks involved in Puerto Rico municipal bonds. Still, brokerage firms continued to promote these bonds. In 2013, the bonds funds are sustaining huge losses.

Puerto Rico Municipal Bond Claims and Lawsuits
We believe that about $10 billion of Puerto Rico municipal bonds may have been inappropriately sold to investors, and already, the investment losses for some are catastrophic. Please contact our Puerto Rico municipal bond lawyers today. We can help you determine whether you have grounds for a claim to recover your investment losses. Your case consultation with us is free. Our securities fraud law firm is here to help.


More Blog Posts:
Puerto Rico Municipal Bonds, Stockbroker Fraud Blog, October 9, 2013

Muni Bonds Draw Investors But Come With Serious Risks, Stockbroker Fraud Blog, June 11, 2013

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

October 4, 2013

FINRA Arbitration Panel Awards Ex-Wedbush Securities Broker $4.2M Against the Firm

In a case preceding the credit crisis, a Financial Industry Regulatory Authority panel has awarded Michael Farah, an ex-star broker at Wedbush Securities Inc, a $4.2M arbitration award against the brokerage firm. Farah had accused the broker-dealer of making misrepresentations and omissions related to the collateralized-mortgage-obligation investments he recommended to clients, which he contends resulted in him losing not just customers but also yearly income.

He was the firm’s leading producer for a long time, working there from 1995 to 2005. Farah filed his securities claim against Wedbush, formerly known as Wedbush Morgan Securities Inc., in 2005 and then submitted an amended case last year.

Farah sold millions of dollars in CMOs. He claimed that he was told that the securities were bond replacements. However, he contends that the plunging of CMOs price in early 2003 was not in linr with what the bond desk had informed him about the securities’ volatility.

The FINRA panel’s award includes $1.3 million to Farah for income loss, $1.4 million in punitive damages, and $1.5 million for legal and arbitration proceeding costs. (Punitive damages are not typical in FINRA arbitration awards—especially when an ex-broker and a firm are involved.)

This is the second significant arbitration award to an ex-Wedbush securities employee in the last couple of years. A FINRA arbitration panel awarded a former Wedbush municipal sales trader Stephen Kelleher $3.5 million because the firm did not give him a certain number of years’ worth of incentive-based compensation. The panel said that the broker-dealer exhibited a “morally reprehensible failure and refusal” to give the owed compensation. Other current and ex-Wedbush employees also have brought legal actions over compensation problems.

CMO Investment Fraud
If you are investors who believes your CMO investment losses are due to securities fraud, contact The SSEK Partners Group today.

Former star Wedbush Securities broker wins $4.2 million award against firm, InvestmentNews, September 26, 2013

Wedbush Inc. is ordered to pay former trader $3.5 million,
Los Angeles Times, June 29, 2011


More Blog Posts:

Many Financial Fraud Victims Don’t See It Coming, Says Survey, Stockbroker Fraud Blog, September 7, 2013

FINRA Enhances Its Arbitrator Vetting Policy, Stockbroker Fraud Blog, August 26, 2013

FINRA Fines Expected to Drop 41% in 2013, Institutional Investor Securities Blog, September 4, 2013

October 3, 2013

UBS Faces Legal Battle Over Failing Puerto Rico Bond Funds with Local Investors

As the value of proprietary closed-end bond funds invested created by a UBS AG unit (UBS) in Puerto Rico continue to drop, the financial firm and its 132 financial advisers find themselves facing what is expected to be a protracted legal battle with local investors who want their money back. The value of the Puerto Rico bond funds sank after over $10 billion were sold to investors. UBS is also contending with allegations that a number of its brokers persuaded clients to purchase the bond funds and bonds on a credit line and margin.

The UBS Puerto Rico funds are comprised of 14 close-end funds that were sold through UBS Financial Services Inc. of Puerto Rico’s registered representatives and brokers. As tension over the broader municipal bond market hit the US commonwealth, the net asset value of the funds became eroded, falling from an initial price of $10 to roughly $3 for some of the funds.

Unlike closed-end municipal bond funds domiciled in the US—these are only allowed to have leverage as high as 30% of the assets in the fund—the Puerto Rico bond funds’ leverage can reach as high as 50% of total assets (55%, under certain conditions). Such leverages can only make any losses greater.

Now, UBS Puerto Rico bond fund investors are turning to securities fraud lawyers to help them recoup their losses. According to Bloomberg News, investor accounts of what happened are very similar: Clients invested heavily in the funds, many of them were near retirement or retirees, some invested all of their portfolio in the bond funds and Puerto Rican municipal securities, and UBS financial representatives touted local and federal tax benefits for Puerto Rican investors. There were even investors that used a credit line or borrowed on margin to purchase individual Puerto Rico bonds and the closed-end funds from UBS. Many securities lawyers are questioning whether the UBS brokers that made the sales were adequately supervised or if the investments were even appropriate for some customers.

The Puerto Rico bond fund debacle comes over a year after the SEC sanctioned UBS Financial Services Inc. of Puerto Rico over its sales practices involving municipal securities. The firm paid $26.6 million over SEC allegations that in ’08 and ’09 its ex-CEO and its capital markets head made omissions and misrepresentations of material facts about the pricing and market liquidity of UBS Puerto Rico non-exchange traded closed-end funds.

UBS is not the only financial firm embroiled in the Puerto Rico bond fund crisis. Banco Santander (SAN.MC) and Banco Popular also sold municipal bond notes there.

At Shepherd, Smith, Edwards, and Kantas, LTD LLP, our Puerto Rico bond fund lawyers are investigating and filing securities claims for investors that purchased these municipal bonds from UBS, Banco Santander, or Banco Popular. Contact our securities fraud law firm today.

UBS facing legal fight over Puerto Rico bond funds gone south, Investment News, October 3, 2013

Puerto Rico's bond losses hit local investors, Reuters, September 29, 2013


More Blog Posts:
Securities Headlines: UBS to Pay $4.5M Over Unregistered Assistants, $6M Ponzi Scam Allegedly Funded Reality Show, & Cherry Picking Allegations Lead to SEC Charges, Stockbroker Fraud Blog, August 30, 2013

Muni Bonds Draw Investors But Come With Serious Risks, Stockbroker Fraud Blog, June 11, 2013

SEC Accuses Victorville, CA, Underwriter, and Others of Municipal Bond Fraud, Institutional Investor Securities Blog, April 29, 2013

September 26, 2013

JPMorgan Considers $11B Mortgage-Backed Securities Settlement

Now that US Attorney General Eric Holder has turned down JPMorgan Chase’s (JPM) offer to settle criminal and civil charges related a mortgage-backed securities probe, the financial firm is looking at a settlement of possibly $11 billion. The financial figure has gone up as talks have expanded to include additional cases with more regulators.


The MBS investigations are over residential mortgage-backed securities (RMBS) that JPMorgan, Washington Mutual (WAMUQ), and Bear Stearns (BSC) issued between 2005 and 2007. Authorities have been looking into whether JPMorgan, which the other two firms acquired during the financial crisis, misled investors of the quality of the mortgages that were backing the securities. A lot of these RMBS failed as housing prices dropped. JPMorgan says that Washington Mutual and Bear Stearns issued about 70% of these RMBS.

One possible settlement could include $4 billion in relief to consumers and a $7 billion penalty. However, according to sources familiar with the settlement talks, the two sides have not come close to agreeing on the figure and the amount could change.

JPMorgan wants any settlement to confirm that the investigations are done and there will be no additional liability related to the MBS. Aside from the expected fine, the US Justice Department may try to get JPMorgan to admit wrongdoing, which the latter might consent to so as to avoid criminal charges. However, sources say that even if a deal is reached, the issue of whether anyone should be criminally charged over the RMBS losses may not be resolved.

Also part of the settlement talks is the Federal Housing Finance Agency. FHFA wants JPMorgan to pay over $6 billion to settle claims accusing the investment bank of misleading Freddie Mac and Fannie Mae about the mortgages that they bought from the bank during the housing bubble. Meantime, NY Attorney General Eric Schneiderman, wants recovery from JPMorgan over securities that the latter bought, which were issued by Bear Stearns as that firm was failing. Schneiderman contends that investors lost $22 billion.

It was just last year that JPMorgan settled the US Securities and Exchange Commission’s MBS case for $296.6 million. However, the bank settled without denying or admitting wrongdoing.

Last week, JPMorgan settled for $920 million with regulators over the London “whale” trading investigations. That debacle cost the financial firm over $6 billion last year. JPMorgan also consented to pay $80 million for credit card practice-related claims to its sale of identity fraud protection to customers who never received these products.

The SSEK Partners Group represents high net worth individuals and institutional investors in securities arbitration, mediation, and litigation. We are here to help our clients recoup their RMBS fraud losses.

JPMorgan in talks to settle government probes for $11 billion: sources, Reuters, September 25, 2013

JPMorgan Talks Said to See Possible $11 Billion Settlement, Bloomberg, September 26, 2013


More Blog Posts:
JPMorgan to Pay $920M to Settle London Whale Debacle & $80M Over Credit-Card Practice Allegations, Institutional Investor Securities Blog, September 19, 2013

JPMorgan Could Settle “London Whale” Fiasco for $800M, Institutional Investor Securities Blog, September 17, 2013

California AG Files Lawsuit Against JP Morgan Chase Alleging Debt Collection Abuse Over 100,000 Credit Card Cases, Stockbroker Fraud Blog, May 16, 2013

September 19, 2013

JPMorgan to Pay $920M to Settle London Whale Debacle & $80M Over Credit-Card Practice Allegations

JPMorgan Chase (JPM) has agreed to pay a $920 million fine to resolve securities fraud investigations conducted by the Federal Reserve, the Securities and Exchange Commission, the Office of the Comptroller of the Currency, and the Financial Conduct Authority in London. The probes were related to the multibillion-dollar trading losses the bank is blamed for in last year’s London Whale debacle.

The regulators cited JPMorgan for “deficiencies” related to controls assessments, risk oversight, and internal financial reporting. The bank’s senior management is getting the brunt of the blame for purportedly not citing concerns about the losses to the board. However, no charges have been filed in this case against any executive.

Also, the SEC was able to extract an acknowledgement from JPMorgan that it was in violation of federal securities laws over this matter. This comes in the wake of the regulator’s decision to reverse its policy that previously let banks settle without having to deny or admit to having done anything wrong.

The admission could put JPMorgan at a disadvantage in any private securities lawsuits from investors who may have been hurt by the trading fiasco, during which complex derivatives were traded, including those amassed by one now former JPMorgan trader who became known as the London Whale. Traders are accused of betting on credit derivatives, which let them wager on certain companies’ perceived health. Authorities say that when positions started to sour, the trades were still valued in too optimistic light, with their worth purposely inflated by traders. JPMorgan would lose $600 billion in the debacle.

As part of this securities settlement, the bank will pay $200 million each to the SEC, the Federal Reserve, and the Financial Conduct Authority, and $300 million to the comptroller’s office.

The settlements, issued today, revealed even more details about the bank’s failures over the London Whale trades, including that trading loss were a result of accounting controls that were “woefully deficient” in the chief investment office, miscalculations on spreadsheets, the standard employed for traders’ valuations were “subjective,” and the group tasked with checking the estimated losses and profits of traders was comprised of just one person.

Meantime, JPMorgan has yet to reach a settlement with the Commodity Futures Trading Commission, which is trying to determine whether the bank’s trading manipulated the market for the derivatives. However, the agency’s staff is recommending that it file an enforcement action.

Also today, the Consumer Financial Protection Bureau and the comptroller’s office imposed fines against the bank over credit card practices. The financial firm consented to pay $80 million over allegations that it deceived customers with credit cards into purchasing products that were supposed to protect them from identity fraud. However, the regulators say that products, which were offered by JPMorgan Chase between ’05 and 6/ ’12, were never created.

Already, the bank has paid about $300 million to over 2 million customers over this matter. $60 million of the $80 million settlement will go to the comptroller’s office while the bureau will get the remaining $20 million. The comptroller’s office also took issue with how JPMorgan gets back debt from customers, such as depending on potentially inaccurate documentation to determine how much a customer is owed.

JPMorgan Agrees to Pay $920 Million in Fines Over Trading Loss, New York Times, September 19, 2013

JPMorgan Chase Agrees to Pay $200 Million and Admits Wrongdoing to Settle SEC Charges, SEC, September 19, 2013

US regulators order JPMorgan to pay $80M in fines, $309M in refunds over ID theft service, Fox News/AP, September 19, 2013


More Blog Posts:
JPMorgan Could Settle “London Whale” Fiasco for $800M, Institutional Investor Securities Blog, September 17, 2013

US Will Likely Arrest Two Ex-JPMorgan Chase Employees Over Trading Losses Related to the London Whale Debacle, Institutional Investor Securities Blog, August 10, 2013

Police Retirement System of St. Louis Also Suing JPMorgan Chase Executives Over “London Whale” Scandal, Institutional Investor Securities Blog, April 25, 2013

September 17, 2013

JPMorgan Could Settle “London Whale” Fiasco for $800M

According to a source knowledgeable about negotiations, JPMorgan Chase & Co. (JPM) could pay at $800 million in penalties in the investigations conducted by regulators over the “London Whale” trading scandal. The regulators are the Federal Reserve, the Securities and Exchange Commission, the British Financial Conduct Authority, and the US Office of the Comptroller Currency. The announcement of the settlement is expected shortly.

The trading fiasco involved JPMorgan trading in complex derivatives, which were amassed by a trader who was dubbed the London Whale. Traders are accused of betting on credit derivatives, which let them wager on the supposed health of certain companies. Authorities contend that when the positions began to go bad, the traders valued them in a way that was too positive. The trades would cost the financial firm over $600 billion.

Following the debacle, the bank said that it made changes to internal controls. JPMorgan maintains that it was the one that detected the traders’ questionable activities and notified the authorities.

According to those in the know, as part of the settlement with regulators, the financial firm will admit it should have detected the problem sooner and that its lax controls let traders in their London unit construct the risky position and conceal the losses. The admissions come in the wake of the SEC’s recent reversal of its longtime policy that used to let all banks settle without denying or admitting to wrongdoing.

Also, JPMorgan has yet to resolve matters with the Commodity Futures Trading Commission, which is the regulator that oversees the market where the London Whale losses happened. The agency has been looking at whether the firm amassed a position so huge that it was able to manipulate the market for derivatives and it reportedly plans to impose its own penalty later this year.

This week, a formal indictment was announced against two ex-JPMorgan employees. Prosecutors filed criminal charges against, trader Julien Grout and manager Javier Martin-Artajo last month for allegedly concealing losses from the trades by overstating their positions’ value in the purported hopes that hundreds of millions of dollars in losses would go undetected. They are charged with falsifying bank records, wire fraud, and contributing to regulatory filings that were false.

However, both men are still in Europe and extraditing them could be difficult if not impossible. A third trader, Bruno Kisi, has not been charged. He is the one that was dubbed the London Whale because his wagers were so big. However, Iksil and authorities in New York arrived at a nonprosecution deal which involves him cooperating against Grout and Martin-Artajo.

Meantime, the Federal Bureau of Investigation and federal prosecutors are still looking into the bank’s losses in the London Whale fiasco.

JPMorgan Chase Is Said to Admit Fault in Settlement of Trade Loss, NY Times, September 16, 2013

U.S. indicts ex-traders in JPMorgan 'London Whale' scandal
, Reuters, September 16, 2013

JPMorgan could pay $800 million in penalties in 'London Whale' case, Los Angeles Times, September 16, 2013


More Blog Posts:
US Will Likely Arrest Two Ex-JPMorgan Chase Employees Over Trading Losses Related to the London Whale Debacle, Institutional Investor Securities Blog, August 10, 2013

Police Retirement System of St. Louis Also Suing JPMorgan Chase Executives Over “London Whale” Scandal, Institutional Investor Securities Blog, April 25, 2013

California AG Files Lawsuit Against JP Morgan Chase Alleging Debt Collection Abuse Over 100,000 Credit Card Cases, Stockbroker Fraud Blog, May 16, 2013

September 10, 2013

Five Years After Lehman’s Bankruptcy, How is the US Financial System Doing Now?

It was nearly five years ago on September 15, 2008 when the public learned that Lehman Brothers had gone bankrupt, resulting in billions of dollars of losses on a financial system already struggling with a housing market that was failing, as well as a growing credit crisis. Also, Merrill Lynch (MER) would be forced to join with Bank of America (BAC), the US car industry was in trouble, and insurer AIG stood on the brink of collapse. Now, while there has the economy has somewhat recovered, many Americans can’t help but worry that such a financial meltdown could happen again.

Back then, Wachovia (WB) was also in peril of going down and Washington Mutual (WAMUQ) was failing miserably—to become the biggest US banking failure to date—and government and financial industry leaders scrambled to save what they could. Bailouts were issued and emergency measures taken including: a federal takeover of housing finance giants Freddie Mac and Fannie Mae, which kept the housing market going by allaying worries that the two entities would default on bonds,the guaranteeing of money market mutual funds that the then-trillion dollar industry depended on for the business short-term funding as well as retirement, and the setting up of the Troubled Asset Relief Program (allowing the Treasury to help put back confidence in banks via the buying of equities of securities in many of these banks and recapitalizing the system.

In a USA Today article, ex-US senator Christopher Dodd said that he believes there will be another crisis; only this one could also involve China, Brazil, and India—not just the US and the European continent. Meantime, while US Chamber of Commerce's Center for Capital Markets Competitiveness CEO and President David Hirschmann said that a crisis as big as the one in 2008 is not as likely, he predicts there will still be failures. He also said that it is unclear whether we’ve established a better system for identifying problems and risks.

In August, US President Obama delineated a proposal to rework the country’s housing finance-system, which would phase out Freddie and Fannie. While putting them under government control a few years back provided some reprieve, this was never meant to be permanent solution to the problems that happened.

Also in the article, ex-US Treasury Secretary Henry Paulson said he wants broader industry reform and while he believes the Dodd-Frank Wall Street Reform and Consumer Act is a big move n the right direction, he expressed the need for a reworking of the federal financial regulatory agencies and a closer examination of their duties, which sometimes overlap. There also have been calls from government watchdogs for reforms to the biggest US banks because of concerns that their interrelatedness and complexities make them an ongoing risk to the financial system.

Shepherd Smith Edwards and Kantas, LTD LLP has helped many clients recoup their investments losses that they sustained during the 2008 economic crisis. Our securities fraud attorneys represent investors throughout the US.

2008 financial crisis: Could it happen again?, USA Today, September 9, 2013

Was Lehman failure really 'best and only outcome?', CNBC, September 11, 2013


More Blog Posts:
Securities Headlines: UBS to Pay $4.5M Over Unregistered Assistants, $6M Ponzi Scam Allegedly Funded Reality Show, & Cherry Picking Allegations Lead to SEC Charges, Stockbroker Fraud Blog, August 30, 2013

NY AG’s ARS Lawsuit Against Charles Schwab & Co. Are Revived by Appeals Court, Institutional Investor Securities Blog, August 29, 2013

JPMorgan Found Liable in Billionaire’s Subprime Mortgage Lawsuit for Over $50M in Damages, Institutional Investor Securities Blog, August 28, 2013

September 7, 2013

Morgan Keegan to Pay $60,000 Fine Over Inadequate Supervision Over SBA Pools and Sales

Morgan Keegan & Co. has agreed to pay the Financial Industry Regulatory Authority $60,000 over allegations that its Small Business Administration Desk bought small business loans guaranteed by the gov’t from regional banks in this country and then pooled together the loans with qualities that were similar, securitizing them into SBA pools and then selling them to institutional clients.

When the demand for these pools started to go down, the inventory at the Desk went up a lot and stayed over Morgan Keegan’s allowable levels so that they seemed lower than what was actual and therefore in compliance with what was allowed. As a result, the head trader went into fake pool trades totaling about $82 million.

Per FINRA’s findings, because of the fake trades, Morgan Keegan thought its SBA loan levels went down down by $75 million. Also, aside from allegedly making the false trades happen, the trader moved forward the dates of settlement on a repeated basis, continuing to move the date ahead whenever a settlement date was approaching. This gave him more time so he could sell the SBA pools, leading to the generation of correct and cancel tickets for trades that went on for several months. The head trader later admitted his wrongdoing and Morgan Keegan fired him.

The SRO found that Morgan Keegan's supervisory system and written supervisory procedures (WSP) for government loans were not adequate enough that they were able to prevent the fictitious trading that the head trader engaged in. FINRA also said that the firm lacked a way to monitor SBA loans that were more than four months old, as well as aged SMA pools, nor did it have a system for comparing and confirming ex-clearing transactions or one to assess transactions that were modified or cancelled to determine if they were reasonable.

FINRA says that Morgan Keegan did not properly address the SBA Desk inventory positions’ marking because the firm’s WSPs mandated that SBA pools get marked monthly, rather than daily. The WSPs did not properly prevent the head trader from approving his own transactions without a supervisor overseeing his actions.

Even as it submitted its Letter of Acceptance, Waiver, and Consent to FINRA, accepting the fine and ensure and consenting to the sanctions described, Morgan Keegan did not deny or admit to any wrongdoing.

Financial Industry Regulatory Authority


More Blog Posts:
Previous Dissent by Arbitrator is Not Reason to Vacate Award Morgan Keegan Was Ordered to Pay Investors, Says District Court, Stockbroker Fraud Blog, April 8, 2013

Court Upholds Ex-NBA Star Horace Grant's $1.46M FINRA Arbitration Award from Morgan Keegan & Co. Over Mortgage-Backed Bond Losses, Stockbroker Fraud Blog, October 30, 2012

Morgan Keegan Must Buy Back Auction-Rate Securities and Pay $110,500, Says District Judge, Institutional Investor Securities Blog, February 12, 2013

Continue reading "Morgan Keegan to Pay $60,000 Fine Over Inadequate Supervision Over SBA Pools and Sales" »

September 2, 2013

NCUA Accuses Morgan Stanley Of $556M Mortgage-Backed Securities Fraud

The National Credit Union Administration is suing Morgan Stanley (MS) for mortgage-backed securities fraud. In its MBS lawsuit, the NCUA said that it misrepresented $556 million of the securities that it sold to two credit unions, Western Corporate Federal Credit Union and U.S. Central Federal Credit Union, which are now no longer in operation.

Morgan Stanley is just one of several banks, including Barclays (BCS) and Goldman Sachs (GS) to get hit by securities cases accusing them of strapping such unions with millions of dollars in beleaguered loans. The bank and its affiliates are being blamed for purportedly making misleading statements about the risks involved, as well as about the underwriting standards for originating home loan securities that sold between 2006 and 2007.

According to the regulatory agency’s MBS lawsuit, the originators were systematic about moving away from the underwriting guidelines stated in the offering documents and that the securities were headed toward failure from “inception." Because of this, contends the complaint, WesCorp and US Central suffered losses in the million dollars as the housing market collapsed and they eventually became insolvent. They both were put into conservatorship and later liquidated.

NCUA believes that it was the financial firms’ selling of faulty securities that led to the credit union industry crisis. The regulator is seeking civil penalties from Morgan Stanley.

As the receiver for credit unions that failed, NCUA has submitted numerous residential mortgage-backed securities fraud lawsuits against firms on Wall Street. Already, it has collectively settled its RMBS fraud cases against Citibank (C), Bank of America (BAC), HSBC, and Deutsche Bank (DB) for over $335 million.

NCUA sues Morgan Stanley over sale of $566 million in mortgage-backed securities, Washington Post, August 30, 2013

NCUA Sues Morgan Stanley over Sale of $566 Million in Faulty Securities, NCUA, August 30, 2031

National Credit Union Administration


More Blog Posts:
NY AG’s ARS Lawsuit Against Charles Schwab & Co. Are Revived by Appeals Court, Institutional Investor Securities Blog, August 30, 2013
Ameriprise Financial, Securities America, & Three Other Brokerage Firms Reach $9.6M Non-Traded REIT Securities Settlement with Massachusetts Financial Regulator, Stockbroker Fraud Blog, May 22, 2013

JPMorgan Found Liable in Billionaire’s Subprime Mortgage Lawsuit for Over $50M in Damages, Institutional Investor Securities Blog, August 28, 2013

August 29, 2013

NY AG’s ARS Lawsuit Against Charles Schwab & Co. is Revived by Appeals Court

A New York Appellate Division’s panel has unanimously agreed to revive the state attorney general’s auction-rate securities lawsuit against Charles Schwab and Co. (SCHW). The 2009 securities case accuses the financial firm of committing fraud in its sale and marketing of the financial instruments. The decision reverses a state judge’s ruling to throw out the complaint.

According to the NY ARS lawsuit, the broker-dealer’s brokers made false representations that the securities were safe and liquid. In a 4-0 decision, the appeals panel said that the state had given enough evidence to merit a trial on two claims submitted per its Martin Act, a 1921 law that gives the attorney general of New York the ability to prosecute fraud without proof of intent. Under the law fraud is defined as acts that involve misleading or fooling the public.

Per the panel’s ruling, the claims are revived only as it pertains Schwab’s alleged misconduct before 9/5/07, which is when the first ARS sold by Schwab failed. The state wants the company to repurchase securities from customers and pay civil penalties and restitution.

However, the appeals court also upheld the dismissal of two claims not submitted under the Martin Act. It said that NY’s AG lacked standing to make them. Then-Attorney General Andrew Cuomo is the one that brought the lawsuit.

Unlike Merrill Lynch (MER), Citigroup (C), and UBS (UBS), Schwab was one of the brokerage firms that opted not to settle with Cuomo over ARS fraud claims. A Schwab spokesman maintains that the financial firm did not aggressively market auction-rate securities and that 98% of the ARS have ben redeemed from customers.

Auction-Rate Securities
ARS are long-term debt with interests that periodically reset via auctions. Banks fled the $330 billion auction-rate securities market in early 2008 and the market failed. Thousands of investors were left with illiquid securities they couldn’t sell even though financial representatives told them that the financial instruments were liquid, like cash.

Contact our ARS securities law firm today.

NY AG Gets Charles Schwab ARS Claims Revived, Law360, August 27, 2013

N.Y. appeals court revives claims against Charles Schwab, Reuters, August 27, 2013

Auction-Rate Securities


More Blog Posts:
JPMorgan, Goldman Sachs, Bank of New York Mellon, Charles Schwab Disclose Market-Based NAVs of Money Market Mutual Funds, Stockbroker Fraud Blog, February 7, 2013

UBS Fails in Bid to Block $125M ARS Arbitration Case by Allina Health System, Institutional Investor Securities Blog, February 14, 2013

Credit Suisse Must Face ARS Lawsuit Over Subsidiary Brokerage’s Alleged Misconduct, Says District Court, Stockbroker Fraud Blog, January 11, 2013

August 28, 2013

JPMorgan Found Liable in Billionaire’s Subprime Mortgage Lawsuit for Over $50M in Damages

In the State Supreme Court in Manhattan, Justice Melvin Schweitzer found JPMorgan Chase (JPM) liable for breach of contract when it put high-risk subprime mortgages in an account held by investor Leonard Blavatnik. Now, the financial firm must pay the Russsian-American billionaire more than $50 million in damages--$42.5 million for the breach and 5% interest from beginning May 2008. However, JPMorgan was not found liable for negligence.

Blavatnik, who Forbes magazine says is the 44th wealthiest person in the world, filed his securities fraud case against JPMorgan in 2009. He contended that the investment bank lost over $100 million on about a $1 billion investment made by CMMF L.L.C., which is a fund that Access Industries, his company, created. He says JPMorgan promised him that the money would be invested conservatively but instead breached a 20% mortgage-backed securities limit when it misclassified securities that were backed by a subprime loans pool—ABS home-equity loans—as asset-backed instead of as MBSs.

Access, Blavatnik’s company, claims that the bank kept holding the securities even though it knew that they were not right for the portfolio. In May 2008, CMMF shut down the account.

Judge Schweitzer found the bank liable for going beyond the cap limit while rejecting the firm’s claim that it was a practice in the industry to separately classify mortgages securities and home equity loans because they don’t a carry the same risk. Regarding the negligence claim, he said that the mortgage securities were generally safe when they were purchased and that the financial firm behaved reasonably when it suggested CMMF wait instead of selling at such low prices.

Meantime, JPMorgan also is contenting with other investigations and lawsuits over the way it dealt with its mortgage business during the economic crisis of 2008.

Our MBS fraud lawyers represent investors throughout the US.

Judge Rules Against JPMorgan in Suit Over Billionaire’s Losses, The New York Times/Reuters, August 26, 2013

Billionaire Blavatnik Wins $42.5 Million JPMorgan Award, Bloomberg, August 26, 2013


More Blog Posts:
Liquidators of Bear Stearns Hedge Funds Sue S & P, Moody’s and Fitch for $1.12B, Institutional Investor Securities Blog, August 6, 2013

Former Jeffries Director Charged with Securities Fraud Crimes and Sued By SEC Over Alleged Residential Mortgage-Backed Securities, Stockbroker Fraud Blog, February 11, 2013

UBS Fails in Bid to Block $125M ARS Arbitration Case by Allina Health System, Institutional Investor Securities Blog, February 14, 2013

August 23, 2013

Ex-JPMorgan Traders Get Criminal Charges Over the Allegedly Fraudulently Inflating Investments’ Value to Hide Massive Trading Losses

Earlier this month our securities law firm reported that the US Department of Justice was planning to bring criminal charges against Julien Grout and Javier Martin-Artajo, two ex-JPMorgan Chase & Co. (JPM) trading specialties. The charges, including conspiracy, wire fraud, falsification of books and records, and falsification of SEC records, now have been filed. The government contends that they conspired to conceal huge trading losses and made false statements to regulators.

According to U.S. Attorney Preet Bharara, the men purposely lied about the “fair value of billions of dollars in assets” on the firm’s books to conceal massive losses that continued to grow each month. He says that the trading losses would eventually total over $6 billion and involved credit default swaps and other synthetic derivative products.

The portfolio had tripled in worth to about $157 billion in net national positions between 2011 and 2012, and JPMorgan made about $2 billion in profits from 2006 through 2012. But when traders began to take large derivative positions, there were big financial losses and the portfolio began to lose money—over $185 million between January and February of 2012 alone.

The defendants are accused of inflating and manipulating the position marks’ value in the portfolio to reach profit and loss objectives. They allegedly sought to conceal the actual extent of the losses. Meantime, the SEC is also naming Martin-Artajo and Grout in a securities lawsuit over related alleged misconduct.

E-mails, texts, phone call records, chat transcripts, accounting records, and other documents were used in the investigation. While JPMorgan is not a defendant in either case, it is accused of compliance deficiencies over this matter.

If you suspect that your losses are due to securities fraud, do not hesitate to contact The SSEK Partners Group today.

Securities and Exchange Commission v. Javier Martin-Artajo and Julien G. Grout, SEC, August 14, 2013

Read the SEC Complaint (PDF)


More Blog Posts:
US Will Likely Arrest Two Ex-JPMorgan Chase Employees Over Trading Losses Related to the London Whale Debacle, Institutional Investor Securities Blog, August 10, 2013

California AG Files Lawsuit Against JP Morgan Chase Alleging Debt Collection Abuse Over 100,000 Credit Card Cases, Stockbroker Fraud Blog, May 16, 2013

Bank of America, JPMorgan Chase Among Banks Sued by Danish Pension Funds in Credit Default Swaps Lawsuit, Institutional Investor Securities Blog, August 15, 2013

August 17, 2013

SEC and DOJ Sue Bank of America Over Alleged $850M RMBS Fraud

Bank of America (BAC) and two subsidiaries are now facing SEC charges for allegedly bilking investors in an residential mortgage-backed securities offering that led to close to $70M in losses and about $50 million in anticipated losses in the future. The US Department of Justice also has filed its securities lawsuit over the same allegations.

In its securities lawsuit, submitted in U.S. District Court for the Western District of North Carolina, the Securities and Exchange Commission contends that the bank, Bank of America Mortgage Securities (BOAMS) and Banc of America Securities LLC, which is now known as Merrill Lynch, Pierce, Fenner & Smith, conducted the RMBS offering, referred to as the the BOAMS 2008-A and valued at $855 million, in 2008. The securities was sold and offered as “prime securitization suitable for the majority of conservative RMBS investors.

However, according to the regulator, Bank of America misled investors about the risks and the mortgages’ underwriting quality while misrepresenting that the mortgage loans backing the RMBS were underwritten in a manner that conformed with the bank’s guidelines. In truth, claims the SEC, the loans included income statements that were not supported, appraisals that were not eligible, owner occupancy-related misrepresentations, and evidence that mortgage fraud was involved. Also, says the regulator, the ratio for original-combined-loan-to-value and debt-to-income was not calculated properly on a regular basis and, even though materially inaccurate, it was provided to the public.

The Commission believes that because there were a material number of loans that were not in compliance with the bank’s underwriting guidelines and concentration of risky wholesale loans were not proportionate, BOAMS 2008-A sustained an 8.05 percent cumulative net loss rate through June of this year, which is the greatest loss of rate of any BOAMS securitization, comparably speaking, and this violated of the Securities Act of 1933.

As for the Justice Department’s RMBS fraud case, which is also a civil suit, the government says that not only did Bank of America lie to investor about the risks, but also it made false statements after purposely not conducting appropriate due diligence and also including in the securitization high-risk mortgages of a disproportionate quantity that were originated via third party mortgage brokers.

This securities lawsuit is part of President Obama’s Financial Fraud Enforcement Task Force’s RMBS Working Group’s ongoing initiatives to target misconduct involving this section of the market. U.S. Attorney Tompkins says that now, Bank of America will have to deal with consequences arising from its alleged actions.

The SSEK Partners Group helps institutional investors and others recover their RMBS fraud losses. Contact us today to request your free case assessment. Our securities attorneys have helped thousands of investors recoup their investment losses.

SEC Charges Bank of America With Fraud in RMBS Offering, SEC, August 6, 2013

Department of Justice Sues Bank of America for Defrauding Investors in Connection with Sale of Over $850 Million of Residential Mortgage-Backed Securities, DOJ, August 6, 2013


More Blog Posts:
Citigroup Must Pay $11M Claimant for Royal Bank of Scotland Investment Losses, Says FINRA Arbitration Panel, Institutional Investor Securities Blog, August 7, 2013

Texas Securities Case: SEC Alleges Ponzi Scam Involving Virtual Currency Bitcoin, Stockbroker Fraud Blog, July 28, 2013

Mandatory Securities Arbitration vs. Court? The Debate Rages Past the Quarter-Century Mark, Stockbroker Fraud Blog, July 4, 2013

August 15, 2013

Bank of America, JPMorgan Chase Among Banks Sued by Danish Pension Funds in Credit Default Swaps Lawsuit

In U.S. District Court for the Northern District of Illinois, Danish pension funds (and their investment manager) Unipension Fondsmaeglerselskab, MP Pension-Pensionskassen for Magistre & Psykologer, Arkitekternes Pensionskasse, and Pensionskassen for Jordbrugsakademikere & Dyrlaeger are suing 12 banks accusing them of conspiring to take charge of access and pricing in the credit derivatives markets. They are claiming antitrust violations while contending that the defendants acted unreasonably to hold back competitors in the credit default swaps market.

The funds believe that the harm suffered by investors as a result was “tens of billions of dollars” worth. They want monetary damages and injunctive relief.

According to the Danish pension funds' credit default swaps case, the defendants inflated profits by taking control of intellectual property rights in the CDS market, blocking would-be exchanges’ entry, and limiting client access to credit-default-swaps prices, and

This securities case comes four years after the US Justice Department acknowledged that it had begun an investigation into possible anticompetitive activities involving credit derivatives clearing, and trading (a probe that is ongoing) and just a few months after the Sheet Metal Workers Local No. 33 Cleveland District Pension Plan sued the banks, Markit, and ISDA also for allegedly taking control of the CDS market, which it says resulted in customers being overcharged some $7 billion annually. The plaintiff contends that there may be billions of dollars in damages and it wants treble damages. Last month, it was the European Commission's turn to claim that 13 banks, ISDA, and Markit worked together to stop CDSs from being able to trade on open exchanges.

If you think you may have been the victim of securities fraud involving credit default swaps, you should speak with one of our experienced CDS fraud lawyers today.

There are over a dozen defendants in the Danish pension funds' CDS fraud case including:

J.P. Morgan Chase & Co. (JPM)
Citigroup Inc. (C)
Morgan Stanley (MS)
Bank of America Corp. (BAC)
• Credit Suisse Group AG (CS)
Deutsche Bank AG (DB)
UBS AG (UBS)
• Royal Bank of Scotland Group PLC (RBS)
• Goldman Sachs Group Inc. (GS)
• Markit Group Ltd, a financial data provider
• International Swaps and Derivatives Association (ISDA)

Pensions Sue Banks Over Credit-Default Swaps, Wall Street Journal, July 12, 2013

Danish funds sue banks in U.S. for blocking CDS exchange-trading, Reuters/Yahoo, July 12, 2013


More Blog Posts:
US Will Likely Arrest Two Ex-JPMorgan Chase Employees Over Trading Losses Related to the London Whale Debacle, Institutional Investor Securities Blog, August 10, 2013

Morgan Stanley Reports a Possible $1.7B in Mortgage-Backed Securities Losses, Institutional Investor Securities Blog, August 16, 2011

8/31/11 is Deadline for Opting Out of $100M Oppenheimer Mutual Funds Class Action Settlement, Stockbroker Fraud Blog, August 17, 2011

August 10, 2013

US Will Likely Arrest Two Ex-JPMorgan Chase Employees Over Trading Losses Related to the London Whale Debacle

The United States Government is expected to announce criminal charges against two ex-JPMorgan Chase & Co. (JPM) employees over allegations that they tried to cover up trading losses last year related to the London Whale fiasco. The ex-employees are Javier Martin-Artajo, the executive who was in charge of supervising the trading strategy, and Julien Grout, a trader that worked under him. Prosecutors also may impose penalties on the investment bank over this matter.

The securities fraud allegations stem from a probe into whether JPMorgan employees at its London offices tried to inflate certain trades’ values on the banks’ books, and charges could be filed over the falsification of documents and the mismarking of books. The criminal probe also has looked at whether the firm’s London traders engaged in the type of market manipulation that let them inflate their own positions’ value.

JPMorgan first revealed the losses at the London office May 2012. The trades were made by Bruno Iksil, dubbed the London Whale because of the vastness of his holdings. The bank would go on to lose over $6.2 billion when the trades failed. Other traders also were purportedly involved. They used derivatives to bet on the health of huge corporations.

Martin-Artajo oversaw Iksil, while Grout helped the latter value his trading book. The bank fired all three men last year, while several senior executives were reassigned or left the bank. CEO Jamie Dimon suffered a 50% pay cut.

Meantime, The FBI and the US Justice Department also have been investigating the trading loss, with prosecutors obtaining Iksil’s help. Reuters says that Iksil will not be charged.

Also, JPMorgan is working on a deal with the SEC for the latter to end its probe into the trading loss. However, according to a source, the agreement still could include allegations of failures to supervise, execute proper controls, share information internally, and other claims, and the firm could be reprimanded and ordered to pay a fine. The New York Times is reporting that the regulator wants the firm to admit wrongdoing, which is a departure from the SEC’s general “neither admit nor deny wrongdoing,” policy. The Commission has been trying to hold firms and their representatives more accountable in certain cases, especially in the wake of concerns that they get off too easily when it comes to financial fraud and other wrongdoings.

All of this comes five months after a Senate subcommittee published a 301-page report accusing the bank of hiding losses, misleading investors, and fooling regulators. In Britain, the Financial Conduct Authority also intends to fine JPMorgan.

Following the London Whale scandal, the bank has reworked its controls. It also began its own probe into the trades, giving over its findings to the Senate and federal authorities.

Last year’s trading loss brouhaha is not the only regulatory matter JPMorgan is dealing with. It is facing inquiries from two European countries, a state regulator, and several federal agencies here. Authorities also are looking at JPMorgan in connection with its mortgage business during the financial crisis and whether there are problems with its debt collection practices.

U.S. Said to Plan Charges Against Ex-JPMorgan Employees, Bloomberg, August 12, 2013

U.S. Said to Plan to Arrest Pair in Big Bank Loss
, The New York Times, August 9, 2013


More Blog Posts:

JPMorgan Chase Ordered to Remedy Risk Management Breakdowns Involving “London Whale” Trades, Institutional Investor Securities Blog, January 17, 2013

Police Retirement System of St. Louis Also Suing JPMorgan Chase Executives Over “London Whale” Scandal, Institutional Investor Securities Blog, April 25, 2013

California AG Files Lawsuit Against JP Morgan Chase Alleging Debt Collection Abuse Over 100,000 Credit Card Cases, Stockbroker Fraud Blog, May 16, 2013

August 7, 2013

Citigroup Must Pay $11M Claimant for Royal Bank of Scotland Investment Losses, Says FINRA Arbitration Panel

A FINRA arbitration panel has decided that Citigroup (C) and Edward J. Mulcahy, one of the firm’s ex-branch managers, has to pay $11 million to investor John Fiorilla. Fiorilla is a legal adviser to the Holy See who went to Citigroup because he wanted to de-risk a $16 million stock position in Royal Bank of Scotland (RBS).

According to the claimant, he asked Citigroup to employ derivatives to assist in hedging his position against losses but the firm did not fulfill the request. When the market failed in 2008 his account suffered over $15 million in losses.

Fiorilla is claiming breach of contract, failure to control and supervise, breach of fiduciary duty, gross negligence, negligence, and other violations. His claim against Mulcahy is over an alleged failure to supervise.

The FINRA arbitration panel says Citigroup has to pay $10,750,000 and 9% interest from 5/1/09 until full payment of the award is reached. Mulcahy, who retired from Citigroup recently, must pay $250,000 and interest.

Citigroup denies the securities fraud allegations and is disappointed with the arbitration ruling.

Arbitration
Arbitration is one venue through which securities disputes between parties are resolved. To be eligible to be heard before a FINRA panel, cases must involve a FINRA-registered individual or entity and an investor (including broker v. investor, broker-dealer v. investor, brokerage firm and stockbrokers v. investors) or multiple FINRA-registered entities and/or individuals (such as broker v. broker, broker v. brokerage firm). Claims need to be submitted within six years that the events leading to the dispute happened.

Investors have to arbitrate before FINRA if this is mandated in their written agreement together, the dispute is with a FINRA member, and involves that member’s securities business. Industry members must arbitrate their disputes with each other before FINRA if a brokerage firm/broker’s securities business activities are involved. Brokerage firms and brokers have to enter into FINRA arbitration if the investor requests it.

The best way to increase the chances your FINRA securities case will come out in your favor is to hire an experienced FINRA arbitration lawyer.

Citigroup Ordered to Pay Investor $11 Million, On Wall Street, August 10, 2013

Arbitration Overview, FINRA


More Blog Posts:
Texas Money Manager Sued by SEC and CFTC Over Alleged Forex Trading Scam, Stockbroker Fraud Blog, August 6, 2013

GAO Wants SEC to Look At Other Criteria for Who Qualifies As An Accredited Investor
, Institutional Investor Securities Blog, July 31, 2013

Sonoma County Files Securities Lawsuit Over Libor Banking Debacle, Institutional Investor Securities Blog, July 2, 2013

July 29, 2013

Both Sides Rest in Ex-Goldman Sachs Bond Trader Fabrice Tourre's Trial For Alleged Mortgage-Backed Securities Fraud

In federal court, both the Securities and Exchange Commission and former Goldman Sachs Group (GS) vice president Fabrice Tourre have both rested their case in the civil trial against the bond trader. Tourre is accused of MBS fraud for his alleged involvement in a failed $1 billion investment connected to the collapse of the housing market. After the SEC finished presenting its evidence, U.S. District Judge Katherine Forrest turned down Tourre’s bid to have the securities case against him thrown out. He denies wrongdoing and says that his career is in now in shambles.

According to the regulator, Tourre purposely misled participants in the Abacus 2007-AC about the involvement of John Paulson’s hedge fund Paulson and Co. The Commission contends that Tourre concealed that Paulson helped select the portfolio of the subprime MBS underlying Abacus—a $2 billion offering linked to synthetic collateralized debt obligations. The latter then shorted the deal by betting it would fail.

The SEC’s complaint points to Tourre as primarily responsible for the CDO, which it says says he devised and prepped marketing collateral for and was in direct contact with investors. The regulator believes that by failing to disclose Paulson’s role, Tourre broke the law. They also contend that instead the bond trader instead told customers that as an Abacus investor, Paulson’s hedge fund expected the securities to go up.

Tourre also is accused of misleading ACA Capital Holdings, which Goldman retained to supervise the deal, about Paulson’s role. ACA would go on to invest in Abacus and insure it.

When the mortgage securities underlying the Abacus became toxic, its investors lost $1 billion. Meantime, the short positions by Paulson made about the same.

Testifying on his own behalf at the civil trial, Tourre told jurors that after the SEC filed its securities fraud case against him in 2010, for over a year Goldman Sachs made him take a leave of absence but kept paying his $738,000 base salary. In 2007, Tourre said, his salary and bonus was $1.7 million, which was tied to profits he made for the firm.

Goldman has already paid $550 million to settle SEC charges against it over the ABACUS 2007-AC1 debacle. The Commission accused the financial firm of misleading investors about the subprime mortgage product.

As part of settling, the financial firm admitted that its marketing materials for the subprime product had incomplete data and it made a mistake when stating that ACA chose the reference portfolio without revealing Paulson’s part in the selection process or that the latter’s interests were counter to that of the collateralized debt obligation investors.

Unfortunately, when the housing market failed, a lot investors that placed their money in subprime mortgage products suffered huge losses, many of which were a result of broker misconduct, fraud, misrepresentations, omissions, and other wrongdoing. At Shepherd Smith Edwards and Kantas, LTD, LLP, our mortgage-backed securities lawyers have been helping institutional and individual investors recoup these losses.


Fabrice Tourre tells jurors about paid leave at Goldman after SEC suit, The Washington Post, July 26, 2013

SEC fraud case against ex-Goldman trader Tourre in homestretch, Reuters, July 29, 2013

Goldman Sachs to Pay Record $550 Million to Settle SEC Charges Related to Subprime Mortgage CDO, SEC, July 15, 2010


More Blog Posts:
SEC's Antifraud Claim Against Goldman Sachs Executive Fabrice Tourre Won’t Be Reinstated, Says District Court, Institutional Investor Securities Blog, December 3, 2012

Goldman Sachs Settles SEC Subprime Mortgage-CDO Related Charges for $550 Million, Stockbroker Fraud Blog, July 30, 2012

Investor in Goldman Sachs Special Opportunities Fund 2006 to Get $2.5M FINRA Arbitration Award For Allegedly Unsuitable Investment, Stockbroker Fraud Blog, May 27, 2013

July 17, 2013

Highland Capital Sues Credit Suisse For $350M Over Resort Loans

Entities of Highland Capital Management LLP are suing Credit Suisse Group AG (CS) for over $350M. The plaintiffs are Haygood LLC and Allenby LLC. They claim that the financial firm marketed loans for high-end residential communities using appraisals that were deceptive and not reasonable. The disagreement is related to dividend capitalization loans for the Turtle Bay Resort, the Yellowstone Club, Ginn Clubs & Resorts and Rhodes Homes and the Park Highlands Master Planned Community. The securities case was filed in New York State Supreme Court.

According to the financial fraud lawsuit, managed investment funds that served as the loans’ lenders assigned the plaintiffs the claims. The latter are accusing Credit Suisse of working with “compliant stooges” in global appraisal firms to overvalue the communities that secured the loans so that lenders would invest in under-collateralized loans that would go on to fail.

A spokesperson for Credit Suisse says that Texas-based debt manager Highland Capital Management and entities related to it are behind this securities case and that this is one sophisticated investor’s “unfounded” effort to wrongly use the legal system to get back losses. The investment bank says it will fight the case.

The very same day that the securities complaint was filed, Credit Suisse sued the Highland Capital entities, contending that they did not meet they commitments to pay for and buy commercial loan interests. The bank said this cost Credit Suisse Loan Funding LLC and its bank in the Cayman Islands tens of millions of dollars in damages.

According to Credit Suisse’s securities lawsuit, a number of trades were made in 2008 between May and July that involved the bank consenting to purchase portions of commercial loans with a $78 million or greater face value. Credit Suisse says that Highland has yet to pay what is owed on the interest or loans.

Just one day before, and in Dallas state court, Claymore Holdings LLC sued Credit Suisse, Credit Suisse Securities USA LLC, and the Cayman Islands branch contending that in 2007, the bank’s brokers employed an inflated and unreasonable appraisal of a Nevada-based residential and resort master-planned community to market a refinancing loan of $540 million.

Claymore Holdings is the assignee of investment funds that behaved as the real estate deal’s lenders. Credit Suisse says that Highland owns Claymore, which contends that it would never have closed on the refinancing deal had it received an accurate appraisal of the resort, and not only did Credit Suisse use an appraiser to market the loan that was biased but the bank earned $11 million for helping to make the loan happen.

The SSEK Partners Group represents institutions that have sustained investment losses due to securities fraud. Contact our securities lawyers today.

Credit Suisse Sued by Highland Capital Over Resort Loans, Bloomberg, July 17, 2013

Credit Suisse, Highland Face Off Over RE Loan Trades, Law 360, July 17, 2013


More Blog Posts:
Credit Suisse Must Face ARS Lawsuit Over Subsidiary Brokerage’s Alleged Misconduct, Says District Court, Stockbroker Fraud Blog, January 11, 2013

Barclays LIBOR Manipulation Scam Places Citigroup, Credit Suisse, Deutsche Bank, JP Morgan Chase, and UBS Under The Investigation Microscope, Institutional Investor Securities Blog, July 16, 2012

Texas Judge Throws Out Verizon Retirees’ Class Action Lawsuit Over $8.4B Pension Sales to Prudential, Stockbroker Fraud Blog, July 9, 2013

July 12, 2013

The 21st Century Glass-Steagall Act Seeks to Separate Investment and Commercial Banking Again

Senators Elizabeth Warren (D-Mass) and John McCain (R-Ariz.) have joined forces to unveil the 21st Century Glass-Steagall Act, which aims to create a definite divide between speculative activities and traditional banking. This is a modern day revision of the original Glass-Steagall legislation from the 1930’s, which placed definite limits on the types of business that regulated banks were allowed to conduct. That act was repealed 14 years ago. Then, the mergers that would form the biggest banks existing today happened. Senators Angus King (I-Maine), and Maria Cantwell (D-Wash.) also are co-sponsoring this bill.

Warren, who is spearheading the legislation, noted that the nation’s largest banks continue to take part in risky practices that could again jeopardize our economy. She said she is prepared for a tough fight, seeing as it may be hard to drum up enough support in Congress or get the Treasury Department or Federal Reserve to jump on board. If the 21st century version of Glass-Steagall becomes law, a lot of these banks might have to give up their trading operations.

Fond feelings for the 1993 Glass-Steagall Act could help build interest on this new version. The original act, unlike the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 was just 37 pages long and easy to implement. It also made sure that banks that use federal deposit insurance did not get involved in volatile activities on Wall Street, including certain kinds of trading. No crisis like the one that happened in 2008 occurred while the original Glass Steagall Act was in place—although some critics don’t believe that it would have stopped that economic meltdown from happening.

Under the 21st Century Glass-Steagall Act, banks that accept deposits that are federally insured would have to concentrate on traditional lending and, once again, couldn’t get involved in high-risk securities trading. Senator McCain, who actually voted to overturn the original Glass-Steagall when he voted for the Gramm-Leach Bliley Act in 1999 is now lamenting that when key terms of the 1933 Act were repealed, the wall existing between commercial and investment banks broke down, causing “greed” and too much “risk-taking” to grow in the world of banking.

The idea of reviving the law has also gained the support of certain Wall Street old timers, including Sanford “Sandy” who created Citigroup (C) in the 1990s. He believes that getting rid of the prohibitions established by the first Glass-Steagall Act was a mistake. Last year, in a CNBC interview, Weill said that he thought that separating banking from investment banking would be a good move. Ex-Citigroup CEO John Reed even apologized for his part in growing the bank and said that firms that large should be divided up. Also, Richard Parsons, a former long-timer on Citigroup’s board, said that no only did repealing Glass-Steagall complicated the bank business but also, this played a part in allowing the financial crisis to happen. Even certain regulators, including FDIC vice chairman Thomas Hoenig, has said that banks backed by the agency should only provide “core services.”

The SSEK Partners Group represents institutional and individual investors that have sustained losses due to securities fraud.

Warren and McCain try to bring back Glass-Steagall, MSNBC, July 11, 2013

S.1282 - 21st Century Glass-Steagall Act of 2013, Congress.gov

The Glass-Steagall Act a.k.a. The Banking Act of 1933, Archive.org


More Blog Posts:
Securities Headlines: Court Says SLUSA Precludes JPMorgan Mutual Fund Practices, Provident Royalties Ex-Executives to Pay $2.3M, & Two Securities America Advisers Are Rehired, Stockbroker Fraud Blog, July 10, 2013

JPMorgan Received Asset Management Conflicts Warning from OCC in 2012, Institutional Investor Securities Blog, July 9, 2013

Texas Judge Throws Out Verizon Retirees’ Class Action Lawsuit Over $8.4B Pension Sales to Prudential, Stockbroker Fraud Blog, July 9, 2013

July 9, 2013

JPMorgan Received Asset Management Conflicts Warning from OCC in 2012

According to a source with direct knowledge about the Office of Comptroller of the Currency’s findings, the agency had already warned JPMorgan Chase (JPM) last year that the investment bank had erred when it directed clients toward its in-house investment products.

OCC examiners found that in late 2011 JPMorgan had not complied with restrictions placed on in-house financial products sales, as well as fulfill its duties to retirement plan investors under ERISA (the Employee Retirement Income Security Act). Following these discoveries, the agencies ordered JPMorgan to pay back fees to customers.

While the issues highlighted by the OCC more than likely won’t pose much of a problem to JPMorgan—typically the US Department Of Labor resolves such violations by ordering restitution and in a confidential manner—the alleged infractions do point to what could become a problem of regulatory tension between federal regulators and JPMorgan, as the former group seeks to put to rest criticism that its poor oversight played a role in allowing the financial crisis of 2008 to happen. Now, since Thomas Curry took over as Comptroller of the Currency, OCC appears to have made it a priority to monitor the growing risks that can arise via routine bank functions, as well as from activities that could lead to “operational risks.”

JPMorgan Chase’s assets under management that are found in its proprietary mutual funds reached $223 billion at the start of 2013, which a significant rise from $96 billion in 2009. All assets under the bank’s purview, including retirement plans, alternate assets, and funds, have been growing for 16 quarters in a row.

Also during 2013’s first quarter, a $31 billion gain allowed JPMorgan’s client assets to hit $2.1 trillion. Unlike other asset managers, the bank conducts securities underwriting, commercial banking, and money management on such a big scale and in such an interlinked fashion that, per guidelines in the OCC’s exam handbook, such actions merit more regulatory examination.

Regulators & ERISA Assets
Because ERISA assets are some of the most legally protected, there is a greater chance that regulators will pay attention to them. That said, Section 406(b) of ERISA obligates retirement fund fiduciaries to always place clients’ interest first.

As OCC doesn’t directly supervise ERISA, its perspective is via supervising banks’ winder duties to make sure operations are performed in a way that decreases operational risks, as well as reputational and legal harm. Although monitoring ERISA compliance has long been part of OCC’s examination wheelhouse, some observers are finding that the agency’s current concentration on both the Act and how banks sell proprietary investment instruments is an add-on previous monitoring practices.

The Securities and Exchange Commission is also looking at JPMorgan and its proprietary products sales. While it is not known at this time whether the agency’s inquiries will result in formal action, a number of ex-JPMorgan Chase financial advisers already have sued or filed arbitration claims accusing the bank of pressuring them to place client assets in in-house products. The financial firm denies the securities’ cases allegations.

Meantime, according to Reuters last year, the Labor Department too has been examining JPMorgan. The DOL is looking at the firm’s purchases for 401(k) plan stable value funds under its management of $1.7 million in mortgage debt that it underwrote before the real estate crisis. Already, investors have filed securities cases alleging wrongdoing that, once again, the bank denies.

JPMorgan Warned by OCC of Asset Management Conflicts, American Banker, July 5, 2013

Employment Retirement Income Security Act

Office of Comptroller of the Currency

More Blog Posts:
California AG Files Lawsuit Against JP Morgan Chase Alleging Debt Collection Abuse Over 100,000 Credit Card Cases, Stockbroker Fraud Blog, May 16, 2013

Police Retirement System of St. Louis Also Suing JPMorgan Chase Executives Over “London Whale” Scandal, Institutional Investor Securities Blog, April 25, 2013

Texas Judge Throws Out Verizon Retirees’ Class Action Lawsuit Over $8.4B Pension Sales to Prudential, Stockbroker Fraud Blog, July 9, 2013

Continue reading "JPMorgan Received Asset Management Conflicts Warning from OCC in 2012 " »

July 6, 2013

Securities Case Over Insuring The $160M in Disgorgement Paid to the SEC Goes Back to Trial Court

New York’s highest court has revived a declaratory judgment action against D & Liability insurers after finding that the Securities and Exchange Commission order mandating that Bear Stearns (BSC) pay $160M in disgorgement failed to establish in a conclusive manner that payment could not be insured. The securities lawsuit is J.P. Morgan Securities, Inc., et al. v. Vigilant Insurance Company, et al.

Claiming that Bear Stearns engaged in market timing mutual fund trades and illegal late trading and for certain clients over a four-year period, the SEC wanted $720M in sanctions from the firm. The financial firm, however, argued that the activities only caused it to make $16.9M in revenues. A settlement was reached ordering Bear Stearns to pay $160M in disgorgement and $90M in penalties, with the firm not having to deny or admit to the Commission’s claims.

A declaratory action followed with a plaintiff in the New York Supreme Court seeking to have D & O insurers pay for $150M of the $160M disgorgement. Citing New York law, the insurers argued that the case should be dismissed, noting that under state law disgorgement is not insurable. A lower court turned down these contentions, denying the motion.

Then, the Appellate Division, First Department reversed the ruling on appeal, finding that Bear Stearns’ settlement offer, the Commission’s order, and associated documents are not prone to any other interpretation besides that the firm knew and purposely took part in illegal late trading on behalf of certain clients that received preferential treatment and, also, the Commission’s order required disgorgement of money obtained via activities that were not legal.

Holding, the First Department said that disgorgement can be determined per matter of law when settlement funds are considered “disgorgement,” facts show that the funds came from an enterprise that was not legal, and what was paid makes up a reasonable estimation of all of the profits made. The court also said that the party doesn’t have to profit from all of the money that ends up being disgorged. Following further appeal, the New York Court of Appeals reversed this decision, returning the action to a lower court for resolution and discovery.

“Remember the old movie thrillers about Godzilla fighting King Kong (or the language-dubbed Japanese version when the G’ monster battled “Mothra,” to the death)?” said Institutional Investor Fraud Lawyer William Shepherd. “ I guess “art” imitates life as we now have a live 21st century behemoth battle as the Insurance Industry takes on Wall Street. Maybe this would have been a fair fight a decade ago, but today - not even close. Banks buy Wall Street firms. Wall Street firms parlay bank deposits into war chests, and … advantage Wall Street. It’s not that J.P. Morgan (JPM) needs Vigilant Life’s money, it’s just that, well, the money is there for the taking - candy from a baby. Politicians, judges and the rest of us take note: There’s a new gang in town and they get what they want when they want it.”

Contact our securities lawyers at The SSEK Partners Group today.

July 2, 2013

Sonoma County Files Securities Lawsuit Over Libor Banking Debacle

Sonoma County, CA is suing Citigroup (C), JPMorgan (JPM), Bank of America (BAC), UBS (UBS), Barclays (BCS), and a number of other former and current LIBOR members over the infamous international-rate fixing scandal that it claims caused it to suffer substantial financial losses. The County’s securities lawsuit contends that the defendants made billions of dollars when they understated and overstated borrowing costs and artificially established interest rates.

Sonoma County is one of the latest municipalities in California to sue over what it claims was rate manipulation that led to lower interest payments on investments linked to the London Interbank Offered Rate. Also seeking financial recovery over the LIBOR banking scandal are the Regents of the University of California, San Mateo County, San Diego Association of Governments, East Bay Municipal Utility District, City of Richmond, City of Riverside, San Diego County, and others.

The County of Sonoma is alleging several causes of action, including unjust enrichment, fraud, and antitrust law violations involving transactions that occurred between 2007 and 2010, a timeframe during which Barclays already admitted to engaging in interest manipulation. The county invested $96 million in Libor-type investments in 2007 and $61 million in 2008. Jonathan Kadlec, the Assistant Treasurer at Sonoma County, says that an investigation is ongoing to determine how much of a financial hit was sustained. Kadlec supervises an investment pool that is valued at about $1.5 billion for the county. He said that LIBOR-type investments, which involve floating securities with interests that are index-based, make up a small portion of the pool.

Already, three LIBOR members have paid over $2.5 billion in penalties over the LIBOR rate-fixing debacle. Earlier this year, Royal Bank of Scotland (RBS) consented to pay $610 million, and last year, UBS consented to pay over $1.5 million while Barclays said it would pay $450 million.

LIBOR
The London Interbank Offered Rate is the global benchmark interest rate for establishing short-term interest rates on financial instruments ranging from sophisticated municipal derivative investments to car loans. The British Banker’s Association sets LIBOR daily. The benchmark interest rate is determined according to the average of the interest rate that each LIBOR member bank says it can borrow from the other bank members. Until the manipulation among LIBOR members was discovered, a member bank’s interbank borrowing rate was considered a mirror of its credit worthiness.

In 2011, regulators from the US, UK, Japan, and Switzerland said they would investigate LIBOR rate manipulation influencing financial markets globally. Banks that were members of LIBOR were accused of manipulating LIBOR to up their profits and report borrowing rates that were suppressed to make them appear to be in greater financial health.

Please contact our LIBOR Fraud lawyers at SSEK Partners Group today.

Sonoma County joins suit over LIBOR rate setting, North Bay Business Journal, June 28, 2013

The County of Sonoma, California Files Lawsuit Against Major Banks for Libor Interest Rate Manipulation, County of Sonoma, June 28, 2013


More Blog Posts:
CBOE Will Pay $6M Penalty Over SEC Charges Alleging Failure to Enforce Trading Rules, Institutional Investor Securities Blog, June 12, 2013

AIG Drops RMBS Lawsuit Against New York Fed, Fights Bank of America’s $8.5B MBS Settlement, Institutional Investor Securities Blog, June 5, 2013

FINRA Orders Wells Fargo & Banc of America’s Merrill Lynch Ordered to Pay $5.1M for Floating-Rate Bank Loan Funds Sales, Stockbroker Fraud Blog, June 4, 2013

June 26, 2013

SEC Tells Financial Firms That Settling Without Denying or Admitting to Wrongdoing is No Longer Allowed in Certain Securities Cases

Securities and Exchange Commission Chairman Mary Jo White recently announced that defendants in certain securities cases would no longer be allowed to accompany an agreement to settle with the statement that they are doing so but without admitting or denying wrongdoing. Speaking to a columnist with The New York Times, White said that in certain instances, admissions are necessary for there to be public accountability. However, White also did say that most SEC cases still would be settled under the “nether admit nor deny standard,” which provides the accused incentive to settle while compensation to victims sooner.

The new policy was announced to SEC enforcement staff last week in a memo from George Canellos and Andrew Ceresney, the regulator’s enforcement division co-leaders. They went on to say that in cases that warrant such an admission, if the accused were to refuse then a securities lawsuit might be the next step.

Securities cases that require admissions of wrongdoing will have to satisfy certain criteria, such as intentional misconduct that was egregious, wrongdoing that hurt a lot of investors or put them at risk of serious financial harm, or unlawful obstruction of the Commission’s investigation.

“This policy change is long overdue,” said SSEK Founder and Stockbroker Fraud Lawyer William Shepherd. “Over the past decade, the SEC has accommodated the targets it has been investigating far too often. Only rarely is there the requirement of admission of wrongdoing, and almost never for large financial firms and their management. When one is caught with a hand in the cookie jar, it’s time to say ‘I did it and I’m sorry, rather than “I neither admit nor deny it was my hand.”

The change policy comes in the wake of complaints that the SEC has been to lax with its enforcement, especially when it came to pursuing securities fraud cases against large financial institutions involved in the economic crisis, such as JPMorgan Chase (JPM), Bank of America (BAC) and Citigroup (C), which all settled cases against them without denying or admitting guilt. Having to admit wrongdoing potentially could hurt financial firms because plaintiffs in private securities cases and class action fraud litigation may then cite the acknowledgement of culpability, thereby strengthening their claims. This could force banks to have to pay out millions of dollars than if they hadn't admitted to doing anything wrong.

S.E.C. Has a Message for Firms Not Used to Admitting Guilt, Stockbroker Fraud Law Firm, NY Times, June 22, 2013

Defense Bar Reacts With Dismay At Revision of SEC ‘No Admit/Deny’ Policy, Bloomberg/BNA, June 20, 2013

Securities and Exchange Commission


More Blog Posts:
CBOE Will Pay $6M Penalty Over SEC Charges Alleging Failure to Enforce Trading Rules, Institutional Investor Securities Blog, June 12, 2013
Controversial Democratic Appointee Pushes SEC for Less Talk About Investor and Securities Market Protections and More Action, Stockbroker Fraud Blog, April 28, 2013

NASAA President Pushes for State Regulation of “Reg A Plus” and for Private Lawsuits Over Small Offerings, Institutional Investor Securities Blog, May 28, 2013

Continue reading "SEC Tells Financial Firms That Settling Without Denying or Admitting to Wrongdoing is No Longer Allowed in Certain Securities Cases " »

June 24, 2013

Cayman Islands LLC Must Replead CLO Securities Case Against Deutsche Bank

The U.S. District Court for the Southern District of New York says that Arco Capital Corp. a Cayman Islands LLC, has 20 days to replead its $37M collateralized loan obligation against Deutsche Bank AG (DB) that accuses the latter of alleged misconduct related to a 2006 CLO. According to Judge Robert Sweet, even though Arco Capital did an adequate job of alleging a domestic transaction within the Supreme Court's decision in Morrison v. National Australia Bank, its claims are time-barred, per the two-year post-discovery deadline and five-year statute of repose.

Deutsche Bank had offered investors the chance to obtain debt securities linked to portfolio of merging markets investments and derivative transactions it originated. CRAFT EM CLO, which is a Cayman Islands company created by the bank, effected the transaction and gained synthetic exposure via credit default transactions. For interest payment on the notes, investors consented to risk the principal due on them according to the reference portfolio. However, if a reference obligation, which had to satisfy certain eligibly requirements, defaulted in a way that the CDS agreements government, Deutsche Bank would receive payment that would directly lower the principal due on the notes when maturity was reached.

Arco maintains that the assets that experienced credit events did not meet the criteria. It noted that Deutsche Bank wasn’t supposed to use the transaction as a repository for lending assets that were distressed, toxic, or “poorly underwritten.”

Seeking to dismiss the claims, Deutsche Bank contended that Morrison barred the plaintiff’s 1934 Securities Exchange Act Section 10(b) claim. That ruling found that the section is only applicable to transactions in securities found on US exchanges or transactions that occur domestically. The bank argued that since Arco bought the notes offshore, the LLC is unable to allege federal securities fraud violation in relation to the transactions.

While the court was in agreement with Arco that the lawsuit and associate documents allow for the “plausible inference” that there was irrevocable liability in New York and that, for purposes of Morrison, investment in the Notes was a transaction that occurred domestically, it did say that the company could have found the facts pertaining to the violation within two years of that date that a plaintiff that was “reasonably diligent” would have sufficient data to file a case. Hence, the pleading was untimely.

Collateralized Loan Obligation
A CLO is a type of collateralized debt obligation. It is a securities backed by loans or receivables as we as a special purpose vehicle that has securitization payments as different tranches. CLOs are supposed to reduce lending costs for a business while lowering the lending risks for banks, which sell the loans to outside investors.

At SSEK, our CLO fraud lawyers represent institutional investors throughout the United States. Please contact our CDO law firm to request your free case assessment.

Morrison v. Australia (PDF)

Arco Capital Corporation Ltd. v. Deutshe Bank AG, Justia Docket


More Blog Posts:
Courts Nationwide Dismiss More Securities Actions: Madoff Trustee’s Case, Equinox Investor’s Class Lawsuit, K-Sea Transportation Litigation, & Shareholder Derivative Complaint is Thrown Out, Stockbroker Fraud Blog, June 21, 2013

Securities Lending Trial Against Wells Fargo & Co. is Underway, Institutional Investor Securities Blog, June 21, 2013

RMBS Lawsuit Against Deutsche Bank Can Proceed, Says District Court, Institutional Investor Securities Blog, April 4, 2013

June 21, 2013

Securities Lending Trial Against Wells Fargo & Co. is Underway

It will be up to 11 jurors to determine if Wells Fargo & Co. (WFC) is guilty of grossly mismanaging a securities lending program and lying about the degree of risk involved or whether the economic crisis was actually at fault. The program was marketed to institutional clients, including pension funds. According to investors, the bank committed fraud by taking huge risks with what they were under the impression was a conservative program. Nearly 15% of the portfolio’s by 2007’s fall season had defaulted or was distressed. (Citigroup (C) has since bought most of Wells Fargo’s Clearland securities lending business.)

The plaintiffs contend that rather than investing money in higher grade market instruments and other safe investments, which is what they thought was being done), managers bet on structured investment vehicles and other high-risk financial instruments. Cheyne Finance, one SIV involving subprime mortgages that the bank invested in, was placed in receivership. The securities case, filed in 2011, focuses on cash collateral investments primarily made by Wells Fargo between 2005 and 2008.

Wells Fargo denies the allegations. Contrary to the attorneys for the investors, the bank’s lawyers are arguing that the securities lending business’s investments were conservative and safe and that it’s track record was pretty solid until the economic crisis. Even then, contend the attorneys, the losses suffered were not a big portion of the program. Also, claims Wells Fargo, the securities lending program was overseen at a level that was “extraordinarily high” and the investors’ best interests were primary. The banks’ legal team noted that investors were given written warnings that losses were likely.

This securities lending lawsuit is one of a number of cases against Wells Fargo in Minnesota alone. In an identical securities case against the bank in 2010, jurors found that the bank committed fraud and breached its duty. Four charitable foundations were awarded $30 million. Add another damage award, legal fees, and interest, and the total Wells Fargo was ordered to pay was $57 million.

Wells Fargo’s Former Securities Lending Program
This program involved securities of institutional investors. The securities were in custodial accounts at Wells Fargo. Customers gave the bank permission to loan the securities. Borrowers typically were third-party brokers that traded the shares and paid cash collateral to Wells Fargo that the latter would invest. This would go on until the securities that had been borrowed were given back to the bank’s clients and brokers got back their collateral. There were over a dozen institutional investor plaintiffs to this securities lending case including the Jerome Foundation, St. John's University Endowment, the St. John's Abbey Endowment, Blue Cross Blue Shield of Minnesota Pension Equity Plan, and Trust, Meijer Inc. pension plans.

Throughout the US, contact our institutional investor lawyers at Shepherd Smith Edwards and Kantas, LTD, LLP today.

Wells Fargo securities lending case goes to trial, Star Tribune, June 18, 2013

Wells Fargo Must Face Class Action Over Securities Lending, Bloomberg, March 27, 2012


More Blog Posts:
LPL Securities Names Ex-SEC Official As Its New General Counsel, Stockbroker Fraud Blog, June 19, 2013

FINRA Orders Wells Fargo & Banc of America’s Merrill Lynch Ordered to Pay $5.1M for Floating-Rate Bank Loan Funds Sales, Stockbroker Fraud Blog, June 4, 2013

Former Millennium Global Investments Portfolio Manager Accused of Fraud Involving Nigerian Sovereign Debt Markups, Institutional Investor Securities Blog, June 19, 2013

June 8, 2013

Financial Firm Roundup: Citigroup Settles $3.5B MBS Lawsuit with FHFA, JPMorgan Unit Fined $4.64M, Court Won’t Dismiss USB Whistleblower’s Action, & Ex-Goldman Sachs Executive to Pay $100K Over Pay-To-Play Scam

Citigroup (C) Settle $3.5B securities lawsuit Over MBS Sold to Freddie Mac, Fannie Mae
Citigroup has settled the $3.5 billion mortgage-backed securities filed with the Federal Housing Finance Agency. The MBS were sold to Freddie Mac and Fannie Mae and both sustained resulting losses. This is the second of 18 securities fraud cases involving FHFA suing banks last year over more than $200B in MBS losses by Fannie and Freddie. The lawsuit is FHFA v. Citigroup.

J.P. Morgan International Bank Ltd. Slapped with $4.64M Fine by UK Regulator
The UK Financial Conduct Authority says that JPMorgan unit (JPM) J.P. Morgan International Bank Ltd. must pay a $4.64 million fine for controls failures and systems involving its retail investment advice and portfolio investment services. Per the agency, financial firms that don’t maintain the proper records not only put their clients at risk of getting involved inappropriate investments, but also they don’t have a way to determine whether the proper advice was given. Fortunately, investors were not harmed despite the risk exposure.

The UK regulator says the problems went on for two years. Among the problems identified: outdated files, insufficient key client data, inadequate record system, inadequate suitability reports, and insufficient communication with clients about suitability. FCA says that it wasn’t until after it identified the problems and notified the JP Morgan unit about them that the necessary modifications were made.

Whistleblower’s Retaliation Action Against UBS Securities Can Go Ahead, Says Court
A district court judge made the decision not to dismiss ex-UBS Securities LLC (UBS) senior strategist Trevor Murray’s retaliatory action against his former employer. Murray was allegedly fired after he told his managers about possible securities law violations.

He contends that he was let go because he refused to write reports about UBS’s commercial MBS that were “more favorable to the financial firm.” Murray sued, arguing that the action violated the Dodd-Frank Act’s whistleblower protection provisions. UBS then tried arguing that Murray wasn’t a whistleblower because he didn’t tell the SEC about the alleged violation, but the judge said that a whistleblower is allowed to report alleged violations to governmental authorities and persons other than the regulator.


Former Goldman Sachs VP Consents to Pay $100K Payment SEC Pay-to-Play Action
Neil M. M. Morrison, an ex-Goldman Sachs & Co. (GS) vice president, will pay $100,000 to resolve an SEC action accusing him of taking part in an alleged pay-to-play scheme involving former Massachusetts state Treasurer Timothy Cahill’s gubernatorial campaign. The Commission said that he solicited the state’s underwriting business while “engaged” in Cahill’s campaign and that his use of the financial firm’s resources and work time are considered campaign contributions. By settling, Morrison is not admitting or denying the allegations.

Meantime, Goldman will pay approximately $12 million to settle the related proceedings against it, as well as $4.5 million to Massachusetts Attorney General Martha Coakley. Even though the firm wasn’t allowed to take part in municipal underwriting business for two years after Morrison’s alleged violations, the SEC says that Goldman still took part in 30 underwriting contracts with issuers in the state and made about $7.5 million in fees.

Citi settles U.S. suit over $3.5 billion in mortgage securities, Reuters, May 28, 2013

U.K. Regulator Fines JPMorgan Unit $4.64M For Failures in Investment Systems, Controls, Bloomberg/BNA, May 28, 2013

Internal Whistleblowing Deserves Protection, Judge Tells UBS, Law360, May 22, 2013

SEC Charges Goldman Sachs and Former Vice President in Pay-to-Play Probe Involving Contributions to Former Massachusetts State Treasurer, SEC, September 27, 2012


More Blog Posts:
FINRA Orders Wells Fargo & Banc of America’s Merrill Lynch Ordered to Pay $5.1M for Floating-Rate Bank Loan Funds Sales, Stockbroker Fraud Blog, June 4, 2013

AIG Drops RMBS Lawsuit Against New York Fed, Fights Bank of America’s $8.5B MBS Settlement, Institutional Investor Securities Blog, June 5, 2013

Two Oppenheimer Investment Advisers Settle for Over $2.8M SEC Fraud Charges Over Private Equity Fund, Institutional Investor Securities Blog, March 14, 2013

June 5, 2013

AIG Drops RMBS Lawsuit Against New York Fed, Fights Bank of America’s $8.5B MBS Settlement

American International Group (AIG) and Maiden Lane II dismissing lawsuit against the Federal Reserve Bank of New York regarding the $182.3 billion financial bailout that the insurer received during the 2008 economic crisis. In dispute was whether AIG still had the right to pursue a lawsuit over residential mortgage-backed securities losses and if the company had moved $18 billion of litigation claims to Maiden Lane, which is a New York Fed-created entity.

An AIG spokesperson said that in the wake of a recent ruling by a district judge in California that the company did not assign $7.3 billion of the claims to Maiden Lane, both are dropping their action without prejudice. This means that AIG can now pursue Bank of America (BAC) for these claims, which is what the insurer wants to do.

Bank of America had said that AIG could not sue it over the allegedly fraudulent MBS because the latter transferred that right when the New York Fed bought the instruments in question 2008. However, according to Judge Mariana R. Pfaelzer, even if the New York Fed meant for Maiden Lane II to have these claims, that intention was not made clear.

On Tuesday, in New York State Supreme Court, the insurer argued that the proposed $8.5 billion settlement reached between the bank and investors in MBS from Countrywide Financial Corp. is not enough. The judge there is trying to determine whether to approve the settlement, reached with investors who claimed that the firm had misrepresented the mortgages backing the securities.

AIG is one of a number of entities that oppose the settlement. At the hearing, one of its lawyers questioned why the settlement was merely $8.5 billion when investors initially asked for $50 billion.

AIG also is arguing that there may be a conflict of interest with those that arrived at the proposed settlement amount. The insurer is questioning whether trustee Bank of New York Mellon (BK), which does a lot of its trustee business with Bank of America, did a good enough job of researching the risks involving successor liability and investigating the loan files. Bank of NY Mellon also is the trustee for 530 trusts that are holding the securities under dispute. Another investor supporting the current proposed settlement is BlackRock Inc, which also has a strategic relationship with the bank.

Meantime, the attorney who negotiated the $8.5 billion proposed settlement between BofA 22 institutional investors says that not only is this the biggest settlement in the history of private litigation, but also it is worth almost two times as much as Countrywide, which is valued at $4.8 billion.

AIG argues against $8.5 billion settlement with BofA, Reuters, June 4, 2013

Court allows AIG to sue Bank of America for fraud, The Boston Globe, May 8, 2013


More Blog Posts:
AIG Wants to Stop Former CEO Greenberg From Naming It as a Defendant in Derivatives Lawsuit Against the US, Stockbroker Fraud Blog, April 13, 2013

Bank of New York Mellon Corp. Must Contend with Pension Fund Claims Over Countrywide Mortgage-Backed Securities, Institutional Investor Securities Blog, April 10, 2012

Bank of America Subpoenaed by Massachusetts Over Bryn Mawr CLO II Ltd. and LCM VII Ltd. CLOs that Cost Investors $150 Million, Stockbroker Fraud Blog, February 14, 2012

May 22, 2013

LPL Financial Ordered to Pay $7.5M FINRA Fine Over E-Mail Failures

The Financial Industry Regulatory Authority says that LPL Financial LLC must pay a $7.5 million fine for inadequately supervising more than 28 million business emails between 2007 and 2013. This is the largest fine the SRO has ever imposed over an e-mail case.

According to FINRA, LPL’s systems for overseeing and storing e-mails failed a minimum of 35 times. It contends that the firm did not succeed in fulfilling its duty to retain e-mails, supervise its representatives, and properly respond to requests by regulators. The SRO attributes these problems to the brokerage firm’s failure to put enough resources toward updating its e-mail system as its business grew quickly.

Among the e-mail failures:

• Not keeping up access to hundreds of millions of emails during migration to a less costly email archive (80 million emails were corrupted)
• Not retaining and reviewing 3.5 million Bloomberg messages over a seven-year period
• Not archiving emails received by customers via third party advertising platforms transmitted via e-mail.

In addition to the paying the fine, LPL will have to set up a $1.5 million fund to pay brokerage customers that may have been affected by the e-mail failures. However, by settling this FINRA case, the broker-dealer is not denying or admitting to wrongdoing. The financial firm maintains that it is the one that reported the e-mail issues to FINRA in 2011. It also says that it has taken on a thorough redesign of its e-mail systems, policies, and procedures while working with independent experts to make sure the proper actions are taken.

Institutional Investment Fraud Lawyer William Shepherd disagrees with LPL’s claim that no wrongdoing occurred: “Some observers claim that this firm has done nothing but carry insurance and not supervise its brokers for years. They all but said so when they asked one of their client OSJs to consider taking over conducting supervision for them. In other words they wanted to become some sort of clearing firm that also gets a piece of the commission pie. This fine and action demonstrates in no uncertain terms that they simply did not supervise.”

FINRA also claims that during its investigation into this matter, LPL made misstatements, including the statement that the e-mail problems weren’t identified in June 2011 when firm staff had information that could have allowed the issues to be sussed out in 2008. A LPL is also accused of making the misstatement that there were no red flags to help identify these e-mail issues when actually there were.

The e-mail system problems resulted in the firm’s failure to produce all the emails that state and federal regulators asked for. The SRO speculates that the brokerage firm may have even failed to give certain private litigations and FINRA arbitration claimants the emails that they needed.

LPL to Pay $9 Million for Systemic Email Failures and for Making Misstatements to FINRA, FINRA, May 21, 2013

FINRA fines LPL Financial $9 million for email violations, Reuters, May 21, 2013


More Blog Posts:
LPL Financial Continues to Stay on Regulators’ Radar, Stockbroker Fraud Blog, April 10, 2013

LPL Financial Ordered to Pay $100K for Lack of Adequate Oversight that Resulted in Unsuitable Investments for Clients, Stockbroker Fraud Blog, November 29, 2011

SEC Submits Request for Data on Whether to Make Brokers & Investment Advisers Abide by Uniform Fiduciary Standard, Stockbroker Fraud Blog, April 4, 2013

May 18, 2013

Morgan Stanley Hit with $5 Million Securities Fraud Lawsuit Involving Alleged Superannual Account Losses Related to Risky Option Trading

In Australia, two Morgan Stanley (MS) customers are suing the financial firm for $5 million because they say that is much their superannual accounts lost because of alleged misrepresentations made by broker Kate Kearney. Helen Sedman, 74, and Sally Middleton, 61, claim that Kearney deceived them into thinking that an option trade that they made was low risk.

Middleton and Sedman are business partners. They believe that because of the high-risk option trade and fees they had to pay, over 97% of Middleton’s account was wiped out (from $1.2 million to $34,000), while Sedman’s went down 90% (from $4.8 million to $950,000) in just eight weeks. The plaintiffs say they paid Morgan Stanley $1.1 million in fees.

According to the women’s securities attorney, the business partners wanted long-term safe investments for their super funds. Instead, what they purportedly got was an “aggressive” trading plan that cost them close to $5 million, while Kearney earned $379,000 in commissions from Sedman and $188,000 from Middelton. Their lawyer says that because of Kearney’s reassurances, their lack of knowledge about how much risk was really involved, and their difficulty in fully comprehending their trading position, they ended up moving forward with trades that they otherwise would not have gotten involved in.

The two women believe that Kearney acted in her best interests rather than theirs. They are alleging breach of duty of care, breach of contractual obligations, and failure to stop the risky trading even though the risk management division had identified that it was taking place.

If you suspect that your financial losses are due to broker misconduct or negligence, you should speak with an experienced securities lawyer right away.

Morgan Stanley sued over $5m super losses, The Age.com, May 20, 2013

Fraud, Securities and Exchange Commission (PDF)


More Blog Posts:

Two Men Sentenced in Texas Securities Case Involving $30 Million Promissory Note Fraud that Bilked Investors Via Ponzi Scam, Stockbroker Fraud Blog, May 14, 2013

Federal Records Act Lawsuit Seeking to Make the SEC Reconstruct About 9,000 Enforcement-Related Documents is Dismissed, Institutional Investor Securities Blog, February 5, 2013

May 14, 2013

SEC Roundup: Regulator Addresses CDS Portfolio Margin Program & Ex-Commission Officials Want DC Circuit to Grant SIPC Protection to Stanford Ponzi Scam Victims

Ex-Commission Officials, Others Want DC Circuit to Grant Stanford Ponzi Scam Victims SIPC Protection
Former SEC Officials, law professors, and trade groups are among those pressing the U.S. Court of Appeals for the District of Columbia Circuit to reject the regulator’s bid to compel Securities Investor Protection Corporation coverage for the investors who were bilked in R. Allen Stanford’s $7 billion Ponzi scam. Inclusion under the Securities Investor Protection Act would allow the fraud victims to obtain reimbursement for losses.

However, SIPC, which is a federally mandated non-profit corporation, doesn’t believe that the Stanford investors, who purchased certificates of deposit from Stanford International Bank Ltd. in Antigua, fall under this protection. Following a failure to act on the SEC’s request to initiate liquidation proceedings for brokerage firm Stanford Group Co., the regulator asked the court for a novel order that would make the organization comply.

Last year, the district court rejected the SEC’s application, finding that Stanford’s investors were not, for Securities Investor Protection Act purposes, covered. The agency then went to the DC Circuit.

Now, in an amicus brief filing, the academics and ex-SEC officials, including Paul Atkins and Joseph Grundfest, are arguing that the appeals court should turn down the regulator’s bid to expand who is “covered through SIPC” because it would not be in line with statutory history, “contravenes” the statute’s “plan language,” and is in conflict with over four decades of judicial precedent.


SEC Division of Trading and Markets Address Credit Default SwapsPortfolio Margin Program Questions
In other SEC news, its Division of Trading and Markets recently addressed questions related to temporary approvals that were given to several brokerage firms/ futures commission merchants that allow their involvement in a program that would mix and position portfolio margin customer positions in cleared credit default swaps.

The SEC is now granting conditional exemptive relief from certain 1934 Securities Exchange Act requirements related to a program that would portfolio and mix margin customer positions in certain cleared CDSs. In March, the Commission gave conditional approval to Goldman Sachs & Co. (GS), J.P. Morgan Securities LLC (JPM), and five other banks to take part in the program. They now can temporarily determine the portfolio margin figures for client positions in commingled CDs according to a model created by ICE Clear Credit, the largest credit default swaps clearing house in the world, while division staff assess the financial firms’ margin methodologies.

Now, ICE Clear Credit participants have questions. They want to know what is the margin treatment of a portfolio that has just single-name CDS positions as well as what is the clearing participants' affiliates’ margin treatment. Responding, SEC division staff said that a FCM/BD client account that has just single-name CD positions would be subject to applicable margin requirements per FINRA Rule 4240. They also said that BD/FCM clearing participants have to deal with affiliates’ single-name CD positions as if they were “customer positions” for margin purposes. SEC staff said that this is in line with FINRA and Commission broker-dealer financial responsibility rules regarding how affiliates are to be treated.

Read the SEC's Response to Questions About CDS Portfolio Margin Program (PDF)

Read the Amicus Filing to the DC Circuit


More Blog Posts:
Medical Capital Fraud Lawsuit Against Wells Fargo Must Proceed, Institutional Investor Securities Blog, April 10, 2013

FINRA Bars Former Wells Fargo Advisors Broker that Bilked Child with Cerebral Palsy, Stockbroker Fraud Blog, April 26, 2012

Standard & Poor’s Seeks Dismissal of DOJ Securities Fraud Lawsuit Over RMBS and CDO Ratings Issued During the Financial Crisis, Institutional Investor Securities Blog, May 9, 2013

May 6, 2013

Investor Files Securities Case Against Fidelity Over Float Income Investments Involving 401(K)s

Investor Korine Brown is seeking class action status on behalf of those that also participated in General Motors Inc.'s Personal Savings Plan for hourly employees in her securities case against Fidelity Investments Institutional Operations Co. Inc. and Fidelity Management and Research Co. She is alleging breach of fiduciary duty. This is just the latest investment fraud case over Fidelity’s handling of money that came from planned assets, as well as against other 401k providers.

As of the end of 2011, the plan Brown has been a participant in contained about $46 billion in assets for over 100,000 account holders. The plaintiff claims that Fidelity Research breached its duty when it invested float income into Fidelity funds found in the plan menu.

Float income is money generated from redemptions, contributions, and transfers of planned assets when they are briefly put in in interest bearing accounts. Brown believes that Fidelity Investments Institutional Operations breached its duty when it used the float income, which she says is a plan asset, to take care of operating costs. She claims that Fidelity didn’t let participants and the fiduciaries tasked with administrating the plan know about how the float income was being used.

Her securities lawsuits says that the two Fidelity units had a fiduciary duty because they possessed discretion over plan assets. Rather than putting the float income into its own funds or using the money to pay for business expenses, it should have moved the money to the plan. Brown is alleging self-dealing that violates the Employee Retirement Income Security Act of 1974.

Meantime, a Fidelity spokesperson maintains that Fidelity’s practices comply with ERISA guidelines and that float income was not retained and the company did not get fees from managing the float.

The float income lawsuits against Fidelity started coming in after a federal judge ruled that ABB Inc., a retirement plan, was in breach of fiduciary duty when Fidelity paid bank fees with float income. Fidelity was told to pay $1.7 million, while ABB was ordered to shell out $35.2 million to pay for participant losses. They are appealing that ruling.

Another investor sues Fidelity over use of temporary funds, Investment News, April 30, 2013

Brown v. Fidelity Management and Research Company et al, Justia.com

Brown v. Fidelity Management and Research Company et al, The Complaint (PDF)


More Blog Posts:
Not All Municipal Bond Issuers Are Adjusting Well to the SEC’s Efforts to Make the Market More Transparent, Institutional Investor Securities Blog, February 22, 2012

Former Fidelity Brokerage Reps Says They Were Pressured to Make Sales That Conflicted With CFP Ethic Codes, Stockbroker Fraud Blog, April 8, 2009

April 25, 2013

Police Retirement System of St. Louis Also Suing JPMorgan Chase Executives Over “London Whale” Scandal

The Police Retirement System of St. Louis is suing JPMorgan Chase (JPM) CEO Jamie Dimon and several other senior bank officers over the “London Whale” scandal. The pension fund, which owns 39,000 of the investment bank, is one of numerous investors seeking compensation. Dimon and the other JPMorgan executives are accused of disregarding the red flags indicating that the London-based operation was engaged in taking large scale risks that ultimately resulted in close to $6 billion in losses last year.

In its derivatives lawsuit, the Police Retirement System of St. Louis contends that the defendants “eviscerated” the risk controls of JPMorgan’s London unit to up profits. Even after the media reported that one of the bank’s traders in London was making big bets (that trader was eventually dubbed the “London Whale”), Dimon downplayed the news to investors. The pension fund contends that the executives and others breached their duties to shareholders by not stopping the risky trades.

In March, US lawmakers sought to understand the multimillion-dollar trading loss. At a hearing before Congress, they questioned past and current JPMorgan executives about the financial scandal. Their interrogation came a day after the release of a damning 300-page Congressional report that blamed the bank’s lax culture while also criticizing the Office of the Comptroller of the Currency for also failing to follow up on warning signs.

The executives tried to defend themselves, saying their attempts to lower risks were countered by traders that purposely undervalued bets to conceal an increase in losses. Among the executives that gave testimony was ex-JPMorgan chief investment office head Ina Drew, whose group was in the middle of the debacle. She too blamed lower-level traders and others, while contending that she had been given inaccurate information. Drew said she didn’t know that traders were upping their bets.

Withering Questions at Senate Hearing on JPMorgan Loss
, New York Times, March 15, 2013

JPMorgan hit with new investor lawsuit over "Whale" losses, Reuters, April 15, 2013


More Blog Posts:
JP Morgan Sued by Dexia in $1.7B MBS Lawsuit, Institutional Investor Securities Blog, February 11, 2013

JPMorgan, Goldman Sachs, Bank of New York Mellon, Charles Schwab Disclose Market-Based NAVs of Money Market Mutual Funds, Stockbroker Fraud Blog, February 7, 2013

Continue reading "Police Retirement System of St. Louis Also Suing JPMorgan Chase Executives Over “London Whale” Scandal " »

April 23, 2013

Lehman Brothers Australia Wants Federal Court to Approve $248M Settlement Payment Plan to Creditors

The liquidators of Lehman Brothers Australia want the Federal Court there to approve their plan that would allow the bank to pay $248M in securities losses that were sustained by 72 local charities, councils, private investors, and churches. Although the court held Lehman liable, no compensation has been issued because the financial firm went bankrupt.

Per that ruling, the Federal Court found that Lehman’s Australian arm misled customers during the sale of synthetic collateralized debt obligations. The court also said that Lehman Brothers subsidiary Grange Securities was in breach of its fiduciary duty and took part in deceptive and misleading behavior when it put the very complex CDOs in the councils’ portfolio. (Lehman had acquired Grange Securities and Grange Asset Management in early 2007, thereby also taking charge of managing current and past relationships, including the asset management and transactional services for the councils.) The court determined that the council clients’ “commercial naivety” in getting into these complex transactions were to Grange’s advantage.

Via the liquidators’ plan, creditors would get a portion of a $211 million payout. This is much more than the $43 million that Lehman had offered to pay. The payout would include $45 million from American professional indemnity insurers to Lehman, which would then disburse the funds to those it owes.

If the Federal Court approves the settlement, IMF will dismiss a class action securities case against Lehman.

Securities Fraud
Brokerage firms are not supposed to get unsophisticated or conservative investors involved in high risk, complex investments, even if the customers are institutions and not individuals. When doing so results in investment losses, there may be grounds for an institutional investment fraud case.

Lehman Seeks Australian Court Approval for Vote on Settlement, Bloomberg, April 14, 2013

Understanding the Federal Court’s landmark ruling against Lehman Brothers, The Conversation, September 24, 2012


More Blog Posts:
FINRA Orders UBS Financial Services to Pay $8.25M for Misleading Investors About Security of Lehman Brothers Principal Protected Notes, Stockbroker Fraud Blog, April 15, 2011

Lehman Brothers Australia Found Liable in CDO Losses of 72 Councils, Charities, and Churches, Institutional Investor Securities Blog, September 25, 2012

April 18, 2013

UBS Loses Appeal to Have FHFA’s $6.4 Billion MBS Fraud Lawsuit Dismissed

The US Court of Appeals for the Second Circuit is denying UBS AG’s (UBSN) bid to dismiss the Federal Housing Finance Agency’s mortgage-backed securities lawsuit accusing the financial firm of misrepresenting the quality of the loans underlying the residential MBS that Freddie Mac and Fannie Mae bought. FHFA is the mortgage financiers’ appointed conservator.

In its appeal, UBS contended that the MBS lawsuit was filed too late under federal law. However, the 2nd circuit, affirming U.S. District Judge Denise Cote’s ruling, determined that the filing period for type of securities case was extended by the Housing and Economic Recovery Act of 2008.

The RMBS lawsuit is one of 17 FHFA cases against large financial institutions over alleged misrepresentations involving over $200 million in mortgage-backed securities. Judge Cote is presiding over 15 of these MBS lawsuits.

Late last year, the lenders, including Citigroup (C), Barclays Plc (BCS), and Bank of America Corp. (BAC), told the 2nd circuit that Cote’s ruling was not only wrong but also that it would increase their exposure to federal and state securities claims. The banks involved in the mortgage-backed securities cases before the judge recently filed a request before the appeals court arguing that Cote’s pretrial rulings establish a litigation framework that they described as “grossly inequitable, clearly erroneous.” They believe that a number of her decisions are “gravely prejudicial” and not only wrongly attempted to deny them the ability to find evidence on may possible legal defenses, but also, they are meant to pressure the banks to settle the securities lawsuits.

Meantime, Securities Industry and Financial Markets Association, which submitted a separate brief, expressed concern that Judge Cote’s decision widened the housing recovery law’s time-limit provisions over what Congress had intended for it to be and that this could lead to “arbitrary decisions” being made. However, the US Justice Department has maintained that it was the lawmakers that “reset” the statute of limitations for filing securities claim. In its briefing, the DOJ said that the Housing and Economic Recovery Act allows for the creation of the FHFA to help remedy the financial problems plaguing Freddie Mac and Fannie Mae after the housing crisis dropped the values of their MBSs.

In the US, contact our MBS fraud law firm today.

UBS Bid to Dismiss FHFA Mortgage-Bond Suit Denied, Stockbroker Fraud Blog, April 5, 2013

UBS Tries Again to Block FHFA Lawsuit, MReport
, November 27, 2012


More Blog Posts:
RMBS Lawsuit Against Deutsche Bank Can Proceed, Says District Court, Institutional Investor Securities Blog, April 4, 2013
Mortgage-Backed Securities Lawsuit Against Bank of America’s Merrill Lynch Now a Class Action Case, Stockbroker Fraud Blog, June 25, 2011

April 15, 2013

CtW Investment Group Wants JPMorgan Chase Shareholders To Vote Against Re-Electing Four Board of Directors

CtW Investment Group has announced plans to file a document with the Securities and Exchange Commission that would press shareholders to vote against reelecting four JPMorgan Chase & Co. (JPM) board of directors: James Crown, Ellen Futter, Laban Jackson, and David Cote. The group, which represents pension funds that together hold approximately 6 million of the financial firm’s shares and is labor organization Change to Win’s advisory arm, also intends to make its request in writing to the shareholders.

CtW believes that these directors can no longer be depended on to deal with oversight failures and blames most of them for poor risk management oversight that they say allowed the trading fiasco to happen. Meantime, JPMorgan is seeking support among its biggest shareholders. It claims that the board isn’t to be blamed for the “London Whale,” which involved its operation in England making risky bets and losing nearly $6 billion in losses.

Meantime, in a report on the global investment banking industry, JPMorgan’s analysts pointed to Goldman Sachs (GS) and Deutsche Bank (DB) as examples of Tier 1 investment banks to stay away from. It described this tier of banks as “un-investable, with their viability in doubt.

JPMorgan’s banking analysts worry that several new, uncoordinated global banking regulation could negatively affect the firm’s future earnings. For example, they expect the average equity return for leading financial firms to drop to 9.6% after 2015.

Also, because of new capital requirements, firms will have to keep more money in reserve in case of possible loss on high-risk trades. Some are worried that a lower investment banking revenue in the wake of the financial crisis will affect financial firms’ bottom lines. How the bonus caps proposed by the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act will be put into effect is still not clear.

Some banks have reacted to the regulatory changes that are coming by making their investment banking units smaller and concentrating on areas of the business that are more profitable. However, caution the JPMorgan analysts, shareholders will likely seek higher returns to make up for the greater risks that now exists among the global markets. They believe that banks will have to up their profits to meet shareholder demands, which may require more layoffs, pay cuts, and face calls for offloading high risk trading activities.

If you think your investment losses are due to securities fraud, contact our institutional investment fraud law firm today. We represent both individual and institutional investors, not just in the US, but also clients abroad with securities arbitration claims and lawsuits against firms based domestically. Contact Shepherd Smith Edwards and Kantas, LTD, LLP today to request your free case assessment.

WSJ Blog: Activists Turn Up the Heat on J.P. Morgan's Board, The WSJ, April 16, 2013

US Securities and Exchange Commission


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RMBS Lawsuit Against Deutsche Bank Can Proceed, Says District Court, Institutional Investor Securities Blog, April 4, 2013

Previous Dissent by Arbitrator is Not Reason to Vacate Award Morgan Keegan Was Ordered to Pay Investors, Says District Court, Stockbroker Fraud Blog, April 8, 2013

April 10, 2013

Medical Capital Fraud Lawsuit Against Wells Fargo Must Proceed

U.S. District Judge David Carter has turned down Wells Fargo & Co.'s (WFC) bid to throw out a securities lawsuit filed by investors accusing the investment bank of not fulfilling its role as trustee for debt issued by Medical Capital Holdings, which failed in an approximately billion dollar fraud in 2009. His ruling removes any obstacles to a possible trial. Claims could hit the hundreds of millions of dollars.

The investors in this securities case are among those that purchased notes put out by three Medical Capital special purpose companies that named the investment bank as their trustee. They are accusing Wells Fargo of 63 breaches. Meantime, the financial firm maintains that it didn’t act in bad faith and it wasn’t negligent in the way it fulfilled its contractual duties.

Per court documents, the holding company had raised $1.7 billion from over 20,000 investors between 2003 and July 2009, which was when the SEC filed a securities fraud lawsuit against it and two of its executives. The company soon shut its doors. Later, a receiver discovered that investors had lost $839 million to $1.08 billion in a Ponzi-like scam that involved the payment of extra fees.

The plaintiffs contend that rather than disburse funds so that the holding company could provide financing to medical care providers by buying their outstanding receivables, Wells Fargo failed to prevent Medical Capital from diverting their cash to excessive administration fees and non-medical projects. Meantime, in their February filing, attorneys for the investment bank said that even after the plaintiffs deposed its employees no evidence had surfaced to show that any of them knew of any wrongdoing on Medical Capital’s part and that any suspicion of such behavior did not arise until 2009 when payments began defaulting and the SEC began its investigation.

Judge Carter ruled in the investors’ favor on some claims, finding that noteholders demonstrated that there existed a “genuine dispute” over whether any breach committed by Wells Fargo was a “cause in fact” of losses they sustained. He also gave them permission to pursue a claim that the investment bank disbursed certain funds in bad faith. However, he threw out other claims that they made against the financial firm.

It was almost a year ago that ex- Medical Capital president Joseph J. Lampariello pleaded guilty to wire fraud related to the private placement fraud, which ended up forcing dozens of independent brokerage firms to go out of business because of the securities fraud lawsuits by investors that followed. Lampariello also was sued by the SEC in 2009 for running Medical Provider Funding Corp. VI, which was Medical Capital’s final offering. (The civil case against him, however, was closed so that the criminal case could move forward.)

Although investors were told the proceeds raised by MedCap VI would go toward making loans, buying account receivables, paying sales commissions, other expenses, and general operations, Lampariello and others “misappropriated” this money to make Ponzi-type payments to earlier noteholders and pay fees to Medical Capital. The Justice Department said that Lampariello caused MedCap VI noteholders to sustain about $39 million in losses.

Wells Fargo must face lawsuit tied to Medical Capital fraud, Reuters, April 3, 2013

Judge denies Wells Fargo bid as MedCap suit rolls on, Investments News, April 4, 2013


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Federal Workers’ Privacy Rights if STOCK Act Provision Mandating Online Disclosure of Financial Data Goes Into Effect, Says District Court Judge, Institutional Investor Securities Blog, April 8, 2013

Previous Dissent by Arbitrator is Not Reason to Vacate Award Morgan Keegan Was Ordered to Pay Investors, Says District Court, Stockbroker Fraud Blog, April 8, 2013

Goldman Sachs Execution and Clearing Must Pay $20.5M Arbitration Award in Bayou Ponzi Scam, Upholds 2nd Circuit, Institutional Investor Securities Blog, July 14, 2012

April 9, 2013

Many Investors Find that Securities Arbitration Can Be Better than Court

The dismissal of an Apple REIT class action lawsuit against David Lerner Associates Inc. in U.S. District Court for the Eastern District of New York should have little effect on the Apple REIT arbitration cases that are being resolved through Financial Industry Regulatory Authority arbitration. In fact, most investors are likely to recoup their losses via this avenue.

Per Bloomberg, Investors are contending that they were defrauded in the underwriting and sale of more than $6.8 billion Apple Real Estate Investment Trusts (REITs), which were marketed as suitable for conservative investors. Meantime, Lerner Associates earned over $600 million in commissions and fees as five Apple REITs made above $6 billion.

Last year alone, FINRA told David Lerner to pay $12 million in Apple REIT Ten restitution to investors. The financial firm allegedly targeted elderly investors, misleading them while failing to properly disclose the risks involved in the securities.

In this class action case, the judge threw out the plaintiffs’ arguments that the offering materials for the Apple REITs had misrepresentations. Yet, as Shepherd Smith Edwards and Kantas, LLP Founder and REIT Attorney William Shepherd points out, it isn’t so much that Lerner made representations about the real estate investment trusts but that they were not suitable for the investors that he is currently recommending.

This means that even if the risks were properly disclosed, if the investment was unsuitable for the client it was recommended to, there could likely be grounds for a securities case and resulting recovery.

“Securities class action cases can only be pursued under federal securities fraud laws,” points out Apple REIT Attorney Shepherd. “Securities arbitration claims can be sought under state securities laws, which are usually far better for investors. As well, such claims can be sought for breach of fiduciary duty, breach of contract, and even negligence. More importantly, the average recovery in securities class action cases is less than 10% of the investors’ losses. For these and other reasons, many investors’ cases fare better in securities arbitration than in court.”

Big win in court for David Lerner, Investment News, April 5, 2013

Class-action suit against David Lerner Associates dismissed, Newsday, April 4, 2013


More Blog Posts:
Prospective Securities Class Action Lawsuit Accuses David Lerner Associates Inc. Accused of Recycling Investor Capital and Using a Credit Line to Meet Dividend Payout, Stockbroker Fraud Blog, September 30, 2011

David Lerner Associates Must Pay $14M Over Apple REIT Ten Sales and Allegedly Excessive Markups Involving CMOs and Municipal Bonds—$12M to Go to Investors, Institutional Investor Securities Blog, October 22, 2012

April 4, 2013

RMBS Lawsuit Against Deutsche Bank Can Proceed, Says District Court

The U.S. District Court for the Southern District of New York is refusing to throw out the shareholder securities fraud lawsuit filed against Deutsche Bank (DB) and three individuals over their alleged role in marketing residential mortgage-backed securities and mortgage-backed securities before the economic crisis. The court found that the plaintiffs, led by Building Trades United Pension Fund, the Steward International Enhanced Index Fund, and the Steward Global Equity Income Fund, provided clear allegations that omissions and misstatements were made and there had been a scam with intent to defraud.

The RMBS lawsuit accuses Deutsche Bank of putting out misleading and false statements regarding its financial health prior to the financial crisis. The plaintiffs contend that the financial firm created and sold MBS it was aware were toxic, while overstating how well it could handle risk, and did not write down fast enough the securities that had dropped in value. Because of this, claim the shareholders, the investment bank’s stock dropped 87% in under 24 months.

U.S. District Judge Katherine Forrest said that the plaintiffs did an adequate job of alleging that even as Deutsche Bank talked in public about its low risk lending standards, senior employees at the firm were given information showing the opposite. She said that there are allegations of recklessness that are “plausible.” The district court also found that the complaint adequately alleged control person and antifraud violations involving defendants Chief Executive Officer Josef Ackermann, Chief Financial Officer Anthony Di Iorio, and Chief Risk Officer Hugo Banziger, who are accused of making material misstatements about the risks involved in investing in CDOS and RMBS while knowing they were less conservative than what investors might think. Claims against defendant ex-Supervisory Board Chairman Clemens Borsig, however, were thrown out due to the plaintiffs’ failure to allege that he made an actual misstatement.

The MBS case is looking for investors that purchased Deutsche stock between January 2007 and January 2009.

Deutsche Bank must face shareholder lawsuit: judge, Chicago Tribune, March 27, 2013

IBEW Local 90 Pension Fund v. Deutsche Bank AG (PDF)


More Blog Posts:
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Barclays LIBOR Manipulation Scam Places Citigroup, Credit Suisse, Deutsche Bank, JP Morgan Chase, and UBS Under The Investigation Microscope, Institutional Investor Securities Blog, July 16, 2012

March 28, 2013

2nd Circuit Eases MBS Lawsuits by Reinstating Pension Fund’s Case Against Wells Fargo, Royal Bank of Scotland, Wachovia, & Others

The U.S. Court of Appeals for the Second Circuit has reinstated New Jersey Carpenters Health Fund v. Royal Bank of Scotland Group PLC (RBS), which also includes defendants Wells Fargo Advisors (WFC), McGraw-Hill (MHP), and a number of others. The decision will ease class action mortgage-backed securities lawsuits by investors.

Holding that the plaintiff did not satisfy pleading requirements under the Securities Act of 1933 for lawsuits, a district court had thrown out the case, which was filed by the New Jersey pension fund. The 2nd circuit, however, reversed the ruling, finding that the allegations made (that an unusually high number of mortgages involving a security had defaulted, credit rater agencies downgraded the ratings of the security after modifying how they account for inadequate underwriting, and ex-employees of the relevant underwriter vouched that underwriting standards were being systematically ignored) make a plausible claim that the security’s offering documents incorrectly stated the applicable writing standards. This would be a Securities Act of 1933 violation.

Expected to benefit from the ruling are federal credit union regulators, including the National Credit Union Administration, which has submitted a number of MBS lawsuits against financial firms and banks. Last year, NCUA filed a $3.6 billion action against JP Morgan Chase (JPM) accusing the latter’s Bear Stearns & Co. unit of employing misleading documents to sell mortgage-backed securities to four corporate credit unions that went on to fail. The credit union agency contends that the mortgage in the pools collateralizing the RMBS (residential mortgage-backed securities) did not primarily adhere to underwriting standards noted in the offering statements and the securities were much riskier than what they were represented to be. NCUA has also sued a few of the defendants that the New Jersey Carpenters Health Fund is suing, as well as Goldman Sachs Group (GS) and Barclays.

Mortgage-Backed Securities Lawsuits
According to NERA Economic Consulting, about 850 mortgage-related cases have been submitted in the US since 2007. While the earlier lawsuits concentrated on the originators, with plaintiffs placing a lot of the blame on poor underwriting and bad loans, banks that created securities from residential mortgages and got investors to buy in also were eventually named as defendants. Meantime, trustees have come into the fray as either plaintiffs or defendants. For example, some have been sued for allegedly failing to make lenders buy back the faulty mortgages underlying the securities. Some mortgage bond investors have also been named as defendants in MBS cases.

At Shepherd Smith Edwards and Kantas, LTD, LLP, our RMBS lawyers represent clients in the US, as well as investors abroad that were defrauded by a firm or financial representative based here. Your first MBS case consultation with our institutional investment fraud law firm is free.

NEW JERSEY CARPENTERS HEALTH FUND v. THE ROYAL BANK OF SCOTLAND GROUP, PLC, Leagle.com

New Jersey Carpenters v. Royal Bank of Scotland - Second Circuit, American Bar Association

Second Circuit Rules in Favor of Investors in Multibillion Dollar NovaStar MBS Class Action, Reuters/Businesswire, March 1, 2013


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Former Jeffries Director Charged with Securities Fraud Crimes and Sued By SEC Over Alleged Residential Mortgage-Backed Securities, Stockbroker Fraud Blog, February 1, 2013

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

Morgan Keegan Settles Subprime Mortgage-Backed Securities Charges for $200M, Stockbroker Fraud Blog, June 29, 2011

March 20, 2013

Citigroup Will Pay $730M in Bond Lawsuit Alleging It Misled Debt Investors

Pending court approval, Citigroup Inc. (C) will $730 million to resolve claims that it misled debt investors regarding its financial state during the economic crisis. The plaintiffs had purchased Citi preferred stock and bonds from 5/06 through 11/8. They are accusing Citigroup of misleading the buyers of 48 issues of its corporate bonds. Included among the plaintiffs of this bond lawsuit are the City of Philadelphia Board of Pensions and Retirement, the Louisiana Sheriffs’ Pension and Relief Fund, and the Minneapolis Firefighters’ Relief Association.

The bonds’ declined as the US mortgage market collapsed and the losses grew. According to Bloomberg.com, at one point, Citigroup’s $4 billion of 10-year notes declined to 79.7 cents on the dollar. It went on to lose over $29 billion in ‘08 and ’09.

Struggling from losses involving subprime mortgages, Citigroup ended up having to take a $45 million bailout in 2008, which it has since repaid. However, it is one of the Wall Street firms still coping with the aftermath of the financial crisis. Just last year, Citi consented to pay $590 million over a securities case filed by investors of stock contending that they too had been misled.

In ‘10, a district court judge rejected part of Citigroup’s motion to have this bond lawsuit tossed out. Claims that were dismissed involved the allegedly inadequate disclosure about auction-rate securities and part of the investors’ case involving structured investment vehicles.

Despite settling, the investment bank maintains that the allegations in this bond lawsuit are untrue. Citigroup contends that is only resolved the securities lawsuit to avoid the uncertainty and expense of having to go to court.

If you suspect that your investment losses were a result of securities fraud, contact our institutional investor fraud law firm today.

Citigroup to Pay $730 Million in Bond-Lawsuit Settlement, Bloomberg Businessweek, March 19, 2013

Citi To Pay $590 Million To Burned Shareholders In Toxic Asset Case, Forbes, August 29, 2012


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March 19, 2013

Stakeholders With $55M Securities Fraud Case Against Government Over AIG Bailout Get Class Action Certification

The plaintiffs who are suing the US Government over losses they claim they sustained during its bailout of American International Group (AIG) have been granted class certification. Seeking $55 million, they are contending that the government behaved unconstitutionally when it rescued the company in 2008 during the economic crisis.

In their securities case, investment firm Starr International Co. is claiming that the federal government violated the Fifth Amendment via two transactions that resulted in the delivery of $182 billion in loans backed by US taxpayers and other financial facilities to the beleaguered insurance giant. Starr once was the largest shareholder of AIG, possessing a 12% stake. Judge Thomas C. Wheeler of the U.S. Court of Federal Claims certified two classes related to the two transactions.

One class is comprised of AIG shareholders from September 22, 2008, when a credit agreement granting the government a 79.9% stake in AIG went into effect. The second class is made up of shareholders from the beginning of June 30, 2009 that were not given the chance to vote on a reverse stock split that the government allegedly initiated. The plaintiffs say that both actions were an illegal taking that violated the US Constitution.

They claim that the US government effected a property taking by executing a number of actions that at the end caused the latter to acquire an over 90% interest ownership in AIG. They are also accusing the government of being in violation of the law when it took or was involved in “illegally exacting” 526 million AIG shares valued at about $23 billion without giving shareholders fair compensation. Another claim accuses the Federal Reserve Bank of New York of giving away the insurer’s legal rights and $32.5 billion of collateral to counterparties of AIG.

The government tried to argue that the proposed class did not meet the US Court of Federal Claims’ adequacy requirement for certification qualification, which has to make sure that class members don’t have interests that antagonize the other’s, and that such conflicts existed between the two classes. The court, however, found that Starr did a sufficient job of alleging that the two proposed classes interests were distinct and nonexclusive enough that there was no conflict. It also determined that a class action would be best seeing as there may be tens of thousands of class members.

Earlier this year, AIG decided not to join Starr International Co’s lawsuit after voters and Congress expressed anger that the insurer might sue the entity that came to its rescue. This, AIG repurchased warrants from the US Treasury Department. Now the US no longer has any financial stake in the insurance giant.

At Shepherd Smith Edwards and Kantas, LTD, LLP, our institutional investment fraud lawyers represent clients with individual securities cases. We find that investors stand to recover more when they file their own fraud claims or lawsuits. We have helped thousands of claimants and plaintiffs recover their investment losses.

Related Web Resources:
Starr International Co. v. United States, Law.du.edu

AIG Stakeholders Certified in Class Suit Alleging Government Bailout Unconstitutional, Bloomberg/BNA, March 18, 2013

AIG shareholders' suit certified as class-action
, Chicago Tribune/Reuters, March 11, 2013


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Securities Law Roundup: Ex-Sentinel Management Group Execs Indicted Over Alleged $500M Fraud, Egan-Jones Rating Wants Court to Hear Bias Claim Against SEC, and Oppenheimer Funds Pays $35M Over Alleged Mutual Fund Misstatements, Stockbroker Fraud Blog, June 13, 2012

March 14, 2013

Two Oppenheimer Investment Advisers Settle for Over $2.8M SEC Fraud Charges Over Private Equity Fund

The SEC is charging Oppenheimer Alternative Investment Management and Oppenheimer Asset Management, which are two Oppenheimer & Co. investment advisers, with misleading customers about the valuation policies and performance of a private equity fund under their management. To settle the allegations, Oppenheimer will pay over $2.8M. It has also resolved the related action that was filed by Massachusetts Attorney General Martha Coakley.

According to the SEC, from 10/09 to 6/10, the two Oppenheimer investment advisers put out marketing collaterals and quarterly reports that were misleading and claimed that Oppenheimer Global Resource Private Equity Fund I L.P.'s holdings in private equity funds had values that were determined according to the estimated values of the underlying manager. In truth, contends the regulator, Oppenheimer’s portfolio manager actually valued the largest investment of the fund, Cartesian Investors-A LLC, at a markup that was considerable to the underlying manager’s estimated value. This discrepancy made it appear as if the fund’s performance was much better, per its internal rate of return. For example, at the conclusion of the quarter ending on June 30, 2009, the markup of the investment upped the internal return rate from 3.8% to 38.3%

Among the alleged misrepresentations made by ex-OAM employees to potential investors were:

· The rise in Cartesian’s value was because of a rise in its performance, when, actually, it was because of the new valuation method implemented by the portfolio manager.

· The false claim that a third-party valuation firm had written up Cartesian’s value.

· The false claim that independent third-party auditors had audited OGR’s underlying funds when actually Cartesian had not been audited.

Also, per the SEC, the policies and procedures of OAM were not reasonably structured to make sure that valuations given to existing and prospective clients were put forth in a way that was in line with written representations made to potential clients and actual investors. The Commission says that OAM’s conduct violated sections of the Securities Act of 1933, the Investment Advisers Act of 1940, and Rules 206(4)-8 and 206(4)-7.

Regarding the settlement with the state, the penalty there is $132,421. As for the over $2.8M to the SEC, $200,000 will go to the pension fund of the city of Quincy and $150,000 will go to the pension fund of the city of Brockton. Oppenheimer is also going to modify its internal controls and valuation policies.

If you think you may have suffered losses because your financial representative made misrepresentations and omissions that influenced or decision to make an investment, contact Shepherd Smith Edwards and Kantas, LTD LLP today. Your first securities case assessment is free.

Oppenheimer & Co. to Pay Fine Over Fund, Wall Street Journal, March 11, 2013

Oppenheimer to Pay $2.8 Million to Settle Allegations of Misrepresenting Performance of Fund to Investors, Mass.gov, March 11, 2013

Investment Advisers Act of 1940 (PDF)

Securities Act of 1933 (PDF)


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8/31/11 is Deadline for Opting Out of $100M Oppenheimer Mutual Funds Class Action Settlement, Stockbroker Fraud Blog, August 17, 2011

February 20, 2013

New York Fed Bailed Out Bank of America Over Mortgage-Backed Securities Sold to AIG

Recently, a secret deal came to light involving the Federal Reserve Bank of New York bailing out Bank of America (BAC) that released the latter from all legal claims involving mortgage-backed securities losses that the former obtained when the government rescued American International Group (AIG) in 2008. Some believe that the bank was allowed to abscond responsibility even as AIG sought to recover $7 billion that was loss on these same MBSs.

According to The New York Times, as part of its settlement with BofA, the New York Fed obtained $43 million in a securities dispute involving two of the mortgage securities. For no compensation, the bank was released from all other legal claims.

The roots of this settlement can be traced back to 2008 when the government intervened to rescue AIG . Part of that aid involved AIG selling mortgage securities to Maiden Lane II, which the New York Fed oversees. At the time, the insurer was losing money from toxic mortgages, many of which came from BofA. AIG obtained $20.8 billion for securities valued at $39.2 billion.

In 2011, AIG sued BofA for securities fraud in attempted to obtain $10 billion in damages--$7 billion from the Maiden Lane II-related securities. Meantime, Bank of America argued that AIG had no grounds for suing it on these securities, noting that possession of the entitlement to bring a legal lawsuit against the bank had passed to Maiden Lane. New York Fed, which controlled Maiden Lane II, never brought securities claims against BofA.

However, AIG contended that under New York law, which Maiden Lain II is subject to, an entity must explicitly transfer the right to sue for fraud and that the deal between AIG and the New York Fed never specified this switch. AIG then filed a separate MBS lawsuit against Maiden Lane II in New York.

Now, AIG’s $10 billion fraud lawsuit against BofA has gone to federal court. Federal Judge Mariana R. Pfaelzer in California’s central district will rule on who is the claims’ owner.

While the New York Fed agreed in late 2011 that AIG is entitled to seek damages on instruments that it sold to Maiden Lane II, it is now aiding BofA in the latter’s legal fight against AIG, even providing a declaration that Maiden Lane II was the only one entitled to sue. Some, however, are asking why if the New York Fed meant for Maiden Lane II to possess ownership of the right to sue Bank of America it didn’t try to file its own claim for taxpayers rather than discharging the bank from liability. Meantime, the question of whether BofA should be liable for wrongdoing committed by Countrywide during economic crisis has still not been answered.

Don’t Blink, or You’ll Miss Another Bailout, The New York TImes, February 16, 2013

AIG sues NY Fed over right to


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

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February 14, 2013

UBS Fails in Bid to Block $125M ARS Arbitration Case by Allina Health System

A district court judge in Minnesota has ordered a $125 million auction-rate securities arbitration case filed by Allina Health System against UBS (UBS) to proceed.

U.S. District Judge Michael Davis found that claimant Allina is indeed a UBS client even though the financial firm had argued that under Financial Industry Regulatory Authority rules ARS issuers are not underwriter customers. The Minnesota non-profit healthcare system had filed its securities claim over ARS it issued in October 2007 that were part of a $475 million bond issuance to finance renovations and remodeling, as well as refinance debt. UBS was its underwriter.

Allina contends that the market collapsed in 2008 because UBS and other financial firms stopped putting in support bids to keep auctions from failing. The healthcare group says that because of this, it had to pay a great deal of money to refinance the securities and make higher bound payments after losing its bond insurance. Allina claims that UBS did not properly represent the ARS market risks, breached its fiduciary duties, and violated state and federal securities laws.

In his decision, Judge Davis noted other rulings in similar cases that rejected other banks’ contentions that the plaintiff was not considered a customer under FINRA rules. One need only look to last month’s 4th U.S. Circuit Court of Appeals decision to let Carilion Clinic proceed with its ARS arbitration case against Citigroup (C) and UBS. Davis also turned down UBS's claim that agreements it made with Allina mandated that any disputes be submitted to the New York courts or the American Arbitration Association.

Related Web Resources:
British watchdog fines UBS 9.45 mn pounds for mis-selling fund, Advisen/APF, February 12, 2013

UBS Fined $14.7 Million by U.K. on AIG Fund Sale Failings, Bloomberg, February 12, 2013


More Blog Posts:
UBS & Citi Do Have to Arbitrate Auction-Rate Securities Case Filed by Health Care Nonprofit Carilion Clinic, Institutional Investor Securities Blog, January 31, 2013

Despite Her Involvement in Dozens of Securities Cases, Brokerage Firms Continue to Clear Trades of Newport Coast Securities Broker Bambi I. Holzer, Stockbroker Fraud Blog, January 10, 2013

Morgan Stanley Smith Barney Ordered by FINRA Arbitration Panel to Pay $5M Over Allegedly False Promises Made To Brokers Recruited from UBS AG, Stockbroker Fraud Blog, January 22, 2013

February 12, 2013

Morgan Keegan Must Buy Back Auction-Rate Securities and Pay $110,500, Says District Judge

A US District judge is ordering Morgan Keegan & Co. to repurchase auction-rate securities and make a payment of $110,500 in an ARS lawsuit filed by the SEC that accuses the financial firm of misleading investors about these investments’ risks. The SEC contends that the $2.2B in securities that the firm sold left clients with frozen funds when the market failed in 2008.

Even after the financial firm started buying back ARS—it has since repurchased $2B in ARS of its own accord—the SEC decided to proceed with its securities case. The Commission contends that even as the ARS market failed, Morgan Keegan told clients that the securities being sold came with “zero risk” and were short-term investments that were liquid.

Now, Judge William Duffey Jr. has found that although Morgan Keegan’s brokers did not act fraudulently, some of them acted negligently when they left out key information and made misrepresentations when selling the securities. This including not apprising investors about the risk of failure, liquidity loss, or that interest rates might vary.

Duffey is the same judge who dismissed this very case in 2011. However, last May, the US Court of Appeals in Atlanta overturned his decision after determining that he wrongly found that verbal comments made to certain customers were not material because of disclosures that could be found on the financial firm’s web site.

Morgan Keegan Trial Judge to Decide SEC Case He Dismissed, Bloomberg.com, November 26, 2012


More Blog Posts:
Morgan Keegan Founder Faces SEC Charges Over Mortgage-Backed Securities Asset Pricing in Mutual Funds, Institutional Investor Securities Blog, December 17, 2012

Judge that Dismissed Regulators’ Claims Against Morgan Keegan to Rule on ARS Lawsuit Again After His Ruling Was Reversed on Appeal, Institutional Investor Securities Blog, November 27, 2012

Court Upholds Ex-NBA Star Horace Grant $1.46M FINRA Arbitration Award from Morgan Keegan & Co. Over Mortgage-Backed Bond Losses, Stockbroker fraud Blog, October 30, 2012

Continue reading "Morgan Keegan Must Buy Back Auction-Rate Securities and Pay $110,500, Says District Judge " »

February 11, 2013

JP Morgan Sued by Dexia in $1.7B MBS Lawsuit

Dexia SA (DEXB) is suing JP Morgan Chase & Co. (JPM ) for over $1.7 billion. In its mortgage-backed securities lawsuit, the Belgian-French bank contends that the loans underlying the securities that the US bank sold it were riskier than what they were represented to be.

JP Morgan and its companies, Washington Mutual (WM) and Bear Stearns Co., are accused of “egregious” fraud for allegedly making and selling mortgage bonds backed by loans that they knew were “exceptionally bad.” Dexia claims it sustained substantial losses.

According to The New York Times, there are a slew of employee interviews and internal e-mails related to this MBS lawsuit that talk about how the three firms disregarded quality controls and problems—perhaps even concealing the latter—in order to make a profit from these mortgages that were packaged into complex securities. They are accused of seeking to avail of the mortgage-backed securities demand during the housing boom even as doubts began to arise about whether or not these investments were good quality. Court filings report that JPMorgan would get mortgages from lenders that didn’t have stellar records, assigning Washington Mutual and American Home Mortgage a “poor” grade on its “internal ‘due diligence scorecard.’” The loans were then swiftly sold off to investors.

Meantime, Bear Stearns and Washington Mutual are also said to have cut back on quality controls—the latter even reducing due diligence staff by 25% for the supposed purpose of upping profits. One e-mail said that executives who protested these actions were harassed.

Also, per court documents, a 2006 analysis for JP Morgan by a third party to study home loans before they were bundled into investments determined that close to half the sample pool—about 214 loans—were “defective,” meaning that they failed to satisfy underwriting standards. Meantime, considering the size of some mortgages, the incomes of its borrowers were reportedly precariously low, and per another report that year, thousands of borrowers were late on payments. Yet, contend the documents, JP Morgan would on occasion disregard or change these critical assessments while giving certain employees, including bankers that put together the mortgages, the authority to veto or turn a blind eye to these negative reviews. JP Morgan executives at times even allegedly lowered the number of loans thought delinquent or “defective.”

All of these actions were allegedly part of a plan to raise profit. One Washington Mutual employee even revealed in a deposition that making the loan defects known would have been harmful to the financial firm. Also, because some firms did not give an accurate portrayal of their investments, this impacted the way credit ratings agencies would rate the securities.

Since the financial crisis, Dexia has been bailed out twice. Court records show that it sustained $774 million in losses on MBS, which overall cost over $22.5 billion in losses from 2005 and 2007 alone.

Related Web Resources:
E-Mails Imply JPMorgan Knew Some Mortgage Deals Were Bad, The New York TImes, February 6, 2013

JPMorgan Sued by Dexia Over $1.7 Billion in Mortgage-Backed Securities, Bloomberg, January 20, 2012


More Blog Posts:
JPMorgan, Goldman Sachs, Bank of New York Mellon, Charles Schwab Disclose Market-Based NAVs of Money Market Mutual Funds, Stockbroker Fraud Blog, February 7, 2013

Texas Securities Criminal Case Against Oil and Gas Company Executive Can Proceed, Rules Fifth Circuit, Stockbroker Fraud Blog, February 6, 2013

Morgan Keegan Founder Faces SEC Charges Over Mortgage-Backed Securities Asset Pricing in Mutual Funds, Institutional Investor Securities Blog, December 17, 2012

February 9, 2013

Oppenheimer Must Pay $30M to US Airways Group Over ARS Losses

A Financial Industry Regulatory Authority arbitration panel says that Oppenheimer & Co. has to pay US Airways Group Inc. (LCCC) $30 million for losses that the latter sustained in auction-rate securities. The securities arbitration case is related to the airline group’s contention that the financial firm and one of its former brokers misrepresented certain ARS that were structured and private placement.

US Airways had initially sought $110M in compensatory damages and $26 million in interest and legal fees. The FINRA panel, however, decided that Oppenheimer and its ex-broker, Victor Woo, owed $30 million—Woo’s part will not be greater than what he made in commissions. Oppenheimer is now thinking about whether to submit a motion to vacate the arbitration panel’s order.

The financial firm is, however, going to go ahead with the arbitration it had filed against Deutsche Bank (DB) to get back the award money and associated costs from this case. Oppenheimer’s claim against Deutsche Bank is linked to the US Airways case but became a separate proceeding in 2010.

Oppenheimer contends that if any ARS misrepresentations were made to US Airways the source of blame is Deutsche Bank and its auction process, as well as on the credit ratings that were issued by Standard and Poor’s and Fitch Ratings.

Auction-Rate Securities
ARS are debt instruments with interest rates that are supposed to reset during auctions that occur on a monthly, weekly, or daily schedule. Many investors were unpleasantly surprised to find that their money became frozen when a number of auctions failed in 2008. They claim they were told that the securities were liquid and safe like cash.

You want to speak with an experienced ARS law firm that knows how to successfully handle this type of securities case.

Oppenheimer Ordered to Pay US Airways $30M, The Wall Street Journal, February 1, 2013

Oppenheimer v. Deutsche Bank (PDF)


More Blog Posts:
Oppenheimer & Co. Must Buyback $6M in Auction-Rate Securities from Investor, Says FINRA Arbitration Panel, Institutional Investor Securities Blog, January 11, 2012

Oppenheimer Funds Investors Can Proceed with Their Securities Fraud Lawsuit, Stockbroker Fraud Blog, November 19, 2011

Investors in Oppenheimer Mutual Funds Considering Opting Out of $100M Class Action Settlement Have Until August 31, Institutional Investor Securities Blog, August 6 2011

January 31, 2013

UBS & Citi Do Have to Arbitrate Auction-Rate Securities Case Filed by Health Care Nonprofit Carilion Clinic

According to the U.S. Court of Appeals for the Fourth Circuit, a district court was right when it decided not to stop Carilion Clinic’s arbitration proceeding against Citigroup Global Markets (C) and UBS Financial Services (UBS) for an ARS issuance that proved unsuccessful. The financial firms had served the healthcare nonprofit in a number of capacities, including providing underwriting services.

Carilion had retained UBS and Citi in 2005 to raise over $308M so that it could redo its medical facilities. They are accused of recommending that Carilion put out over $72M of bonds in the form of variable demand rate obligations and $234 million in ARS.

When the auction-rate securities market took a huge dive in February 2008, Citi and UBS ended their policy of supporting the market and the auctions started to fail. As a result, result, Carilion allegedly was forced to refinance what it owed to avoid higher interest rates and it sustained losses in the millions of dollars. The nonprofit later began auction-rate securities arbitration proceedings with FINRA against both firms.

Although arbitration wasn’t provided for in the written agreements, Carilion contended that as the firms’ customer, it was entitled to turn in the dispute to the SRO. The district court concurred, finding that seeing as Citi and UBS provided Carilion with a number of financial services for payment, the nonprofit meets the meaning of the term of having been a ‘customer’ of both Citi and UBS for FINRA arbitration code purposes. The court disagreed that Carilion gave up being able to arbitrate when it consented to the mandatory forum selection clause that lets the court litigate such disputes.

Now, the appeals court is affirming the district court’s findings about both the term “customer” and the forum selection clause.

If you believe that your company has been the victim of institutional investment fraud, you should consult with an experienced securities law firm right away. Your case evaluation should be free.

UBS Financial Services V. Clinic (PDF)

Citi, UBS Must Arbitrate Dispute With Nonprofit, 4th Circuit Affirms, Alacra Store, January 24, 2013


More Blog Posts:
Despite Her Involvement in Dozens of Securities Cases, Brokerage Firms Continue to Clear Trades of Newport Coast Securities Broker Bambi I. Holzer, Stockbroker Fraud Blog, January 10, 2013

Judge that Dismissed Regulators’ Claims Against Morgan Keegan to Rule on ARS Lawsuit Again After His Ruling Was Reversed on Appeal, Institutional Investor Securities Blog, November 27, 2012

US Supreme Court to Hear Appeals of Petitioners Over Stanford Ponzi Lawsuits, Stockbroker Fraud Blog, January 5, 2013

January 29, 2013

US Seeking to File Criminal Charges Against Royal Bank of Scotland Group in Interest-Rate-Rigging Settlement Involving Libor

Authorities in the United States want to reach a settlement with Royal Bank of Scotland Group (RBS.L) that would require that the British bank plead guilty to criminal charges and pay about $790M in penalties to Britain and America over its alleged involvement in last year’s Libor-rigging scandal. RBS would be the third bank to settle over interest-rate-rigging allegations. UBS AG (UBS) and Barclays PLC (BCS) reached settlements last year that together totaled almost $2 billion. They both admitted to committing wrongdoing.

Prosecutors want an RBS unit where some of the alleged rate-rigging occurred to plead guilty to attempting to manipulate the rates. Currently, reports The Wall Street Journal, RBS executives are balking at making such an admission, especially because it could make exposure to securities lawsuits greater. However, ultimately the decision is up to the US Justice Department.

Meantime, at least a dozen other banks around the world are still under investigation for trying to manipulate Libor and Euribor. Bloomberg reports that it has obtained documents that show that for years traders at numerous banks worked with colleagues tasked with establishing the Libor benchmark to rig the price of money. The traders reportedly knew each other from work or from trips involving interdeal brokers. The manipulation of the Libor is believed to have gone on for years.

Libor is calculated everyday. This is done with surveying banks and finding out the cost to them to borrow in 10 currencies for periods as short as overnight to as long as a year. Bottom and top quartile quotes are left out while the remaining ones are averaged and made public in London before 12p. Since estimates and not actual trade data is used, participants need to act with integrity. Unfortunately, there were derivatives traders that failed to uphold the system’s integrity.

Regulators reportedly knew as early as late 2005 that there were banks using Libor submission that were artificially low to make them seem healthier. However, the Bank of England and The New York fed have said that they didn’t do anything about it because Libor was not under their oversight.

Related Web Resources:
Libor Lies Revealed in Rigging of $300 Trillion Benchmark, Bloomberg, January 28, 2013

U.S. Wants Criminal Charges for RBS, The Wall Street Journal, January 29, 2013


More Blog Posts:
LIBOR Investigation Leads to Three Arrests, Institutional Investor Securities Blog, December 11, 2012

Barclays LIBOR Manipulation Scam Places Citigroup, Credit Suisse, Deutsche Bank, JP Morgan Chase, and UBS Under The Investigation Microscope, Institutional Investor Securities Blog, July 16, 2012

US Supreme Court to Hear Appeals of Petitioners Over Stanford Ponzi Lawsuits, Stockbroker Fraud Blog, January 25, 2013

January 23, 2013

JPMorgan CEO Jamie Dimon Blames Regulators for Problems in the Wake of Economic Crisis

Speaking at a panel at the World Economic Forum in Davos, Jamie Dimon, the chief executive officer of JPMorgan Chase (JPM), said that one reason many of the issues from the 2008 financial crisis have yet to be fixed is because new regulations have made things more complex. Dimon said that not only is too much being attempted too quickly, but also he believed that regulators have become too overwhelmed by the rules.

Dimon said that rather improving the system, during the last five years there has been a great deal of placing blame and exchanging misinformation. He did, however, praise the Federal Reserve, which he said saved “the system” by coming to the rescue after Lehman Brothers failed.

“It’s unbelievable that Mr. Jamie Diamond would be complaining so loudly about regulations,” said Institutional Investment Fraud Lawyer William Shepherd. “Among other gambling woes, his company just took a $6 billion loss on one of his traders bets! Look where deregulation of the financial markets got us 5 years ago! After the 1929 debacle, laws were passed to regulate these markets. One outlawed banks and securities firms being under the same umbrella. In fact, this is how Morgan Stanley (MS) was formed, as a forced spinoff of JP Morgan Bank. Lawmakers had decided that banks insured by FDIC, thus the taxpayers, should not gamble in the securities markets. Unfortunately, that law was repealed, and less than 10 years later our financial system collapsed again. Congress should have simply reinstituted the ban on such combined firms but has instead voted out far less protection. Stop your wining Jamie!

If you believe that securities fraud caused you to suffer financial losses, do not hesitate to contact Shepherd Smith Edwards and Kantas, LTD, LLP today.

Related Web Resources:
JPMorgan CEO Hits Back at Policymakers, Yahoo.com, January 23, 2013

JPMorgan slashes CEO Dimon's pay on "Whale" trade, Reuters, January 16, 2013


More Blog Posts:
JPMorgan Chase Ordered to Remedy Risk Management Breakdowns Involving “London Whale” Trades, Institutional Investor Securities Blog, January 17, 2013

New York’s Attorney General Sues JP Morgan Chase & Co. Over Alleged MBS Financial Fraud by Its Bear Stearns Unit, Stockbroker Fraud Blog, October 4, 2012

January 21, 2013

Large Financial Firms Roundup: Securities Fraud Suit Against Citigroup is Dismissed by 2nd Circuit, AIG Wants to File MBS-Related Cases Against Banks, & District Court Reconsiders Partial Dismiss of Class Action Against Morgan Stanley in Pension Fund Case

Second Circuit Dismisses Securities Fraud Lawsuit Against Citigroup
The U.S. Court of Appeals for the Second Circuit has affirmed the district court’s decision to throw out the securities fraud lawsuit filed by a real estate developer against Citigroup (C) and its former CEO Vikram Pandit. Sheldon H. Solow had accused both of them of allegedly making omissions and misstatements that highlighted the bank’s liquidity and capitalization while downplaying financial problems. Because of this, he contends, the financial firm’s stock price became artificially inflated and then fell when the truth about the firm’s financial health became known.

The appeals court held that while Solow, in his securities lawsuit, did an adequate job of pleading alleged misstatements and omissions about Citigroup’s liquidity, he did not succeed in showing that the statements caused his financial losses. It also dismissed his control-person claim against Pandit, saying that there was a failure to plead a primary violation by the bank.

AIG Wants to File MBS-Related Cases Against Banks
American International Group (AIG) wants to be able to assert tort and fraud claims against financial institutions that marketed and securitized mortgage-backed securities that AIG bought between 2005 and 2007. The insurance corporation wants the New York Supreme Court to declare that it owns billions of dollars in these claims. The case is American International Group v. Maiden Lane II.

Per the 23-page complaint, the Federal Reserve Bank of New York had created Maiden Lane II to give the broader financial markets and AIG stability in 2008. Maiden Lane II is the possessor of contract claims related to these securities and the New York Fed believes AIG moved the tort and fraud claims to Maiden Lane II in the asset purchase agreement that was made. AIG, however, remains adamant that it owns the claims.


District Court Reconsiders Partial Dismiss of Class Action Against Morgan Stanley in Pension Fund Case
A district court in New York says it will reconsider its partial dismissal of class action allegations accusing Morgan Stanley (MS) and a number of its affiliates of violating federal securities laws involving mortgage-backed securities sales. According to Judge Laura Taylor Swain, because the 2nd Circuit’s ruling in NECA-IBEW Health & Welfare Fund v. Goldman Sachs & Co. constituted an “intervening change of controlling law,” so warrants another look of the district court’s own earlier opinion.

According to the institutional investor plaintiffs, Morgan Stanley and affiliates sold them securities backed by home mortgage loans that had almost no value or were flawed. Investor Public Employees' Retirement System of Mississippi filed a securities complaint over its certificates purchase through one of 14 offerings by Morgan Stanley.
While the district court had partially dismissed the case in 2010 noting that MissPERS did not have standing to make claims on the other offerings from which it hadn’t bought certificates, in the wake of the Goldman ruling, plaintiffs of this case can now file an now file an amended complaint. The appeals court’s decision found that a putative lead plaintiff has class standing if having “plausibly alleged” that it experienced suffering from some actual injury because of conduct by the defendant that was “putatively illegal” and implicates the same concerns as the conduct (by the same defendants) that allegedly caused injury to the other class members.


Related Web Resources:
AIG Sues The New York Fed, Reuters/Business Insider, January 12, 2013

Federal appeals court dismisses Sheldon Solow’s lawsuit against Citigroup, The Real Deal, january 15, 2013

Intervening Change' in Law Leads Court To Reconsider Standing Question in MBS Suit, BNA/Bloomberg, January 15, 2013


More Blog Posts:
Credit Suisse Must Face ARS Lawsuit Over Subsidiary Brokerage’s Alleged Misconduct, Says District Court, Stockbroker Fraud Blog, January 11, 2013

Morgan Keegan Founder Faces SEC Charges Over Mortgage-Backed Securities Asset Pricing in Mutual Funds, Institutional Investor Securities Blog, December 17, 2012

Principals of Global Arena Capital Corp. and Berthel, Fisher & Company Financial Services, Inc. Settle FINRA Securities Allegations, Stockbroker Fraud Blog, April 6, 2012

January 17, 2013

JPMorgan Chase Ordered to Remedy Risk Management Breakdowns Involving “London Whale” Trades

The Office of the Comptroller of the Currency and The Federal Reserve is ordering JPMorgan Chase (JPM) to fix the breakdown that occurred in its risk management that resulted in the “London Whale” trades. These were outsized credit derivatives bets made by a group of traders in the UK that resulted in over $6 billion in losses for the investment bank. Due to the extremity of the some of the positions, prices in the markets became distorted. The “London Whale” is the nickname of one of the traders involved.

According to the newly issued enforcement actions, the internal controls of the bank did not succeed in spotting and preventing specific trading involving credited derivatives that Chief Investment Office Ina Drew conducted and this led to the losses. The OCC says that per investigations that were conducted, there had been certain deficiencies, such as poor risk management procedures and processes, insufficient governance and oversight for proper material risk protection, inadequate control of trade valuation, models that were not properly developed or implemented, and insufficient internal audit processes. Meantime, the Fed pointed to deficiencies of senior management letting the board of directors know about certain issues.

While JPMorgan Chase doesn’t have to pay a fine, there are steps it is going to have to take to enhance its risk management and improve its anti-money laundering procedures. The OCC says that the financial firm’s controls for anti-money laundering have key deficiencies related to the reporting of suspicious activity, the monitoring of transactions, risk assessment, customer due diligence, independent testing, and the proper placement of adequate internal control systems.

Now, JPMorgan has issued its “Whale Report” related to its 2012 CIO losses. The documents look at the complex bets on credit derivatives placed by the financial firm’s chief investment office, which started to create huge losses in early 2012. Among its conclusions:

• The CIO’s execution and judgment, and escalation of issues during 2012’s first quarter were poor.

• The financial firm failed to ensure the CIO’s controls and oversight grew along with the greater complexity and risks affecting the unit.

• CIO Risk Management didn’t have the needed staff and structure to run the portfolio

• Risks limits were lacking in granularity.

• Modifications to VaR, the risk-measurement tool, were flawed.

If you believe you were the victim of derivatives securities fraud, contact our institutional investment fraud law firm today.

Related Web Resources:
Read the JPMorgan Report

JPMorgan Chase's 'Whale' Harpooned by More Regulators, The Street, January 15, 2013

The Office of the Comptroller of the Currency

Federal Reserve


More Blog Posts:
JPMorgan Chase Must Pay Oil Heiress’s Trust $18M For Derivatives Investments, Account Mismanagement, and Unsuitable Investment Advice, Stockbroker Fraud Blog, October 12, 2012

New York’s Attorney General Sues JP Morgan Chase & Co. Over Alleged MBS Financial Fraud by Its Bear Stearns Unit, Stockbroker Fraud Blog, October 4, 2012

Barclays LIBOR Manipulation Scam Places Citigroup, Credit Suisse, Deutsche Bank, JP Morgan Chase, and UBS Under The Investigation Microscope, Institutional Investor Securities Blog, July 16, 2012

January 4, 2013

Pension Plans’ Shareholder Derivative Claims Against UBS is Reinstated by 1st Circuit Appeals Court

The U.S. Court of Appeals for the First Circuit has reinstated the shareholder derivative claims filed by two Puerto Rican pension funds against UBS Financial Services Inc. (UBS) Judge Kermit Lepez said that following de novo review—a district court had dismissed the case on the grounds that a failure to properly plead demand futility was subject to such an examination—it seemed to him that the plaintiffs’ allegations sufficiently show reasonable doubt about six fund directors’ ability to assess the former’s demand to bring this action with the independence and disinterest mandated by Puerto Rican law.

The two pension funds are the owners of shares in closed-end funds that made investments, which were not successful, through UBS entities. Their investment adviser and fund administrator is UBS Trust, which is a UBS Financial affiliate.

According to the court, UBS Financial, which has been Puerto Rico’s Employee Retirement System (ERS) financial adviser for more than five years, underwrote $2.9B of ERS-issued bonds. Meantime, the UBS Trust bought approximately $1.5B of the ERS bonds and then sold them to funds. At issue is about $757M in bonds that the two Puerto Rican funds purchased.

Unfortunately, within a year of when they were issued, the bonds value dropped 10%, lowering the funds’ value. They then went on to file their lawsuit against UBS Trust, UBS Financial, and the director of the funds claiming that the defendants took part in a manipulative trading scam to make it look as if there was market interest when the point was to raise prices so that other investors would buy.

The defendants sought to have the case dismissed, claiming that the directors of the funds did not get a presuit demand first while the plaintiffs neglected to note why there was no point to submitting this type of demand. The lower court granted their motion. Now, however, the appeals court says that the securities case can proceed.

Union de Empleados De Muelles De Puerto Rico PRSSA Welfare Plan v. UBS Financial Services Inc., Ca1.USCourts.gov


More Blog Posts:
Dismissal of Double Derivative Delaware Securities Lawsuits Over The Bank of America-Merrill Lynch Merger is Affirmed by the Second Circuit, Stockbroker Fraud Blog, December 22, 2012

Amerigroup Shareholders Claim Goldman Sachs Advisers’ Had Conflicts of Interest That Influenced $4.5B Sale of Company to WellPoint, Institutional Investor Securities Blog, August 21, 2012

Shareholder Lawsuit Against Goldman Sachs CEO and Other Financial Firm Executives is Dismissed, Institutional Investor Securities Blog, August 18, 2012

December 17, 2012

Morgan Keegan Founder Faces SEC Charges Over Mortgage-Backed Securities Asset Pricing in Mutual Funds

The U.S. Securities and Exchange Commission has filed civil charges against Morgan Keegan founder Allen Morgan Jr. and several other former mutual fund board members for allegedly failing to supervise the managers accused of inaccurately pricing toxic mortgage-backed assets prior to the financial crisis. According to Reuters, this is a rare attempt by the regulator to hold a mutual fund’s board accountable for manager wrongdoing and it is significant. (Fund manager James Kelsoe hasconsented to pay a $500,000 penalty related to this matter and he is barred from the securities industry in perpetuity. Comptroller Joseph Thompson Weller consented to pay a $50,000 penalty.)

Last year, Morgan Keegan and Morgan Asset Management consented to pay $200 million to settle SEC subprime mortgage-backed securities fraud charges accusing them of causing the false valuations of the securities in five funds and failing to use reasonable pricing methods. (This allegedly led to “net asset values” being calculated for the funds.) The inaccurate daily NAVS would then be published and investors would buy shares at inflated prices. The funds’ value eventually declined significantly.

According to the Commission, the eight ex-board members violated laws mandating that fund directors help decide what a security’s fair value is when market quotations don’t exist. Instead of trying to figure out how fair valuation determinations work, the directors allegedly gave this task to a valuation committee but without providing “meaningful substantive guidance.”

Allen Morgan Jr., who is a Morgan Keegan cofounder, was CEO and Chairman until 2003.The seven other board members facing SEC charges include Kenneth Alderman, Mary S. Stone, W. Randall Pittman, Albert C. Johnson, James Stillman R. McFadden, Jack R. Blair, and Archie W. Willis III.

Already, Morgan Keegan is contending with over 1,000 arbitration lawsuits involving its bond funds that had invested in high risk MBS but were marketed as safe. When the subprime market collapsed, the funds lost up to 80% of their value.

Recently, Morgan Keegan and over 10,000 investors in a closed-end fund reached a $62 class million settlement. Lion Fund LP, the lead plaintiff and a Texas hedge fund, claimed that it had made a $2.1 million investment.

Morgan Keegan is owned by Raymond James (RJF), which bought the firm from Regions Financial Corporation. Other securities lawsuits still pending against it also involve conventional and open-ended funds.

Unfortunately, too many people and entities sustained huge losses because the risks of a number of types of securities leading up to the global crisis and the housing bubble’s implosion were downplayed by financial firms and their representatives. At Shepherd Smith Edwards and Kantars, our subprime mortgage-backed securities lawyers represent investors throughout the US. Contact our securities law firm today.

SEC Charges Eight Mutual Fund Directors for Failure to Properly Oversee Asset Valuation, SEC, December 10, 2012

SEC Order
(PDF)


More Blog Posts:
Judge that Dismissed Regulators’ Claims Against Morgan Keegan to Rule on ARS Lawsuit Again After His Ruling Was Reversed on Appeal, Institutional Investor Securities Blog, November 27, 2012

Morgan Keegan & Company Ordered by FINRA to Pay $555,400 in Texas Securities Case Involving Morgan Keegan Proprietary Funds, Stockbroker fraud Blog, September 6, 2011

Morgan Keegan Ordered by FINRA to Pay RMK Fund Investors $881,000, Stockbroker Fraud Blog, April 24, 2011

Continue reading "Morgan Keegan Founder Faces SEC Charges Over Mortgage-Backed Securities Asset Pricing in Mutual Funds" »

December 11, 2012

LIBOR Investigation Leads to Three Arrests

Anti-fraud and police in Britain have made three arrests related to the global interest rate rigging scandal involving the London Interbank Offered Rate (LIBOR). The three men are Thomas Hayes, an ex-Citigroup Inc. (C) and UBS AG (UBSN.VX) trader, and James Gilmour and Terry Farr, who both worked at RP Martin, an interdealer broker. All of them are British nationals.

The Canadian Competition Bureau regulator claims that Hayes and others tried to manipulate yen Libor, which is the average interbank interest rates that banks are willing to lend in unsecured funds that are in Japanese yen denominations to each other. The regulator is also accusing Hayes of reaching out to traders at other banks in London and trying to persuade them to manipulate yen rates.

Regulators and prosecutors in Europe, Canada, the US, and Japan have been probing how traders have been able to rig interbank lending rates, including LIBOR, and whether banks may have changed submissions that are supposed to set benchmarks so they could make money off interest-rate derivatives-related bets or make lenders appear more financially healthy.

Dozens of people are under investigation related to the scandal, which broke out this summer after Barclays (BARC.LN) admitted that some of its traders had attempted to manipulate both LIBOR and Euribor, which is its Euro counterpart, between 2005 and 2009 and how during the economic problems of 2007 and 2008 the bank had low-balled rates. (Barclays settled with regulators both here and in the UK for $450 million.)

Now, over a dozen other banks are being examined for possible involvement in rate rigging. This has raised a number of questions, such as whether banks have been honest about the actual costs tied to borrowing and if regulators either allowed the manipulation or failed to stop it.

Settlements are also expected to be reached with Royal Bank of Scotland Group (RBS.LN) and UBS. Royal Bank of Scotland Group, which the UK government has 81% ownership stake in, has had to contend with claims that it had manipulated not just LIBOR rates but also other rates. While the bank is willing to settle, the terms of any such agreements are taking awhile because the US CFTC, UK’s FSA, the US Department of Justice, and authorities in Asia and Europe are all involved.

As for UBS, Bloomberg is reporting that according to a source that knows about the settlement talks, the bank is close to reaching deals with regulators here and in the UK and it will likely pay $466 million in fines over allegations that it attempted to manipulate global interest rates. Regulators have been looking into whether UBS traders were in collusion with other banks to manipulate rates for profits. The bank has obtained conditional community from certain antitrust authorities, such as the Swiss Competition Commission, and the Canadian Competition Bureau, and well as the US Justice Department, for being among the first to self-report wrongdoing.

Three British men arrested in UK Libor probe, Yahoo, December 11, 2012

RBS Seeks Pact on Libor, The Wall Street Journal, November 2, 2012


UBS nears deal with United States, UK over Libor, Reuters, December 3, 2012


More Blog Posts:

LIBOR Oversight-Related Changes Announced by FSA Chief, Institutional Investor Securities Blog, October 2, 2012

Barclays LIBOR Manipulation Scam Places Citigroup, Credit Suisse, Deutsche Bank, JP Morgan Chase, and UBS Under The Investigation Microscope, Institutional Investor Securities Blog, July 16, 2012

$1.2 Billion of MF Global Inc.’s Clients Money Still Missing, Stockbroker Fraud Blog, December 10, 2011

December 3, 2012

SEC's Antifraud Claim Against Goldman Sachs Executive Fabrice Tourre Won’t Be Reinstated, Says District Court

The U.S. District Court for the Southern District of New York has refused the Securities and Exchange Commission’s request to reinstate its antifraud claim against Goldman Sachs & Co. (GS) executive Fabrice Tourre for alleged misstatements related to a collateralized debt obligation connected to subprime mortgages. Judge Katherine Forrest said that the facts did not offer enough domestic nexus to support applying 1934 Securities Exchange Act Section 10(b). To do so otherwise would allow a 10(b) claim to be made whenever a foreign fraudulent transaction had even the smallest link to a legal securities transaction based in the US, she said, and that this is “not the law.” The case is SEC v. Tourre.

The SEC had sued the Goldman and its VP, Tourre, over alleged omissions and misstatements connected with the ABACUS 2007-AC1’s sale and structuring. This 2007 CDO was linked to subprime residential mortgage-backed securities and their performance. The Commission claimed Goldman had misrepresented the part that Paulson & Co., a hedge fund, had played in choosing the RMBS that went into the portfolio underlying the CDO and that Tourre was primarily responsible for the CDO deal’s marketing and structuring.

In 2010, Goldman settled the SEC’s claims by consenting to pay $550M, which left Tourre as the sole defendant of this case. Last year, the court dismissed one of the Section 10(B) claims predicated on $150 million note purchases made by IKB, a German bank, because of Morrison v. National Australia Bank Ltd. In that case, the US Supreme Court had found that this section is applicable only to transactions in securities found on US exchanges or securities transactions that happen in this country. The court, however, did let the regulator move forward under Section 10(b) in regards to other ABACUS transactions, and also the 1933 Securities Act’s Section 17(a).

However, following Absolute Activist Value Master Fund Ltd. v. Facet in which the U.S. Court of Appeals for the Second Circuit earlier this year found that ““irrevocable liability is incurred or title passes” within the US securities transaction may be considered domestic even if trading did not occur on a US exchange, the SEC requested that the court revive the Section 10(b) claim. Although IKB was the one that had recommended the CDO to clients, including Loreley Financing, it was Goldman that obtained the title to $150 million of the notes through the Depository Trust Co. in New York. Goldman then sent the notes to the CDO trustee in Chicago before the notes were moved from the DTC to Goldman's Euroclear account to Loreley's account. The Commission said that, therefore, transaction that the claim was based on had closed here.

Noting in its holding that Section 10(b) places liability on any person that employs deception or manipulation related to the selling or buying of a security, the court said that the Commission was trying to premise the domestic move of the notes’ title from the CDO trustee to Goldman at the closing in New York as a “hook” to show liability under this section. The court pointed out that while the title of the transfer that took place in New York was legal and it wasn’t until later that the alleged fraud happened. The “fraud was perpetuated upon IKB/Loreley, not Goldman” so “no fraudulent US-based” title transfer related to the note purchase is “sufficient to sustain a Section 10(b) and rule 10b-5 claim against Tourre” for the transaction.

SEC v. Tourre (PDF)

Morrison v. National Australia Bank Ltd. (PDF)


More Blog Posts:
Goldman Sachs Ordered by FINRA to Pay $650K Fine For Not Disclosing that Broker Responsible for CDO ABACUS 2007-ACI Was Target of SEC Investigation, Stockbroker Fraud Blog, November 12, 2010

Goldman Sachs Settles SEC Subprime Mortgage-CDO Related Charges for $550 Million, Stockbroker Fraud Blog, November 12, 2010

Class Action MBS Securities Lawsuit Against Goldman Sachs is Reinstated by 2nd Circuit, Institutional Investor Securities Blog, September 14, 2012

Continue reading "SEC's Antifraud Claim Against Goldman Sachs Executive Fabrice Tourre Won’t Be Reinstated, Says District Court " »

November 27, 2012

Judge that Dismissed Regulators’ Claims Against Morgan Keegan to Rule on ARS Lawsuit Again After His Ruling Was Reversed on Appeal

Almost a year and a half after US District Judge William Duffey Jr. dismissed the SEC’s lawsuit accusing Morgan Keegan & Co. of misleading thousands of auction-rate securities investors about the risks involved with these investments, he must now rule on the same case again. This latest trial in federal court comes after the 11th U.S. Circuit Court of Appeals in Montgomery, Alabama dismissed Duffey’s decision on the grounds that he erred when he concluded that the verbal comments made by brokers to four clients were immaterial because of disclosures that were on the retail brokerage firm’s website. Morgan Keegan is a Raymond James Financial (RJF.N) unit.

In SEC v. Morgan Keegan & Company Inc., regulators are claiming that the brokerage firm told its clients that over $2B securities came with no risk, even as the ARS market was failing, and that the investments were short-term and liquid. The commission filed its ARS fraud lawsuit against the broker-dealer in 2009.

During opening statements at this latest trial, prosecutors again contended that the brokers did not tell the investors that their cash could become frozen indefinitely. Reports Bloomberg News, orange grower John Tilis, who is a witness in this case, said that he decided to invest $400K in ARS in 2007 because he thought they were a safe place to keep his money until he had to pay taxes in April the next year. Tilis claims that the firm’s broker had informed him that he would be easily able to get his funds when he needed them. Yet when Tilis attempted to do so, he said that all the broker would tell him is that the ARS couldn’t be sold. (Morgan Keegan later refunded his principal.)

The SEC is arguing that Morgan Keegan found out about a number of failed auctions in November of 2007. In March 2008, one month after even more auctions had begun failing, the brokerage company started mandating that customers that wanted to buy ARS sign statements noting that they were aware that it might be some time before the investments became liquid again.

Meanwhile, Morgan Keegan is maintaining that it did not fail to inform clients about the risks involved in auction-rate securities, which had a history of being very “safe and liquid.” The firm contends that not being able to predict the future is not the same as securities fraud (Duffey noted this same logic when he dismissed the SEC lawsuit last year), and that even prior to the SEC lawsuit, it bought back $2B in ARS from clients. Morgan Keegan says that those who took part in the buyback program did not lose any money.

Morgan Keegan Trial Judge to Decide SEC Case He Dismissed, Bloomberg, November 26, 2012

U.S. SEC fraud lawsuit vs Morgan Keegan revived, Reuters, May 2, 2012

SEC v. Morgan Keegan & Company Inc. (PDF)


More Blog Posts:

The 11th Circuit Revives SEC Fraud Lawsuit Against Morgan Keegan Over Auction-Rate Securities, Institutional Investor Securities Blog, May 8, 2012

Court Upholds Ex-NBA Star Horace Grant $1.46M FINRA Arbitration Award from Morgan Keegan & Co. Over Mortgage-Backed Bond Losses, Stockbroker fraud Blog, October 30, 2012

Morgan Keegan & Company Ordered by FINRA to Pay $555,400 in Texas Securities Case Involving Morgan Keegan Proprietary Funds, Stockbroker fraud Blog, September 6, 2011

Continue reading " Judge that Dismissed Regulators’ Claims Against Morgan Keegan to Rule on ARS Lawsuit Again After His Ruling Was Reversed on Appeal" »

November 22, 2012

UBS ‘Rogue Trader’ Convicted of Fraud that Caused $2.3B Loss

Kweku Adoboli, an ex-UBS (UBS) trader, has been convicted of fraud over bad deals he made at the Swiss Bank that resulted in $2.2 billion in losses. He has been sentenced to 7 years behind bars.

Adoboli, who had pled not guilty to the criminal charges, is accused of booking bogus hedges and storing profits in a secret account to hide the risks related to his trades and dealings involving exchange traded funds, commodities, bonds, and complex financial products that track stocks. Not only did he go beyond his trading limits but also he did not cover his losses.

Meantime, Adoboli had argued in his defense that the trading losses happened not because of fraudulent or dishonest conduct on his part but because he and other traders were asked to accomplish too much without sufficient resources and in a very volatile market. Adoboli said his manager pressured traders to take too many risks and that breaking the rules was a common occurrence at UBS’s London office. He also testified that he had been acting to help the investment bank stay in operation after the $52 billion in losses it had suffered during the global economic crisis. Adoboli was arrested in 2011 after he sent out an email admitting to making the unauthorized trades on US and German futures.

Although the 10-member jury was unanimous in its guilty verdict of one count of fraud against him, they couldn’t come to unanimous rulings on the other five counts. Eventually given the option to issue a 9-1 decision, Adoboli was found guilty of a second count of fraud going as far back as 2008. (According to one UBS investment bank executive who testified during the criminal trial last month, losses from the unauthorized trades Adoboli had made could have hit $12 billion).

In the wake of the still massive massive trading loss, at least 11 employees were either let go or resigned from UBS, including ex-CEO Oswald Gruebel, global equities co-heads Francois Gouws and Yassine Bouhara, Adoboli coworkers Simon Taylor, John Hughes, and Christopher Bertrand, and his ex-managers John DiBacco and Ron Greenidge.

The way this trading loss was able to come about shows that there are problems with UBS’s risk controls. However, it appears as if UBS is not taking on too much of the blame brunt—again.

“Once again, a soldier is sent to the penitentiary while the generals who looked the other way don’t face charges,” said Shepherd Smith Edwards & Kantas, LTD LLP Founder and Securities Lawyer William Shepherd. “The big boys of the world of finance are exempt from punishment as they call their employees ‘rogues.’ Justice is very select in the financial community.”

Prosecutors are calling this the largest fraud in UK banking history. Adoboli’s conviction comes just months after JPMorgan Chase (JPM) suffered at least $5.8 billion in losses from bad trades made at its office in London.

UBS rogue trader Kweku Adoboli found guilty of 2 counts of fraud for $2.2 billion loss, The Washington Post/AP, November 20, 2012

Kweku Adoboli Convicted, UBS 'Rogue Trader,' Convicted of Fraud Over $2.3 Billion Loss, Huffington Post, November 20, 2012


More Blog Posts:

UBS Trader Charged with Fraud Related to $2B Trading Loss, Stockbroker Fraud Blog, September 23, 2011

JPMorgan Chase $2B Trading Loss Leads to Probes by the SEC, Federal Reserve, and FBI, Institutional Investor Securities Blog, May 15, 2012

Appeal of Stockbroker Found Liable in Unauthorized Trades of Cyberonics Stock is Rejected by 7th Circuit, Stockbroker Fraud Blog, August 18, 2012

October 24, 2012

Bank of America Corp. Sued for Over $1B By US Government For Mortgage Fraud Against Freddie Mac and Fannie Mae

The United States is suing Bank of America Corporation (BAC) for more than $1 billion over alleged mortgage fraud involving the sale of defective loans to Freddie Mac and Fannie Mae. The federal government contends that Countrywide, and then later Bank of America, following its acquisition of the former, executed the “Hustle,” a loan origination process intended to swiftly process loans without the use of quality checkpoints. This allegedly resulted in thousands of defective and fraudulent residential mortgage loans, which were sold to Fannie Mae and Freddie Mac, that later defaulted, leading to innumerable foreclosures and over $1 billion in losses.

The US claims that between 2007 and 2009, mortgage company Countrywide Financial Corp. got rid of checks and quality control on loans, including opting not to use underwriters, giving unqualified personnel incentives to cut corners, and hiding defects, and then proceeded to falsely keep claiming that these loans were qualified to be insured by Freddie Mac and Fannie Mae. The result, says U.S. Attorney for the Southern District of New York Preet Bharara, was that taxpayers were left to foot the bill from these “disastrously bad loans.”

The Hustle was initiated by Countrywide in 2007 via its Full Spectrum Lending Division during a rise in loan default rates and while, in an effort to reduce risk, Freddie Mac and Fannie Mae were getting tougher about requirements for loan purchases. In addition to eliminating key quality control and check procedures, Hustle allegedly depended on inexperienced and unqualified loan processers to handle underwriting duties, while giving them financial incentives to place quantity over quality.

The government contends that although senior management at Full Spectrum Lending were regularly warned that getting rid of toll gates that are supposed to prevent fraud and maintain quality control could lead to disastrous consequences, they allegedly proceeded to continue disregarding such cautions. This meant that Countrywide and Bank of America like knew that the loans they were originating and then selling to the GSEs were defective and/or fraudulent. (The loans that eventually defaulted were a key reason why in September 2008 Freddie Mac and Fannie Mae had to be put into conservatorship under the Federal Housing Finance Agency, pursuant to the Housing and Economic Recovery Act of 2008.)

The US government is filing its mortgage fraud lawsuit under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 and the Federal False Claims Act, which prosecutors have been using to take banks to task over alleged mortgage-related wrongdoings. The act can result in triple damages if the government is able to prove that taxpayers were bilked. The securities case was also brought under the Financial Institutions Reform, Recovery and Enforcement Act. This is the first civil fraud case that the US Department of Justice has brought regarding the sale of mortgage loans to Freddie Mac or Fannie Mae.

Manhattan U.S. Attorney Sues Bank Of America For Over $1 Billion For Multi-Year Mortgage Fraud Against Government Sponsored Entities Fannie Mae And Freddie Mac, Justice.gov, October 24, 2012

U.S. Sues BofA Over Mortgage Sales, The Wall Street Journal, October 25, 2012


More Blog Posts:
Ex-Bank of America Employee Pleads Guilty to Mortgage Fraud Scam Using Stolen Identities to Buy Homes Not For Sale, Institutional Investor Securities Blog, August 30, 2011

Bank of America to Pay $335M to Countrywide Financial Corp. Borrowers Over Allegedly Discriminating Lending Practices, Institutional Investor Securities Blog, December 21, 2011

JPMorgan Chase Must Pay Oil Heiress’s Trust $18M For Derivatives Investments, Account Mismanagement, and Unsuitable Investment Advice, Stockbroker Fraud Blog, October 12, 2012

October 22, 2012

David Lerner Associates Must Pay $14M Over Apple REIT Ten Sales and Allegedly Excessive Markups Involving CMOs and Municipal Bonds—$12M to Go to Investors

The Financial Industry Regulatory Authority is ordering David Lerner Associates, Inc. to pay $14M for allegedly engaging in unfair sales practices involving its Apple REIT Ten and charging clients excessive markups. $12 million of this will be restitution to the investors that bought shares in the $2 billion non-traded real estate investment trust, as well as to clients that were overcharged. $2.3 million is FINRA’s fine against the brokerage firm for charging unfair prices on collateralized mortgage obligations (CMOs) and municipal bonds.

According to the SRO, David Lerner Associates solicited thousands of clients to get them to buy shares in the Apple REIT TEN, of which it is the sole distributor. Elderly and unsophisticated investors were among its sales targets, even as it failed to do enough due diligence to make sure these investments were appropriate for these clients. Instead, the financial allegedly used marketing collateral that was misleading and showed customers performance results for closed Apple REITs without revealing that their incomes were not enough to support distributions to unit owners.

As part of the settlement, the financial firm has agreed to modify its advertising procedures. For example, for three years it will video record sales seminars involving 50 or more participants. It will also prefile its sales literature and ads with FINRA at least 10 days before they are made available for use. Additionally, per FINRA mandate, the brokerage firm will bring in independent consultants to look at proposed modifications to its supervisory system, as well as the training involving the pricing of municipal bonds and CMOs and the sale of non-traded REITs.

By settling, David Lerner Associates and its CEO and founder David Lerner are not denying or admitting to the FINRA charges. Even now they continue to maintain that the investments involved were suitable for their clients. They have, however, consented to an entry of FINRA’s findings. Also, Mr. Lerner has agreed to a one-year suspension from the securities industry, and then a two year-suspension from serving in a principal capacity, as well as a $250,000 fine.

Regarding the unfair prices charged on CMOs and municipal bonds, these were sold over a period of 30 months. For his alleged involvement, David Lerner Associates Head Trader William Mason has been suspended from the securities industry for half a year and sanctioned $200,000.

Meantime, dozens of investors are still waiting to resolve their Apple REIT lawsuits and arbitration claims that they’ve filed. If you are an Apple REIT investor that has sustained resulting losses, please contact our REIT law firm and ask for your free case evaluation.

Unfortunately, many investors of non-traded REIT were not been fully apprised of the illiquidity risks and other potential consequences involved, as well as the details involving commisisons, broker fees, suspended buyback programs. Our REIT lawyers at Shepherd Smith Edwards and Kantas, LTD LLP represent investors throughout the US.

FINRA Sanctions David Lerner Associates $14 Million for Unfair Practices in Sale of Apple REIT Ten and for Charging Excessive Markups on Municipal Bonds and CMOs, FINRA, October 22, 2012

David Lerner Associates Ordered to Pay $14 Million, NY Times, October 22, 2012


More Blog Posts:
Apple REIT Arbitration: FINRA Rules Against David Lerner Associates in First of Hundreds of Cases, Stockbroker Fraud Blog, May 26, 2012

David Lerner & Associates Ignored Suitability of REITs When Recommending to Investors, Claims FINRA, Stockbroker Fraud Blog, June 28, 2011

Private REITs: The Need for Tougher Oversight?, Institutional Investor Securities Blog, June 28, 2011

October 16, 2012

Citigroup Inc. CEO Vikram Pandit Resigns

After months of tensions with Citigroup’s (C) board of directors, Chief Executive Officer Vikram Pandit has turned in his resignation. Taking his place as CEO will be Michael Corbat.

According to several sources, Pandit’s decision to leave comes after months of tension with Chairman Michael O’Neill over numerous issues, including the role of Chief Operating Officer John Havens and regarding compensation. Havens stepped down on the same day as Pandit. (Reuters reports that one person familiar with the investment bank says that this means that O’Neill is now in full control.) During a conference call with analysts and investors, O’Neill offered reassurances while noting that outside candidates had been considered before Corbat’s appointment.

With Pandit’s departure, Citigroup shares rose up to 2%, with some investors expressing relief that he is gone. Pandit was at the helm when the financial firm took a loss when it had to sell the stake it had left in its retail brokerage business to Morgan Stanley (MS). He also opposed breaking up the bank in any way, which some believed could have raised shareholder value. Proposals for these changes could come back onto the table now that he is gone.

Pandit’s relationship with the board wasn’t helped after shareholders recently turned down the CEO pay package. While he was awarded over $15 million in compensation last year, 55% of shareholders did not approve it.

According to Reuters, Pandit, who says he is leaving of his own accord, believes he has accomplished his aims since becoming Citigroup CEO in December 2007 and that putting his successor in place now makes sense because plans are in development for 2013 when a new strategy will be executed.

Meantime, Havens’ departure also isn’t a surprise to many, as he and Pandit have close career ties. They worked together at Morgan Stanley and Old Lane Partners LP. Some inside Citigroup considered their relationship to be an obstacle. Pandit moved to Citigroup after Old Lane Partners, which was his private equity firm and hedge fund, was acquired by the bank for $800 million.

Since the mortgage crisis, banks are under pressure regarding their profits, which haven’t been helped by unimpressive investment returns and unspectacular capital market activities. The Wall Street Journal reports that according to private equity firm JC Flowers & Co., the return on equity among financials should “normalize to historic levels” even though the economic crisis has resulted in a “major long-term evolution.”

In the firm’s mid-year report to investors, Chairman J. Christopher Flowers said this normalization would occur because financial service companies are needed if the economy is to work properly. He stressed that with economic growth, financial service companies will periodically need more capital to stimulate this, and, as a result, they won't be able to attract new capital unless ROEs and valuations adjust accordingly. Flowers said that this would occur via price changes and business mix shifts. Also per the WSJ, his view is in contrast to that of KKR & Co. global macro and asset allocation head Henry McVey, who recently reported that while the financial services industry is experiencing changes, more intense regulation will likely cause the firms’ performance and returns to keep lagging.

Citi's CEO Pandit exits abruptly after board clash, Reuters, October 16, 2012

Pandit Is Forced Out at Citi, The Wall Street Journal, October 17, 2012


More Blog Posts:
Texas Securities Roundup: Morgan Stanley Smith Barney Sued Over Financial Adviser’s Ponzi Scam, Judge Dismisses Ex-GE Executive Whistleblower’s Lawsuit Over His Firing, & Ex-Stanford Financial Group CIO Pleads Guilty to Obstructing the SEC’s Probe, Stockbroker Fraud Blog, July 3, 2012

Citigroup Inc.’s $590M CDO Putative Class Action Settlement Gets Preliminary Approval from District Court, Stockbroker Fraud Blog, September 13, 2012

Institutional Investor Securities Roundup: FHFA Can Start Discovery in MBS Litigation Against Banks, SEC Sues Puerto Rico Man Over Alleged $7M Scam, and Assets of Two Colorado Men are Temporarily Frozen Over Alleged Promissory Note Ponzi Scheme, Institutional Investor Securities Blog, August 31, 2012

Continue reading "Citigroup Inc. CEO Vikram Pandit Resigns" »

October 6, 2012

Wells Fargo and Wachovia Sued by LBBW Luxemburg Over Alleged $1.5B Securities Fraud

LBBW Luxemburg SA has filed a securities fraud lawsuit against Wells Fargo & Co. (WFC) and its unit Wachovia Corp. over an alleged $1.5 billion securities fraud scam. The case involves transaction in 2006 involving Wells Fargo selling what they allegedly touted as securities with high ratings to LBBW and other customers. LBBW, a Landesbank Baden-Wurttemberg subsidiary, bought $40 million of these residential mortgage-backed securities.

Now, the European bank is contending that the underlying mortgages were riskier than represented and not worth their buying price. Within a year, the securities had defaulted. LBBW is alleging common law fraud, breach of contract, constructive fraud, negligent misrepresentation, and breach of fiduciary duty.

Per the plaintiff’s attorneys, the alleged financial fraud was discovered after the SEC investigated a $5.5 million investment that the Zuni Indian Tribe's employee pension fund made. The Securities and Exchange Commission had accused Wachovia of selling overpriced equity in Grant Avenue II, a collateralized debt obligation, to the tribe and another investor. The Commission contended that after marking down some of the equity to 52.7 cents on the dollar, Wachovia charged 90 cents and 95 cents on the dollar. The bank was also accused of misleading investors in Longshore 3, another CDO, by saying that assets had been acquired from affiliates at prices that were fair market when, actually, claims the regulator, 40 securities had been moved at prices that were above market and Wachovia moved assets at prices that were stale so it wouldn’t have to report the losses.

The SEC said that while it did not consider Wachovia to have acted improperly in the way it structured the CDOs, the bank violated investment protection rules by using stale prices, even as buyers were being told the prices were fair market value, and charging excessive markups in secret. The Commission found that the Zuni Indians and other investors suffered financial losses as a result. Last year, Wachovia agreed to pay $11 million to settle charges accusing it of violating federal securities laws in its sale of MBS leading up to the collapse of the housing market.

European Bank LBBW Sues Wells Fargo Over Alleged $1.5 Billion Securities Fraud, The Sacramento Bee, October 1, 2012

German bank sues Wells Fargo alleging $1.5 billion securities fraud, San Francisco Business Times, October 2, 2012

Wells Fargo Settles Case Originating At Wachovia, The New York Times, April 5, 2012


More Blog Posts:
Lehman Brothers Australia Found Liable in CDO Losses of 72 Councils, Charities, and Churches, Institutional Investor Securities Blog, September 25, 2012

REIT Retail Properties of America’s $8 Public Offering Results in Major Losses for Fund Investors, Institutional Investor Securities Blog, April 17, 2012

Texas Securities Fraud: Investor Sues Behringer Harvard REIT I, Stockbroker Fraud Blog, September 26, 2012

Continue reading "Wells Fargo and Wachovia Sued by LBBW Luxemburg Over Alleged $1.5B Securities Fraud" »

September 25, 2012

Lehman Brothers Australia Found Liable in CDO Losses of 72 Councils, Charities, and Churches

Lehman Brothers subsidiary Lehman Brothers Australia has been found liable for collateralized debt obligation losses sustained by 72 councils, churches, and charities during the global economic crisis. The class action securities lawsuit was led by three Australian counsels—Wingecarribee, Parkes and Swan City. A fixed settlement amount, however, has not yet been reached. The parties will have to meet to figure out the damages, and their submissions will then be presented to the Federal Court later this year. (Because the defendant, previously known as Grange Securities, is in liquidation, it cannot make any payments right now). The three lead plaintiffs had sought up to $209M (US dollars), which is how much they say was lost from the CDOs.

The majority of the CDOs that caused the investors losses had been purchased from Grange Securities before Lehman Brothers Australia acquired the firm in 2007, which is the year when the bond world started to fall apart as the global economic crisis began to unfold. The plaintiffs are claiming alleged breach of fiduciary duty, misconduct, and negligence for how the defendant marketed the synthetic derivative investments.

Federal Court Justice Steven Rares, who issued the ruling, said the CDOs were presented as if they were liquid like cash and safe investments even though they were, in fact, a risky, “sophisticated bet.” He said the plaintiffs were told that they would get their money back if they held on to the CDO’s until maturity and that high credit ratings placed the securities in the same arena as the AAA-rated Australian government’s debts. They also presented the investments that it recommended or made for the plaintiffs as suitable for investors that had conservative goals.

The judge noted that although that each of the three councils that were the lead plaintiffs had different complaints, in relation to two councils, the defendant was negligent in the advice and recommendation it offered them. Also, as financial advisor to two of the councils, the financial firm breached its fiduciary duty and took part in deceptive and misleading behavior when it pushed the CDOs as suitable for them.

Court finds Lehman Brothers Australia liable in crash, AFP, September 21, 2012

Court orders Lehman Brothers Australia liable
, Channel News Asia, September 21, 2012



More Blog Posts:

Stockbroker Securities Roundup: Criminal Convictions Vacated Against Six Charged in Front Running Scam and Citigroup Broker Cleared in $1B CDO Deal SEC Case, Stockbroker Fraud Blog, August 11, 2012

Some of the SEC Charges Against Investment Adviser Over Alleged Involvement In J.P. Morgan Securities LLC Collateralized Debt Obligation Are Dismissed, Institutional Investor Securities Blog, September 24, 2011

Lehman Brothers’ “Structured Products” Investigated by Stockbroker Fraud Law Firm Shepherd Smith Edwards & Kantas LTD LLPn, Stockbroker Fraud Blog, September 30, 2008

Continue reading "Lehman Brothers Australia Found Liable in CDO Losses of 72 Councils, Charities, and Churches " »

September 14, 2012

Class Action MBS Securities Lawsuit Against Goldman Sachs is Reinstated by 2nd Circuit

The U.S. Court of Appeals for the Second Circuit has reinstated a would-be class action securities lawsuit accusing Goldman Sachs (GS) (in the role of underwriter) and related entities of misstating the risks involving mortgage-backed securities certificates. The revival is based on 7 of 17 challenged offerings, causing the appeals court to conclude that the plaintiff can sue on behalf of investors in mortgaged-back certificates whose lenders originated the mortgages backing the certificates that were bought. The 2nd Circuit said that those investors’ claims and the pension fund’s claims implicate the same concerns.

Per the court, NECA-IBEW Health & Welfare Fund is alleging violations of the Securities Act of 1933’s Sections 15, 12(a)(2), and 11 involving a would-be class of investors who bought certain certificates that were backed by mortgages that Goldman had underwritten and one of its affiliates had issued. The certificates were sold in 17 offerings pursuant to the same shelf registration statement but with 17 separate prospectus supplements that came with specific details about each offering.

In its class action securities lawsuit, the plaintiff alleged that the shelf registration statement had material misrepresentations about both the risks involving the instruments and underwriting standards that are supposed to determine the ability of a borrower to repay. A district court dismissed the lawsuit.

The Second Circuit acknowledged that NECA suffered personal injury from the defendants’ use of allegedly misleading statements in the offering documents linked to the certificates that it bought. However, whether the defendants’ behavior implicates the same concerns as their decision to include similar statements in the Offering Documents associated with other certificates is more difficult to answer.

While the plaintiff’s claims are partially based on general allegations of a deterioration in loan origination practices that is industry wide, the most specific claims link the allegedly abusive conduct to the 17 trusts’ 6 main originators. However, Wells Fargo Bank (WFC) and GreenPoint Mortgage Funding Inc., the only two entities that are the originators of the loans behind the certificates that the fund bought, are not defendants in this securities lawsuit.

That the alleged misrepresentations showed up in separate Offering Documents doesn’t alone bring up fundamentally different concerns because their location doesn’t impact a given buyer’s “assertion that the representation was misleading,” said the court. Because of this, and other reasons, the plaintiff has class standing to assert the claims of the buyers of the Certificates from the 5 other Trusts that have loans that were originated by Wells Fargo, Greenpoint, or both.

The second circuit said that the fund didn’t need to “to plead an out-of-pocket loss” to allege a cognizable diminution in the value of a security that was not liquid under that statute. Finding the “requisite inferences” in favor of the plaintiff, the appeals court said that not only was it “plausible,” but also it was obvious that mortgage-backed securities, such as the Certificates, would experience a drop in value because of ratings downgrades and uncertain cash flows. The fund “plausibly alleged” a distinction between how much it paid for the certificates, their value, and when the class action MBS lawsuit was filed.

NECA-IBEW Health & Welfare Fund v. Goldman Sachs & Co.
, Justia (PDF)

Appeals Court Revives Class Suit Against Goldman Over MBS Certificates, Bloomberg/BNA, September 7, 2012

Continue reading "Class Action MBS Securities Lawsuit Against Goldman Sachs is Reinstated by 2nd Circuit" »

September 13, 2012

IRS Pays Whistleblower $104M for Exposing Tax Evasion at UBS AG

In the largest individual federal payout in our nation’s history, the Internal Revenue Service has awarded ex-UBS AG (UBSN) Bradley Birkenfeld $104 million for acting as a whistleblower and exposing wide scale tax evasion involving the Swiss Bank. Birkenfeld, who was released from prison last month after serving 2.5 years in prison for fraud conspiracy related to this matter, is the one who revealed to the IRS how the Swiss bank helped thousands of Americans evade paying their taxes. He reported that in handling $20 billion in undeclared assets annually, UBS made $200 million a year.

The information that he provided led to UBS paying a $780 million fine so that it wouldn’t be prosecuted over the allegations. The Swiss bank also consented to an unprecedented agreement for it to give over the names of thousands of US citizens suspected of tax evasion and admitted that it fostered tax evasion between 2000 and 2007. UBS would eventually hand over information on 4,700 of its accounts.

At least 33,000 Americans have since voluntary disclosed to the IRS that they have offshore accounts. This resulted in over $5 billion.

Birkenfeld, who is from Massachusetts, had worked in Swiss banking for 15 years. He is one of the UBS bankers who traveled the US seeking out wealthy clients. He informed the IRS that UBS trained its bankers to avoid detection by regulators. They were told to use encrypted laptop computers and make false statements claiming they were coming to the country for pleasure on travel forms. (USB has admitted that it assisted clients in avoiding US securities restrictions by having them work with outside advisors with fake companies in Panama, the British Virgin Islands, and other tax havens.)

Although Birkenfeld blew the whistle on UBS to US investigators in 2007, prosecutors went ahead and charged him with committing a crime because at first he refused to describe his own involvement in the tax evasion fraud and did not reveal that he had worked with billionaire real estate developer Igor Olenicoff, who pleaded guilty to filing a false tax return that year. Birkenfeld was indicted by a federal grand jury and arrested in 2008.

Since the UBS case, it has become harder for rich Americans to avoid the IRS by going to a Swiss bank. The federal government is currently conducting a criminal investigation on at least 11 banks. Already, reports Bloomberg.com, two dozen offshore bankers, advisers and lawyers, and 50 US taxpayers have been hit with criminal charges.

Under the IRS whistleblower program, whistleblowers that bring in information about high income tax evaders are guaranteed a reward if the company involved owes at least $2 million in unpaid interest, taxes, and penalties. “Our law firm is involved in other actions, advising and representing whistleblowers,” said Shepherd Smith Edwards and Kantas, Ltd. LLP founder and securities attorney William Shepherd. “As we all see, there can be substantial rewards for those with valuable information about law and rule breakers. These can include securities related claims as well.”

UBS Whistle-Blower Secures $104 Million Award From IRS, Bloomberg, September 11, 2012

IRS pays whistleblower $104 million, Reuters/AP, September 11, 2012

Whistleblower Gets $104 Million, The Wall Street Journal, September 11, 2012


More Blog Posts:
CFTC Director Says Corporate Compliance Employees Should Have Comprehension of Dodd-Frank Whistleblower Requirements’Anti-Retaliation Provisions, Institutional Investor Securities Blog, June 14, 2012

SEC’s Office of the Whistleblower In Early Phase of Evaluating Reward Claims, Institutional Investor Securities Blog, March 23, 2012

Plaintiff Says Morgan Stanley Fired Him for Calling out Investment Adviser Who Was Churning Accounts and Bilking Investors, Stockbroker Fraud Blog, August 7, 2012

September 5, 2012

Ex-MF Global CEO John Corzine Says Bankruptcy Trustee’s Bid to Join Investors’ Class Action Securities Litigation is Hurting His Defense

According to Jon Corzine, the ex-CEO of MF Global Holdings Ltd. (MFGLQ), bankruptcy trustee James Giddens’s efforts to be part of some of the investor class action lawsuits against the firm’s former and current executives are negatively impacting his defense. Corzine, who is also Goldman Sachs Group Inc.'s (GS) (GS) former co-chairman, left his position at MF Global last year, mere days after the brokerage giant failed in the wake of losses it sustained on European sovereign debt and its overwhelming inability to account for about $1.6 billion in customer funds. MF Global would go on to file for bankruptcy protection.

Rather than file his own securities lawsuit, Giddens has decided to work with the lawyers of the firm’s customers. He won’t join them as a plaintiff but he will “assign” his legal claims to their attorneys and fully participate in their cases. Giddens considers it totally “appropriate” for his office to join forces with the plaintiffs’ securities fraud lawsuits, and he believes that this cooperation agreement is the “most efficient, expedited and cost-effective” means of getting back additional assets for MF Global clients and creditors.

Meantime, Corzine and other ex- and current MF Global executives are complaining that this arrangement would give Giddens complete and total authority over the documents and books they would be able to get in their defense and that this unfairly limits them. Per the former executives' lawyers, restricting the objectors’ rights to obtain discovery deprives them of the chance to a proper defense, violates due process principals, and is not in line with the goals and requirements of the federal rules that preside over civil litigation. (Also opposing Giddens’s cooperation agreement with the plaintiffs and their lawyers is ex-FBI director Louis Freeh, who is tasked with wrapping up MF Global Holdings Ltd.’s affairs. He believes that the deal oversteps Giddens’s authority and that the bankruptcy trustee is moving claims that belong to the holding company’s creditors and not the brokerage’s customers.)

This week, Bankruptcy Judge Martin Glenn said the cooperation agreement needs to grant his court greater authority over approval of the way creditors and customers would share the settlement proceeds or winnings. He also said the agreement’s wording should call for any settlement to be approved by both the district court, where customers are suing the MF Global directors, and the bankruptcy court. Glenn said that upon the implementation of such changes he is willing to approve the agreement.

If you invested in the MF Global 6.25% Senior Notes that were due in 2016, contact our securities lawyers to ask for your no obligation, confidential consultation.

Corzine Says MF Global Trustee's Deal Harms His Defense, Dow Jones, August 30, 2012

MF Global Judge Seeks Changes to Trustee Lawsuit Agreement, BloombergBusinessweek, September 5, 2012


More Blog Posts:

Even With Securities Lawsuits Over MF Global’s $1.6 Billion Customer Funds Loss, Don’t Expect Criminal Charges, Institutional Investor Securities Blog, August 16, 2012

$1.2 Billion of MF Global Inc.’s Clients Money Still Missing, Stockbroker Fraud Blog, December 10, 2011

Shareholder Lawsuit Against Goldman Sachs CEO and Other Financial Firm Executives is Dismissed, Institutional Investor Securities Blog, August 18, 2012

August 30, 2012

Citigroup to Pay $590M to Settle Shareholder Class Action CDO Lawsuit Over Subprime Mortgage Debt

Citigroup (C) has agreed to pay $590 million settle a shareholder class action collateralized debt obligation lawsuit filed by plaintiffs claiming it misled them about the bank’s subprime mortgage debt exposure right before the 2008 economic collapse By settling, Citigroup is not admitting to denying any wrongdoing. A federal judge has approved the proposed agreement.

Plaintiffs of this CDO lawsuit include pension funds in Illinois, Ohio, and Colorado led by ex-employees and directors of Automated Trading Desk. They obtained Citigroup shares when the bank bought the electronic trading firm in July 2007. The shareholders are accusing bank and some of its former senior executives of not disclosing that Citigroup’s CDOs were linked to mortgage securities until the bank took a million dollar write down on them that year. Citigroup would later go on to write down the CDOs by another tens of billions of dollars.

The plaintiffs claim that Citigroup used improper accounting practices so no one would find out that its holdings were losing their value, and instead, used “unsupportable marks” that were inflated so its “scheme” could continue. They say that the bank told them it had sold billions of dollars in collateralized debt obligations but did not tell them it guaranteed the securities against losses. The shareholders claim that to conceal the risks, Citi placed the guarantees in separate accounts.

Prior to the economic collapse of 2008, Citi had underwritten about $70 billion in CDOs. It, along with other Wall Street firms, had been busy participating in the profitable, growing business of packaging loans into complex securities. When the financial crisis happened, the US government had to bail Citigroup out with $45 billion, which the financial firm has since paid back.

This is not the first case Citigroup has settled related to subprime mortgages and the financial crisis. In 2010, Citi paid $75 million to settle SEC charges that it had issued misleading statements to the public about the extent of its subprime exposure, even acknowledging that it had misrepresented the exposure to be at $13 billion or under between July and the middle of October 2007 when it was actually over $50 billion. Citigroup also consented to pay the SEC $285 million to settle allegations that it misled investors when it didn’t reveal that it was assisting in choosing the mortgage securities underpinning a CDO while betting against it.

This week, Citi agreed to pay a different group of investors a $25 million MBS settlement to a securities lawsuit accusing it of underplaying the risks and telling lies about appraisal and underwriting standards on residential loans of two MBS trusts. The plaintiffs, Greater Kansas City Laborers Pension Fund and the ‪City of Ann Arbor Employees' Retirement System,‬ had sued Citi’s Institutional Clients Group. ‬

This $590 million settlement of Citigroup’s is the largest one reached over CDOs to date and one of the largest related to the economic crisis. According to The Wall Street Journal, the two that outsize this was the $627 million that Wachovia Corp. (WB) agreed to pay over allegations that investors were misled about its mortgage loan portfolio’s quality and the $624 million by Countrywide Financial (CFC) in 2010 to settle claims that it misled investors about its high risk mortgage practices.

Citigroup in $590 million settlement of subprime lawsuit, The New York Times, August 29, 2012

Citi's $590 million settlement: Where it ranks, August 29, 2012

Citigroup to Pay $25 Million to Settle MBS Lawsuit, American Banker, August 31, 2012

Citigroup Said To Pay $75 Million To Settle SEC Subprime Case, Bloomberg, July 29, 2010


More Blog Posts:
Amerigroup Shareholders Claim Goldman Sachs Advisers’ Had Conflicts of Interest That Influenced $4.5B Sale of Company to WellPoint, Institutional Investor Securities Blog, August 21, 2012

Morgan Keegan Settles Subprime Mortgage-Backed Securities Charges for $200M, Stockbroker Fraud Blog, June 29, 2011

Wells Fargo Securities Settles for Over $6.5M SEC Charges Over Allegedly Improper Sale of ABCP Investments with Risky MBS and CDOs, Institutional Investor Securities Blog, August 14, 2012


Continue reading "Citigroup to Pay $590M to Settle Shareholder Class Action CDO Lawsuit Over Subprime Mortgage Debt " »

August 29, 2012

Institutional Investment Roundup: Madoff Ponzi Victims to Get 2nd Payout, Insurer’s MBS Lawsuit Against UBS Can Proceed, SEC Charges 2 in $10M Penny Stock Scam, & Hedge Fund Manager Found Guilty in $900K Insider Trading Scheme

The U.S. Bankruptcy Court for the Southern District has issued an order giving Irving Picard, the Bernard L. Madoff Investment Securities LLC liquidation trustee, permission to issue a second interim distribution to the victims of the Madoff Ponzi scam. Picard had asked to add $5.5 billion to the customer fund and issue a second payout of $1.5 billion to $2.4 billion to the investors that were harmed.

According to Bloomberg Businessweek, a $2.4 billion payout would be seven times more than what the bilked investors have been able to get back since Madoff, who is serving a 150-year prison term for his crimes, defrauded them. A huge part of the customer fund is on reserve because there are investors who have filed securities lawsuits contending they should be getting more.

Meantime, the U.S. District Court for the Southern District of New York has decided that the mortgage-backed securities lawsuit filed by insurance company Assured Guaranty Municipal Corp. against UBS Real Estate Securities Inc. can proceed. The plaintiff contends that UBS misrepresented the quality of the loans that were underlying the MBS it insured in 2006 and 2007.

Assured claims that the defendant was in breach of the pooling and servicing agreements involving three MBS certificates that it had insured. Because UBS allegedly misrepresented the quality of the underlying mortgage loans, it has to, per the contracts, repurchase them from Assured.

While Judge Harold Baer denied UBS motion to dismiss the insurer’s contention that the defendant misrepresented the loans’ quality, it agreed with the defendant that Assured cannot force UBS to repurchase them because certificate trustees are the only ones entitled to make sure the “repurchase obligation” is enforced.

In other institutional investment fraud news, the Securities and Exchange Commission has filed charges against Edward Bronson and his E-Lionheart Associates LLC. The two are accused of making over $10 million in a penny stock scam involving the reselling of billions of unregistered shares in about 100 small companies that they acquired at “deep discounts.”

Per the Commission, at Bronson’s direction, E-Lionheart would cold call penny stock companies to try to get them to obtain capital. If there was interest, the firm would offer to purchase shares in the concern at prices that were greatly lower than market value. The defendants would then start reselling the shares through brokers involved in unregistered sales.

The SEC says that while the defendants are invoking a registration exemption that exists under Rule 504(b)(1)(iii) of Regulation D, the Commission contends that this does not apply to these types of sales. The regulator is seeking disgorgement of over $10M, in addition to other penalties.

In an unrelated financial scam, this one involving a criminal case, a New York jury has convicted hedge fund manager Doug Whitman on securities fraud and conspiracy over his involvement in two insider trading schemes. Whitman, who is a Whitman Capital LLC portfolio manager, was charged with using insider trading tips to trade in Marvell Technology Group Ltd. (MRVL), Polycom Inc., (PLCM), and Google Inc. (GOOG) stocks. This allegedly caused him to generate over $900,000 in profits.

Prosecutors claim Whitman obtained the confidential information about the Marvell options and shares from an independent research consultant that received the information from the company’s employees. A colleague in the hedge fund industry gave him the information about Google and Polycom.

The SEC has also filed a civil lawsuit against Whitman and his financial firm. The securities fraud complaint is still pending.

Madoff Trustee’s Customer Payment May Reach $2.4 Billion, Bloomberg Businessweek, August 22, 2012

The Madoff Recovery Initiative

Assured Guaranty Municipal Corp. v. UBS Real Estate Securities Inc. (PDF)

Read the SEC's Complaint against E-Lionheart Associates LLC (PDF)

California Hedge Fund Manager Doug Whitman Found Guilty in Manhattan Federal Court on All Counts for Insider Trading, FBI.gov, August 20, 2012


More Blog Posts:
Merrill Lynch Agrees to Pay $40M Proposed Deferred Compensation Class Action Settlement to Ex-Brokers, Stockbroker Fraud Blog, August 27, 2012

Securities Lawsuit Against Options Clearing Corporation and Chicago Board Options Exchange Can Proceed Says Illinois Appellate Court, Stockbroker Fraud Blog, August 24, 2012

2nd Circuit Affirms Dismissal of $18.5M Auction-Rate Securities Lawsuit Against Merrill Lynch Filed by Anschutz Corp.
, Institutional Investor Securities Blog, August 23, 2012

August 23, 2012

2nd Circuit Affirms Dismissal of $18.5M Auction-Rate Securities Lawsuit Against Merrill Lynch Filed by Anschutz Corp.

The U.S. Court of Appeals for the Second Circuit has affirmed a lower court’s ruling to dismiss the ARS lawsuit filed against Merrill Lynch (MER), Merrill Lynch, Pierce, Fenner, and Smith Inc. ( MLPF&S), Moody’s Investor Services (MCO), and the McGraw-Hill Companies, Inc. (MHP). Pursuant to state and federal law, plaintiff Anschutz Corp., which was left with $18.95 million of illiquid auction-rate securities when the market failed, had brought claims alleging market manipulation, negligent misrepresentation, and control person liability. The case is Anschutz Corp. v. Merrill Lynch & Co. Inc.

According to the court, Merrill Lynch underwrote a number of the Anchorage Finance ARS and Dutch Harbor ARS offerings in which Anschutz Corp. invested. To keep auction failures from happening, Merrill was also involved as a seller and buyer in the ARS auctions and had its own account. Placing these support bids in both ARS auctions allowed Merrill to make sure that they would clear regardless of the orders placed by others. The financial firm is said to have been aware that the ARS demand was not enough to “feed the auctions” unless it too made bids and that its clients did not know of the full extent of these practices.

Per its securities complaint, Anschutz contends that the description of Merrill’s ARS practices, which were published on the financial firm’s website beginning in 2006, were misleading, untrue, and “inadequate.” The plaintiff accused the credit rating agency defendants of giving the ARS offerings ratings that also were misleading and false and should have been lowered (at the latest) in early 2007 when Merrill knew or should have known that the ratings they did receive were unwarranted.

Last year, the United States District Court for the Southern District of New York dismissed the ARS lawsuit, concluding that Merrill’s disclosures on its Web site had been “sufficient” to make Anschutz aware of Merrill’s ARS “support bidding practices.” In regards to the claims against the credit rating agency, the court found that the plaintiff did not succeed in alleging that there was any actionable misstatement under California or New York law because the challenged ratings were only “statements of opinion.”

Now, in affirming the district court’s decision to dismiss the ARS lawsuit, the appeals court has found that the “generalized and conclusory allegations” made by the plaintiff are not enough to plead that a violation of securities law occurred. The 2nd Circuit also affirmed the district court’s decision to dismiss the California statutory claims against Merrill on the basis that Anschutz did not allege that the harm it suffered occurred in that state or that the financial firm committed any behavior there that was relevant.

As for the claims against the credit ratings agency, the appeals court held that the plaintiff did not have any alleged contact or relationship with the defendants that would “remotely” meet the standard under New York law, which mandates that to make a negligent misrepresentation claim a plaintiff has to allege that because of “a special relationship” it was the defendant’s duty to provide the correct information.

If your losses are a result of a failed ARS and you believe that misconduct or negligence on the part of a financial firm or one of its advisers was a factor, please contact one of our auction-rate securities lawyers today.

Anschutz Corp. v. Merrill Lynch & Co. Inc.


More Blog Posts:

Raymond James Settles Auction-Rate Securities Case with Indiana Securities Division for $31M, Stockbroker Fraud Blog, August 27, 2011

The 11th Circuit Revives SEC Fraud Lawsuit Against Morgan Keegan Over Auction-Rate Securities, Institutional Investor Securities Blog, May 8, 2012

Securities Fraud Lawsuit Against UBS Securities LLC by Detroit Pension Funds Won’t Be Remanded to State Court, Says District Court, Institutional Investor Securities Blog, January 17, 2011

August 21, 2012

Amerigroup Shareholders Claim Goldman Sachs Advisers’ Had Conflicts of Interest That Influenced $4.5B Sale of Company to WellPoint

Amerigroup Corp (AGP) shareholders are suing its board and Goldman Sachs Group (GS) because they say that the defendants’ conflicts of interest got in the way of other bids being considered before they agreed to let WellPoint Inc. (WLP) buy the managed care company for $4.9B The shareholders’ securities lawsuit was filed by the Louisiana Municipal Police Employees Retirement System and the City of Monroe Employees Retirement System in Michigan in the Delaware Court of Chancery, which has seen an increase in cases over whether certain deals shouldn’t go through because of questions surrounding whether the advisors involved had conflicts of interest.

According to the plaintiffs, a complex derivative transaction with Amerigroup created a financial incentive for Goldman to execute a deal quickly even if was not in the best interests of shareholders. The financial firm is accused of pushing for the WellPoint purchase instead of one with another company that was willing to pay more albeit bringing more regulatory issues with it that would take time to resolve. The WellPoint deal, contend the pension funds, allowed for the possibility that Goldman would get a windfall profit on the derivative deal that would obligate Amerigroup to pay the financial firm $233.7M if an agreement on the sale was reached by August 13, as well as another “substantial” financial figure if by October 22 it was closed.

Now, Amerigroup’s shareholders want to block the sale of the company until the board improves the deal’s terms. They believe that the process that led to the deal, which could nearly double WellPoint’s Medicaid business, prevented the highest price possible from being considered and was “flawed.” They said that the derivative transaction was a conflict for Goldman because Amerigroup would be it much more than the $18.7M it was supposed to get from the WellPoint deal.

Although not defendants in this shareholder complaint, Amerigroup’s management and Barclays (BCS) also had conflicts when arranging the company’s sale, claim the plaintiffs. They said that one could argue that WellPoint bought Amerigroup executives’ loyalty by indicating that they could stay in their positions after the acquisition and that following the merger they would be given $12M worth of WellPoint stock.

Under President Barack Obama’s health-care law, up to 17 million patients would be added under Medicaid. The sale would make WellPoint the largest provider of Medicaid coverage for the impoverished. UnitedHealth Group Inc. (UNH) would be the second largest. More healthcare company acquisitions are expected as competition for the growing Medicaid market continues.

Goldman 'conflicted' in Amerigroup/WellPoint deal-lawsuit, Reuters, August 17, 2012

WellPoint dragged into Goldman Sachs suit, IBJ.com, August 20, 2012


More Blog Posts:
Shareholder Lawsuit Against Goldman Sachs CEO and Other Financial Firm Executives is Dismissed, Institutional Investor Securities Blog, August 18, 2012

Ex-Goldman Sachs Director Rajat Gupta Pleads Not Guilty to Insider Trading Charges, Stockbroker Fraud Blog, October 20, 2011

Goldman Sachs Ordered by FINRA to Pay $650K Fine For Not Disclosing that Broker Responsible for CDO ABACUS 2007-ACI Was Target of SEC Investigation, Stockbroker Fraud, November 12, 2010

Continue reading "Amerigroup Shareholders Claim Goldman Sachs Advisers’ Had Conflicts of Interest That Influenced $4.5B Sale of Company to WellPoint" »

August 18, 2012

Shareholder Lawsuit Against Goldman Sachs CEO and Other Financial Firm Executives is Dismissed

In the US District Court for the Southern District of New York, the shareholder complaint against a number of Goldman Sachs Group (GS) executives, including CEO Lloyd Blankfein, COO Gary Cohn, CFO David Viniar, and ex-director Rajat Gupta, has been dismissed. The lead plaintiffs of this derivatives lawsuit are the pension fund Retirement Relief System of the City of Birmingham, Alabama and Goldman shareholder Michael Brautigam. They believe that the investment bank sponsored $162 billion of residential mortgage-backed securities while knowing that the loans backing them were in trouble. They say that Goldman then proceeded to sell $1.1 billion of the securities to Freddie Mac and Fannie May. Their securities complaint also accuses the defendants of getting out of the Troubled Asset Relief Program early so they could get paid more.

According to Judge William Pauley, the plaintiffs did not demonstrate that “red flags” had existed for bank directors to have been able to detect that there were problems with the “controls” of mortgage servicing business or that problematic loans were being packaged with RMBS. He also said that the shareholders did not prove that firm directors conducted themselves in bad faith when they allowed Goldman to pay back the $10 billion it had received from TARP early in 2009, which then got rid of the limits that had been placed on executive compensation.

Even with this shareholder complaint against Goldman tossed out, however, the investment bank is still dealing with other shareholder lawsuits. For example, they can file securities lawsuits claiming that they suffered financial losses after Goldman hid that there were conflicts of interest in the way several CDO transactions were put together.

Meantime, the US Department of Justice has officially concluded its criminal investigation into Goldman’s activities before the economic collapse. Yet, some are now wondering why the DOJ chose to issue an official statement that there was no “viable basis to bring a criminal prosecution” against the financial firm when such a public disclosure usually isn’t protocol in this type of probe.

Also, Goldman is reporting that the SEC has concluded its civil investigation into the bank’s sale of over a billion dollars of subprime mortgage debt and has decided not to take any civil action. This is a reversal from the Commission’s earlier Wells notification to Goldman notifying the bank that it would likely be the target of a civil action. The SEC had been looking into whether the bank misled investors, causing them to think that MBS were safe investments for them.

Unfortunately, the economic crisis led to massive losses for many investors of residential mortgage-backed securities, auction-rate securities, and other complex investments. You should speak to an experienced RMBS law firm to explore your legal options for recovery.

U.S. Goldman Disclosure a Rare Break in Secrecy, New York Times, August 10, 2012

Goldman execs win dismissal of mortgage, TARP lawsuit, Reuters, August 15, 2012

Troubled Asset Relief Program, Federal Reserve


More Blog Posts:
Ex-Goldman Sachs Director Rajat Gupta Pleads Not Guilty to Insider Trading Charges, Stockbroker Fraud Blog, October 26, 2011

Goldman Sachs Settles SEC Subprime Mortgage-CDO Related Charges for $550 Million
, Stockbroker Fraud Blog, July 30, 2010

Goldman Sachs Execution and Clearing Must Pay $20.5M Arbitration Award in Bayou Ponzi Scam, Upholds 2nd Circuit, Institutional Investor Securities Blog, July 14, 2012


August 16, 2012

Even With Securities Lawsuits Over MF Global’s $1.6 Billion Customer Funds Loss, Don’t Expect Criminal Charges

The criminal probe into brokerage firm MF Global’s collapse and its inability to account for approximately $1.6 billion in customer funds will likely end with no criminal charges filed against anyone. Sources involved in the case are reportedly saying that investors are finding that not fraud, but “porous risk controls” and “chaos” caused the money to go missing.

At the time of MF Global’s bankruptcy filing almost 10 months ago, then-MF Global CEO Jon S. Corzine apologized to everyone saying that he also didn’t know what happen to the money. Meantime, thousands of customers saw their assets frozen.

According to a report by bankruptcy trustee James Giddens’, the brokerage company improperly used customer money that they are forbidden to tap so that it could stay in business and meet margin calls. Yet, still, is no one likely to be charged with wrongdoing?

The reason that the criminal probe appears to be winding down is that, per The New York Times, there is the “most telling indication” of federal authorities now looking to interview Corzine to find out more about what was going on at MF Global. (Corzine is also a former governor of New Jersey and an ex-head of Goldman Sachs.)

“We have lamented in the past about the lack of criminal charges being brought against big shots on Wall Street but this may be the most absurd example yet!” said Shepherd Smith Edwards and Kantas, LLP Founder and Securities Lawyer William Shepherd. “Of course, Mr. Corzine is not only well-connected through his financial connections but he is also well-connected politically. That gives him not one but two ‘get out of jail free’ cards to play in the all to real Wall Street game of ‘Oligopoly.’"

Corzine, however, isn’t completely out of the woods in that he, along with other ex-MF Global executives, are being sued by the firm’s customers for securities fraud. Also, regulators may still choose to pursue civil enforcement actions against them.

Meantime, in a decision that could lead to even more securities fraud complaints over the MF Global’s collapse and the missing customer funds, Giddens has consented to work with plaintiffs’ lawyers. Although he won’t be one of the plaintiffs, he will “assign” his legal claims to these attorneys and be a full participant in the cases. Giddens will be responsible for disbursing any money that is recovered. A spokesperson for the bankruptcy trustee said that they believe this proceeding will be faster and more efficient than if Giddens were to file his own lawsuit. Meantime, plaintiffs with MF Global securities cases are seeking class action status.

Per Giddens’s office, Other MF Global securities defendants in the civil suits include ex-CFO Henri Steenkamp, ex-COO Bradley Abelow, General Counsel Laurie Ferber, and other ex-directors and firm officers. Giddens believes that there were MF global directors and officers that caused, helped, or authorized for the customer funds be drawn from segregated accounts to fulfill “proprietary debts” even though they knew this was wrong.

No Criminal Case Is Likely in Loss at MF Global, New York Times, August 15, 2012

MF Global Trustee to Join Existing Suits Against Executives, The Wall Street Journal, August 15, 2012

Criminal charges unlikely for MF Global execs, CBS News, August 16, 2012


More Blog Posts:
$1.2 Billion of MF Global Inc.’s Clients Money Still Missing, Stockbroker Fraud Blog, December 10, 2011

MF Global Shortfall May Be More than $1.2B, Says Trustee
, Stockbroker Fraud Blog, November 26, 2011

Barclays LIBOR Manipulation Scam Places Citigroup, Credit Suisse, Deutsche Bank, JP Morgan Chase, and UBS Under The Investigation Microscope, Institutional Investor Securities Blog, July 16, 2012

August 14, 2012

Wells Fargo Securities Settles for Over $6.5M SEC Charges Over Allegedly Improper Sale of ABCP Investments with Risky MBS and CDOs

The SEC is charging Wells Fargo Securities, formerly known as Wells Fargo Brokerage Services, and former VP Shawn McMurtry for selling complex investments to institutional investors without fully comprehending the investments’ level of sophistication or disclosing all of the risks involved to these clients. To settle the securities charges, Wells Fargo will pay a penalty of over 6.5 million, $16,571.96 in prejudgment interest, and $65,000 in disgorgement.

According to the Commission, Wells Fargo engaged in the improper sale of asset-backed commercial paper that had been structured with risky collateralized debt obligations and mortgage-backed securities to non-profits, municipalities, and other clients. The SEC contends that the financial firm did not secure enough information about the instruments, even failing to go through the investment private placement memoranda (and the risk disclosures in them), and instead relied on credit ratings. With this alleged lack of comprehension of the actual nature of these investment vehicles and the risks and volatility involved, as well as having no basis for making such recommendations, Wells Fargo’s Institutional Brokerage and Sales Division representatives went ahead and recommended the instruments to certain investors who had generally conservative investment objectives.

These allegedly improper sales happened between January and August 2007 when representatives recommended to certain institutional investors that they buy ABCP that were structured investment vehicles that were primarily CDO and MBS-backed (SIVs and SIV-Lites). Unfortunately, a number of the investors that did buy the SIV-issued ABCP, per Wells Fargo’s recommendation, lost money when 3 of these programs defaulted that same year.

Meantime, the SEC is accusing McMurtry of violating the financial firm’s internal policy and choosing a certain ABCP issuer for one longstanding municipal client. He too allegedly did not obtain enough information about the investment and only depending on its credit rating. He has agreed to pay $25,000 and serve a 6-month securities industry suspension.

The Commission says that McMurtry and Wells Fargo, who, at the very least, were negligent when they recommended the ABCP program without being informed enough about the investments (or why they should be recommended to which client), failed to reveal the material risks involved and violated the Securities Act of 1933. Both have agreed to settle without admitting to or denying the charges.

Also, the SEC’s order is reporting that since 2007, Wells Fargo has executed several remedial steps to make sure that its representatives are given enough information so that they can make recommendations that are suitable to each investor. These clients are to be given any relevant information about the securities, including the details about the involved.

It is important that your financial representative recommended investments to you that were appropriate not just for your investment goals but also for the degree of risk that you and your finances are able/want to take. Certain investments are only for sophisticated investors and even then there are high risks involved.

If you believe that your losses are a result of unsuitable investments and/or because you were not given enough information to make the right decision for you and your investment, you should speak with an experienced institutional investment fraud lawyer right away.

Read the SEC Order (PDF)

SEC Charges Wells Fargo for Selling Complex Investments Without Disclosing Risks, SEC, August 14, 2012


More Blog Posts:

Wells Fargo & Co. May Have to Pay Another $15M to Minnesota Nonprofits For Securities Fraud, Institutional Investor Securities Blog, December 24, 2010

Wells Fargo Settles for $148M Municipal Bond Bid-Rigging Charges Against Wachovia Bank, Institutional Investor Securities Blog, December 8, 2011

Morgan Stanley, Citigroup, Wells Fargo, and UBS to Pay $9.1M Over Leveraged and Inverse ETFs, Stockbroker Fraud Blog, May 3, 2012

July 18, 2012

Institutional Investor Roundup: Ex-IndyMac Executives Class Action Securities Case for $6.5M, New York Fed Sells $828M of Mortgage Debt Securities from AIG Bailout, and Survey Says That 25% of Wall Street Employees Believe Cheating is Necessary to Succeed

The former executives of IndyMac Banccorp have consented to settle class-action securities lawsuit related to bank holding company’s collapse when the housing bubble burst. Per the settlement terms, the financial firm’s insurer will pay investors $6.5 million in cash.

IndyMac shareholders had gone after ex-CEO Michael Perry and ex-finance officer Scott Keys in 2008, contending that they had misled investors about the mortgage lender’s poor financial condition. A month later, federal bank regulators closed down IndyMac Bank. Although the two of them are settling, they were not required to admit to any wrongdoing.

“Again, no jail time for anyone,” commented Shepherd Smith Edwards and Kantas, LTD, LLP Founder and Stockbroker Fraud Lawyer William Shepherd.

Other litigation against ex-IndyMac executives is pending. The Federal Deposit Insurance Corp., which is overseeing the receivership of the failed mortgage lender, is also suing Perry for $600 million. FDIC says that IndyMac’s failure is expected to cost its deposit insurance fund $13 billion.

In other securities news, last week the Federal Reserve Bank of New York sold $828 million of mortgage debt securities as it proceeds to wind down a portfolio from the American International Group bailout in 2008. Acceptance of the bids made brings the total portfolio sales of Maiden Lane III to about $27.5 billion, while lowering the value of the rest of the portfolio to approximately $18.7 billion. Credit Suisse Group AG (CS) was one of the buyers.

“When the original sale was attempted the process was shut down because the bids, expected to be much higher, were for less than 10% of the face value of the securities,” said Mortgage-Backed Securities Lawyer Shepherd. “Believe me, there will be billions of profits made by those who acquire these assets no matter how toxic the waste being purchased. After the savings and loan debacle in the late 1980’s, billions were made by those who purchased the ‘bad paper’ from the Resolution Trust, which was the government bailout fund. My guess is that tens or hundreds of billions will be made on this batch of bad paper. A good collection agency could probably help the taxpayers here and put most of the difference in our government’s pocket. Oh, and who went to jail over the AIG blow up? Answer: Nobody”

Unfortunately, it looks like misconduct on Wall Street isn’t going to go away. According to a survey of 500 financial service professionals in the US and Great Britain, 24% of respondents believe that to be successful, you have to, on occasion, take part in activities that are illegal or unethical. For many, the incentive to cheat is money. 30% of those surveyed said that the impetus to engage in such activities was linked to the way their bonus and compensation plans were structured, which is where the real money comes in.

Although this leaves 76% of respondents saying that breaking the law or acting unethically is never necessary to move on up, Securities Attorney Shepherd said, “Only one in four? Is that supposed to be a good record? Over a million people are licensed to sell securities or act as financial advisors in the U.S. So, a quarter of a million financial professionals admit they feel obliged to break the rules from time to time? Most of these people work with dozens if not hundreds of clients. So, is there a question as to whether Wall Street needs tighter restrictions?”

Former IndyMac Chief Settles Suit, The Wall Street Journal, July 8, 2012

NY Fed Maiden Lane III Sales Top $27 Billion With Latest Auction
, Fox Business, July 12, 2012

Many on Wall Street think cheating breeds success, MSNBC, July 10, 2012


More Blog Posts:

Institutional Investor Securities Roundup: SEC Sues Investment Adviser Over $60M Ponzi Scam, Michigan Investment Club Manager Gets Prison Term for Defrauding Over 900 Investors, & IOSCO Seeks Comments on Report About Credit Raters’ Conflicts & Controls, Institutional Investor Securities Blog, June 7, 2012

Texas Securities Roundup: Morgan Stanley Smith Barney Sued Over Financial Adviser’s Ponzi Scam, Judge Dismisses Ex-GE Executive Whistleblower’s Lawsuit Over His Firing, & Ex-Stanford Financial Group CIO Pleads Guilty to Obstructing the SEC’s Probe, Stockbroker Fraud Blog, July 3, 2012

Barclays LIBOR Manipulation Scam Places Citigroup, Credit Suisse, Deutsche Bank, JP Morgan Chase, and UBS Under The Investigation Microscope, Institutional Investor Securities Blog, July 16, 2012

July 16, 2012

Barclays LIBOR Manipulation Scam Places Citigroup, Credit Suisse, Deutsche Bank, JP Morgan Chase, and UBS Under The Investigation Microscope

The London Inter-Bank Offer Rate (LIBOR) manipulation scandal involving Barclays Bank (BCS-P) has now opened up a global probe, as investigators from the United States, Europe, Canada, and Asia try to figure out exactly what happened. While Barclays may have the settled the allegations for $450 million with the UK’s Financial Services Authority, the US Department of Justice, and the Commodity Futures Trading Commission, now a number of other financial firms are under investigation including UBS AG (UBS), JPMorgan Chase (JPM), Deutsche Bank AG, Credit Suisse Group (CS), Citigroup Inc., Bank of Tokyo-Mitsubishi UFJ, HSBC Holdings PLC (HBC-PA), Lloyds Banking Group PLC (LYG), Rabobank Groep NV, Mizuho Financial Group Inc. (MFG), Societe Generale SA, RP Martin Holdings Ltd., Sumitomo Mitsui Banking Corp., and Royal Bank of Scotland PLC (RBS).

In the last few weeks, the accuracy of LIBOR, which is the average borrowing cost when banks in Britain loan money to each other, has come into question in the wake of allegations that Barclays and other big banks have been rigging it by submitting artificially low borrowing estimates. Considering that LIBOR is a benchmark interest rates that affects hundreds of trillions of dollars in financial contracts, including floating-rate mortgages, interest-rate swaps, and corporate loans globally, the fact that this type of financial fudging may be happening on a wide scale basis is disturbing.

“It’s my understanding the total financial paper effected by LIBOR is close to $500 trillion dollars. This is a half-quadrillion dollars if you are wondering about the next step up,” said Shepherd Smith Edwards and Kantas, LTD, LLP Founder and Institutional Investment Fraud Attorney William Shepherd.

Barclays contends that its manipulation of borrowing estimates could not alone have dramatically influenced the final labor rate. The bank claims that it submitted low borrowing costs that were artificial because it suspected that this is what other banks were doing and it didn’t want to look like it was in financial trouble by comparison.

“In the US, these allegations could fall under the Sherman Anti-trust and/or the Clayton Unfair Trade Practices Acts, said Securities Lawyer Shepherd. “The recovery possible under such legislation could reach triple damages, plus legal fees and costs.”

A slew of securities lawsuits, including class actions and regulator complaints, against some of these banks under investigation, are likely. CNN reports that already, attorneys general in Massachusetts, Florida, New York, and Connecticut are investigating the LIBOR rate-setting scandal. There may be a variety of plaintiff types, including municipal governments and investment firms.

“Institutions are usually the subject of such actions, which are also federal crime statutes, but individuals can also be held liable,” said Stockbroker Fraud Attorney Shepherd. “The allegations cover more than just price-fixing or predatory pricing and involve multiple acts of price manipulation among institutions (legally an “enterprise”), such that racketeering (RICO) laws could also apply.”

Banks belonging to the LIBOR panels will likely become defendants of criminal complaints, regulator complaints, and huge class actions. For now, they in turn, have been blaming the central banks and regulators.

States weighing Libor scandal suit, CNN, July 16, 2012

Who Else Is Under Investigation for Libor Manipulation?, The Wall Street Journal, July 9, 2012

The Worst Banking Scandal Yet?, Bloomberg, July 12, 2012


More Blog Posts:
$1.2 Billion of MF Global Inc.’s Clients Money Still Missing, Stockbroker Fraud Blog, December 10, 2011

Ex-Goldman Sachs Director Rajat Gupta Pleads Not Guilty to Insider Trading Charges, Stockbroker Fraud Blog, October 26, 2011

Goldman Sachs Execution and Clearing Must Pay $20.5M Arbitration Award in Bayou Ponzi Scam, Upholds 2nd Circuit, Institutional Investor Securities Blog, July 14, 2012

July 14, 2012

Goldman Sachs Execution and Clearing Must Pay $20.5M Arbitration Award in Bayou Ponzi Scam, Upholds 2nd Circuit

The U.S. Court of Appeals for the Second Circuit is allowing a $20.5M award issued by a Financial Industry Regulatory Authority arbitration panel against Goldman Sachs Execution & Clearing LP to stand. The court turned down Goldman’s claim that the award should be vacated because it was issued in “manifest disregard of the law” and said that the clearing arm must pay this amount to the unsecured creditors of the now failed Bayou hedge fund group known as the Bayou Funds, which proved to be a large scale Ponzi scam.

Goldman was the prime broker and only clearing broker for the funds. After the scheme collapsed in 2005, the Bayou Funds sought bankruptcy protection the following year. Regulators would go on to sue the fund’s funders over the Ponzi scam and the losses sustained by investors. Meantime, an Official Unsecured Creditors’ Committee of Bayou Group was appointed to represent the debtors’ unsecured debtors. Blaming Goldman for not noticing the red flags that a Ponzi fraud was in the works, the committee proceeded to bring its arbitration claims against the clearing firm through FINRA. In 2010, the FINRA arbitration panel awarded the committee $20.58M against Goldman.

In affirming the arbitration award, the 2nd Circuit said that in this case, Goldman did not satisfy the manifest disregard standard. As an example, the court pointed to the $6.7M that was moved into the Bayou Funds from outside accounts in June 2005 and June 2004. While the committee had contended during arbitration that these deposits were “fraudulent transfers” and could be recovered from Goldman because they were an “initial transferee” under 11 U.S.C. §550(a), Goldman did not counter that the deposits weren’t fraudulent or that it was on inquiry notice of fraud. Instead, it claimed the deposits were not an “initial transferee” under 11 U.S.C. §550 and the panel had ignored the law by finding that it was.

Offering a rejoinder, the court agreed with the district court that Goldman’s argument for manifest disegard doesn’t succeed due to the recent case of Bear Stearns Securities Corp. v. Greddin, during which the Southern District of New York upheld the arbitration favoring the Creditors’ Committee. The court said it therefore could not conclude that arbitrators “manifestly disregarded the law” when they applied the legal principles in Greddin to impose on Goldman transferee liability.

The appeals court also found that arbitrators did not manifestly disregard the law as this relates to the $13.9M in transfers from the original Bayou fund to four new ones in March 2003. It affirmed the lower court’s decision that prejudgment interest should be awarded to the committee per the federal rate in 28 USC §961 and not the New York statutory rate.

If you are an institutional investor that was suffered financial losses due to fraud, contact our securities fraud law firm today.

Goldman Sachs Execution & Clearing LP v. Official Unsecured Creditors’ Committee of Bayou Group LLC

2d Circuit Agrees Goldman Clearing Arm Must Pay $20.5M Bayou Arbitration Award, Bloomberg/BNA, July 6, 2012

Goldman Battles Bayou Decision, The Wall Street Journal, October 15, 2011


More Blog Posts:

Goldman Sachs to Pay $22M For Alleged Lack of Proper Internal Controls That Allowed Analysts to Attend Trading Huddles and Tip Favored Clients, Institutional Investors Securities Blog, April 14, 2012

$698M MBS Lawsuit Seeking Damages from Goldman Sachs Group Can Take on Class Action Status, Says District Judge, Institutional Investors Securities Blog, February 23, 2012

Ex-Goldman Sachs Director Rajat Gupta Pleads Not Guilty to Insider Trading Charges, Stockbroker Fraud Blog, October 26, 2011

July 12, 2012

Institutional Investor Roundup: Evergreen Ultra Short Investor Lawsuit Settled for $25M, FINRA Launches Pilot Program for Huge Claims, Ex-AmeriFirst Funding Manager’s Conviction Appeal is Rejected, & EU Regulator Examines Credit Raters’ Bank Downgrade

Evergreen Investment Management Co. LLC and related entities have consented to pay $25 million to settle a class action securities settlement involving plaintiff investors who contend that the Evergreen Ultra Short Opportunities Fund was improperly marketed and sold to them. The plaintiffs, which include five institutional investors, claim that between 2005 and 2008 the defendants presented the fund as “stable” and providing income in line with “preservation of capital and low principal fluctuation” when actually it was invested in highly risky, volatile, and speculative securities, including mortgage-backed securities. Evergreen is Wachovia’s investment management business and part of Wells Fargo (WFC).

The plaintiffs claim that even after the MBS market started to fail, the Ultra Short Fund continued to invest in these securities, while hiding the portfolio’s decreasing value by artificially inflating the individual securities’ asset value in its portfolio. They say that they sustained significant losses when Evergreen liquidated the Ultra Short Fund four years ago after the defendants’ alleged scam collapsed. By settling, however, no one is agreeing to or denying any wrongdoing.

Meantime, seeking to generally move investors’ claims forward faster, the Financial Industry Regulatory Authority has launched a pilot arbitration program that will specifically deal with securities cases of $10 million and greater. The program was created because of the growing number of very big cases.

Under the voluntary program, parties would be able to “customize” the arbitration process. The SRO says it wants parties to have a “formal” approach that gives them greater control and flexibility over their claims, including “additional control” over choosing arbitrators and “expanded” discovery.

In other securities news, the U.S. Court of Appeals for the Fifth Circuit has turned down ex-AmeriFirst Funding Inc. manager Jeffrey Bruteyn’s appeal to his criminal conviction. Bruteyn was convicted of 9 counts of securities fraud in 2010 for running a scam that used the sale of secured debt obligations to defraud investors of millions of dollars.

The SDO’s were sold to raise capital for AmeriFirst Funding, which financed used car buys. Bruteyn is accused of making the sales by generating promotional materials that overstated insurance coverage while understating investor risk and falsely telling investors that that his family, which owned Hess Corp. (HES) would cover any losses sustained. Bruteyn was ordered to pay $7.3M in restitution and sentenced to 25 years in prison and three years of supervised release.

In Europe, regulators are examining the recent decisions made by credit rating agencies Moody’s (MCO), Fitch, and Standard & Poor's to downgrade banks affected by the eurozone sovereign debt crisis and the economic contraction. The European Securities and Markets Authority says it wants make sure that “transparent” and “rigorous” analyses were part of the credit raters’ decision-making process. ESMA is especially interested in a “block” rating that Moody’s issued to a number of Spanish banks last month.

ESMA is allowed to fine credit rating agencies for not following correct methodology or applying proper resources. It can also force a credit rater’s “de-registration.”

Throughout the US, our institutional investment fraud lawyers are committed to helping our clients recoup their losses from securities fraud.

$25 Million Settlement Submitted In Re Evergreen Ultra Short Opportunities Fund Securities Class Action, Yahoo Finance, July 2, 2012

FINRA Announces Pilot Program for Large Cases, FINRA, July 2, 2012

US v. Bruteyn

EU market regulator is suspicious of rating agencies, RT, July 2, 2012


More Blog Posts:

CFTC Accuses Peregrine Financial Group of Securities Fraud Related to $200M Customer Funds Shortfall, Institutional Investor Securities Blog, July 10, 2012

Will the JOBS ACT Will Expand Private Offerings But Hurt Public Markets?, Institutional Investor Securities Blog, July 6, 2012

SEC to Push for Money Market Mutual Fund Reform Provisions Despite Opposition, Stockbroker Fraud Blog, July 6, 2012


July 10, 2012

CFTC Accuses Peregrine Financial Group of Securities Fraud Related to $200M Customer Funds Shortfall

The CFTC is accusing Peregrine Financial Group and its owner Russell R. Wasendorf, Sr. of misappropriating client monies, including statements that were untrue in financial statements submitted to the CFTC, and violating customer fund segregation laws. The Commission filed its securities fraud complaint against the registered futures commission merchant in the United States District Court for the Northern District of Illinois.

Per the CFTC’s complaint, during an audit by the National Futures Association, Peregrine misrepresented that it was holding more than $200M of client funds when it only held about $5.1M. The regulator says that the whereabouts of this at least $200 million in customer fund shortfall are not known at this time. In the wake of the allegations, Peregrine has told its clients that it was being investigated for “accounting irregularities.”

The Commission contends that beginning at least 2/2010 until now, Peregrine and Wasendorf did not meet CFTC Regulations and the Commodity Exchange Act by not maintaining enough client money in accounts that were segregated. The brokerage and its owner also are accused of making false statements about the funds that were being segregated for clients that were trading on US Exchanges in required filings.

Wasendorf, who reportedly tried to kill himself on Monday is now in a coma. The NFA just recently was given information that he may have been responsible for a number of falsified bank records.

The CFTC wants a restraining order to preserve records, freeze assets,, and establish a receiver. It is seeking disgorgement, restitution, financial penalties, and other appropriate financial relief.

Yesterday, Peregrine’s clearing broker Jefferies Group Inc. said that it had started unloading positions held for the futures brokerage’s clients after a margin call was not met. Jeffries Group doesn’t expect to sustain losses.

Meantime, the NFA and “other officials, have frozen all customer funds and Peregrine is not allowed to accept or solicit new client funds or accounts or make trades for customers unless it involves liquidating positions or distributing their money. Also looking into this financial matter is the US Federal Bureau of Investigation.

It was just this year that a court-appointed receiver in Minnesota sued Peregrine over allegedly disregarding warning signs that the futures brokerage’s client Trevor Cook was running a Ponzi scam. According to the securities lawsuit, investments by Cook and others with Peregrine that were supposedly profitable sustained over $30 million in losses as the allegedly culpable participants moved about $48 million from clients to Peregrine accounts.

According to Fox Business, the fallout from these latest allegations against Peregrine could be bigger than the MF Global collapse as traders blame regulators for not doing enough and industry members fight to recapture investor confidence.

CFTC Files Complaint Against Peregrine Financial Group, Inc. and Russell R. Wasendorf, Sr. Alleging Fraud, Misappropriation of Customer Funds, Violation of Customer Fund Segregation Laws, and Making False Statements
, CFTC, July 10, 2012

Peregrine Financial Allegedly Has $200 Million Shortfall, Bloomberg, July 10, 2012

PFG Scandal Deepens as CFTC Files Claim, Fox Business News/Reuters, July 10, 2012


More Blog Posts:
ABA Presses for Self-Funding for SEC and CFTC, Institutional Investor Securities Blog, May 31, 2012

CFTC and SEC May Need to Work Out Key Differences Related to Over-the-Counter Derivatives Rulemaking, Institutional Investor Securities Blog, January 31, 2012

SEC and CFTC Say They Found Out About JPMorgan’s $2B Trading Loss Through Media, Institutional Investor Securities Blog, May 31, 2012

Continue reading "CFTC Accuses Peregrine Financial Group of Securities Fraud Related to $200M Customer Funds Shortfall " »

June 26, 2012

Federal Judge Approves $40M Residential Mortgage-Backed Securities Settlement In Class Action Against Former Lehman Brothers Holdings Executives

The U.S. District Court in Manhattan's Judge Lewis A. Kaplan has approved a $40 million class action settlement in the residential mortgage-backed securities lawsuit against three individuals who used to be affiliated with Lehman Brothers Holdings Inc. (LEHMQ). The plaintiffs are pension and union groups, including Locals 302 and 612 of the International Union of Operating Engineers – Employers Construction Trust Fund, Boilermakers-Blacksmith National Pension Trust, and New Jersey Carpenters Health Fund. The deadline for class members to file their settlement claims is August 20, 2012.

The defendants, Samir Tabet, James J. Sullivan, and Mark L. Zusy, had previously worked for Lehman affiliate Structured Asset Securities Corp. They are accused of filing misleading Offering Documents about the credit quality of mortgage pass-through certificates that were worth billions of dollars. The certificates were issued in 2006 and 2007.

The plaintiffs had submitted their original institutional securities lawsuit prior to Lehman’s filing for bankruptcy in September 2008. This case is one of a number of class action complaints accusing the financial firm and its ex-executives of wrongdoing and negligence.

Per the terms of the RMBS settlement, the Lehman Brothers Estate is responsible for paying $8.3 million. Dow Jones News Services reports that an insurance policy for the financial firm’s ex-directors and former officers will pay the remaining $31.7 million.

When Lehman filed for Chapter 11 bankruptcy, this was considered a major catalyst for the global financial crisis that ensued. The firm, which emerged from bankruptcy protection this March, is now a liquidating company that is expected to spend the next years repaying its investors and creditors that have asserted over $300 billion in claims. Depending on the type of debt owed, a creditor may receive 21 cents/28 cents on the dollar. Also, Lehman is still a defendant in several securities lawsuits related to its bankruptcy and there are other claims against it that need to be resolved.

Last month, Judge Kaplan approved the use of $90 million in insurance to settle another lawsuit against Fuld, ex-finance chief Erin Callan, ex-president Joseph Gregory, former CFO Ian Lowitt, ex-chief risk officer Christopher O’Meara, and several former Lehman directors. The plaintiffs include pension funds, companies, and individuals located abroad. The investors had purchased $30 billion in Lehman debt and equity prior to the firm’s bankruptcy filing and their investments later failed.

Kaplan had initially refused to let the plaintiffs’ insurers pay the $90 million because he wanted to determine whether the securities settlement was a fair one. Now that the federal judge has signed off on it, the plaintiffs will not have to pay for the settlement out of pocket and they are released from the investors’ securities claims.

Judge Approves $40M Settlement with Ex-Lehman Execs, American Banker, June 22, 2012

The Lehman Settlement

Ex-Lehman Executives’ $90 Million Settlement Approved, Bloomberg, May 24, 2012


More Blog Posts:

Ex-Lehman Brothers Holdings Chief Executive Defends Request that Insurance Fund Pay Legal Bills, Stockbroker Fraud Blog, October 19, 2011

UBS Financial Services Fined $2.5M and Ordered to Pay $8.25M Over Lehman Brothers-Issued 100% Principal-Protection Notes, Institutional Investor Securities Blog, April 12, 2011

Lehman Brothers’ “Structured Products” Investigated by Stockbroker Fraud Law Firm Shepherd Smith Edwards & Kantas LTD LLP, Stockbroker Fraud Blog, September 30, 2008

Continue reading "Federal Judge Approves $40M Residential Mortgage-Backed Securities Settlement In Class Action Against Former Lehman Brothers Holdings Executives" »

June 23, 2012

Institutional Investment Roundup: FINRA Lets Ex-UBS Broker Keep $1M Signing Bonus, Court Approves Settlement Reached By Ex-Bear Stearns Hedge Fund Managers & SEC, Madoff Investors’ Securities Suit Against the Govt. is Dismissed

A Financial Industry Arbitration panel has decided that ex-UBS Financial Services broker Pericles Gregoriou can keep $1 million of the signing bonus he was given when he joined the financial firm even though he left the company earlier than what the terms of the hiring agreement stipulated. Gregoriou worked for the UBS AG (UBS) unit from ’07 to ’09.

This is an unusual victory for a broker. They usually find it very challenging to contest demands by a financial firm to give back unpaid bonus money. However, the FINRA panel said that Gregoriou was not liable for the $1 million damages. Also, the
panel denied Gregoriou’s counterclaim against UBS and a number of individuals. He had sought $3.24 million.

In a securities fraud case involving two former Bear Stearns employees against the SEC, “reluctantly,” the U.S. District Court for the Eastern District of New York approved a settlement deal involving Matthew Tannin and Ralph Cioffi. The defendants are accused of making alleged representations about two failing hedge funds.

The ex-Bear Stearns managers faced civil and criminal charges in 2008 for allegedly misleading bank counterparties and investors about the financial state of the funds, which ended up failing due to subprime mortgage-backed securities exposure in 2007. Cioffi and Tannin were acquitted of the criminal allegations in 2009.

Senior Judge Frederic Block approved the agreement wile noting that the SEC has limited powers when it comes to getting back the financial losses of investors. He asked Congress to think about whether the government should do more to help victims of “Wall Street predators.”

Per the terms of the securities settlement, Tannin will pay $200K in disgorgement and a $100K fine. Meantime, Cioffi will also pay a $100K fine and $700K in disgorgement. Although both are settling without denying or admitting to the allegations, they also have agreed to not commit 1933 Securities Act violations in the future and consented to temporary securities industry bars—Tannin for two years and Cioffi for three years.

In other securities law news, the U.S. District for the District of Columbia dismissed the lawsuit that investors in Bernard Madoff’s Ponzi scam had filed against the government. The reason for the dismissal was lack of subject matter jurisdiction.

The investors blame the SEC for allowing the multibillion dollar scheme to continue for years and they have pointed to the latter’s alleged gross negligence” in not investigating the matter. The plaintiffs contend that the Commission breached its duty to them. Judge Paul Friedman, however, sided with the government in its argument that the investors’ claims are not allowed due to the Federal Tort Claims Act’s “discretionary function exception,” which gives the SEC broad authority in terms of when to deciding when to conduct probes into alleged securities law violations.

While recognizing the plaintiffs’ “tragic” financial losses, the court found that investors failed to identify any “mandatory obligations” that were violated by SEC employees that executed discretionary tasks. The plaintiffs also did not adequately plead that the SEC’s activities lacked grounding in matters of public policy.

Meantime, the SEC has named ex-Morgan Stanley (MS) executive Thomas J. Butler the director of its new Office of Credit Ratings. The office is in charge of overseeing the nine nationally recognized statistical rating organizations that are registered, and it was created by the Dodd-Frank Wall Street Reform and Consumer Protection Act. The office will conduct a yearly exam of each credit rating agency and put out a public report.

UBS loses case to recoup bonus from ex-broker, Reuters, February 6, 2012

Court Clears SEC Deal With Former Bear Execs Tannin, Cioffi, Bloomberg/BNA, June 20, 2012

Strike Four: Another Federal Court Dismisses Madoff Investor Lawsuit Against SEC, Compliance Week, June 20, 2012

Former Exec to Head Office of Credit Ratings, The Wall Street Journal, June 15, 2012


More Blog Posts:
SEC Wants Proposed Securities Settlements with Bear Stearns Executives to Get Court Approval, Stockbroker Fraud Blog, February 28, 2012

AARP, Investment Adviser Association, Among Groups Asking the SEC to Make Brokers Abide by 1940 Investment Advisers Act’s Fiduciary Duty
, Stockbroker Fraud Blog, April 14, 2012

Investor Groups, Securities Lawyers, and Business Community Comment on the JOBS Act Reg D’s Investor Verification Process, Institutional Investor Securities Blog, June 24, 2012

Continue reading "Institutional Investment Roundup: FINRA Lets Ex-UBS Broker Keep $1M Signing Bonus, Court Approves Settlement Reached By Ex-Bear Stearns Hedge Fund Managers & SEC, Madoff Investors’ Securities Suit Against the Govt. is Dismissed" »

June 16, 2012

Ex-Morgan Stanley Smith Barney Broker Settles with FINRA for Allegedly Failing to Notify Firm of Previous Arrest

Broker Bruce Parish Hutson has turned in a Letter of Acceptance, Waver, and Consent to settle allegations of Financial Industry Regulatory Authority rule violations involving his alleged failure to advise Morgan Stanley Smith Barney (MS) of his arrest for retail theft at a store in Wisconsin. FINRA has accepted the AWC, which Hutson submitted without denying or admitting to the findings and without adjudicating any issue.

The Ex-Morgan Stanley Smith Barney broker (and before that he worked for predecessor company Citigroup Global Markets Inc. ((ASBXL)), had entered a “no contest” plea to the misdemeanor charge in February 2010. He received a jail sentence of nine months, which was reduced to 12 months probation. On August 16, 2010, Hutson, turned in a Form UT (Uniform Termination Notice for Securities Industry Registration) stating that he was voluntarily let go from Morgan Stanley Smith Barney because the financial firm accused him of not properly reporting the arrest.

Also, although Form U4 (Uniform Application for Securities Industry Registration or Transfer) doesn’t mandate the disclosure of a mere arrest but does contemplate a criminal charge (at least), many industry members obligate employees to disclose any arrests. Yet when it was time to update this form by March 18, 2010, FINRA says that Hutson did not report the misdemeanor theft plea. Then, when he filled out Morgan Stanley Smith Barney’s yearly compliance questionnaire on May 19, 2010, he again denied having been arrested or charged with a crime in the past year or that he was statutorily disqualified.

FINRA contends that Hutson willfully violated its Article V, Section 2 (C) by-laws by not disclosing the criminal charge. The SRO also says that his later “no contest” plea to the misdemeanor theft violated FINRA Rule 2010 (when he made the false statement that he hadn’t been charged with any crime in the 12 months leading up to his completion of the compliance questionnaire) and he again violated this same rule when it was time to fill out the questionnaire. Per the AWC terms, Hutson is suspended from associating with any FINRA member for five months and he must pay a $5,000 fine.

“A broker can have a dozen complaints by investors and lose a half-dozen claims of wrongdoing, in which arbitrators reimburse these investors only part of their millions in collective losses, yet the broker is neither fined nor suspended,” said Shepherd Smith Edwards and Kantas, LTD, LLP founder and Securities Attorney William Shepherd. “A shoplifting charge in one’s past - very bad. Repeated misrepresentations to investors – so what. Perhaps FINRA should get its priorities straight.”

Broker Bruce Parish Hutson, Forbes, June 27, 2012

More Blog Posts:
Investor Groups, Securities Lawyers, and Business Community Comment on the JOBS Act Reg D’s Investor Verification Process, Institutional Investor Securities Blog, June 24, 2012

SEC Wants Proposed Securities Settlements with Bear Stearns Executives to Get Court Approval, Stockbroker Fraud Blog, February 28, 2012

Accused Texas Ponzi Scammer May Have Defrauded Investors of $2M, Stockbroker Fraud, August 3, 2011

Continue reading "Ex-Morgan Stanley Smith Barney Broker Settles with FINRA for Allegedly Failing to Notify Firm of Previous Arrest" »

May 30, 2012

Several Claims in Securities Fraud Lawsuit Against Ex-IndyMac Bancorp Executives Are Dismissed by Federal Judge

In U.S. District Court for the Central District of California, federal judge Manuel Real threw out five of the seven securities claims made by the Securities and Exchange Commission in its fraud lawsuit against ex-IndyMac Bancorp chief executive Michael Perry and former finance chief Scott
Keys. The Commission is accusing the two men of covering up the now failed California mortgage lender’s deteriorating liquidity position and capital in 2008. Real’s bench ruling dilutes the SEC’s lawsuit against the two men.

The Commission contends that Keys and Perry misled investors while trying to raise capital and preparing to sell $100 million in new stock before July 2008, which is when thrift regulators closed IndyMac Bank, F.S.B and the holding company filed for bankruptcy protection. They are accusing Perry of letting investors receive misleading or false statements about the company’s failing financial state that omitted material information. (S. Blair Abernathy, also a former IndyMac chief financial officer, had also been sued by the SEC. However, rather that fight the lawsuit, he chose to settle without denying or admitting to any wrongdoing.)

Attorneys for Perry and Keys had filed a motion for partial summary judgment, arguing that five of the seven filings that the SEC is targeting cannot support the claims. Real granted that motion last month, finding that IndyMac’s regulatory filings lacked any misleading or false statements to investors and did not leave out key information.

The remaining claims revolve around whether the bank properly disclosed in its 2008 first-quarter earnings report (and companion slideshow presentation) the financial hazards it was in at the time. The judge also ruled that Perry could not be made to pay back allegedly ill-gotten gains.

Real’s decision substantially narrows the Commission’s securities case against Perry and Keys. According to Reuters, the ruling also could potentially end the lawsuit against Keys because he was on a leave of absence during the time that the matters related to the filings that are still at issue would have occurred.

Before its collapse in 2008, Countrywide spinoff IndyMac was the country’s largest issuers of alt-A mortgage, also called “liar loans.” These high-risk home loans are primarily based on simple statements from borrowers of their income instead of tax returns. Unfortunately, loan defaults ended up soaring and a mid-2008 run on deposits at IndyMac contributed to its collapse. The Federal Deposit Insurance Corp, which places its IndyMac losses at $13 billion, went on to sell what was left of the bank to private investors. IndyMac is now OneWest bank.

Judge dismisses parts of IndyMac fraud case, Los Angeles Times, May 23, 2012

3 Former IndyMac Executives Are Accused of Fraud, New York Times, February 11, 2011

Read the SEC Complaint (PDF)


More Blog Posts:
SEC Looks Likely to Win Appeal in $285M Securities Settlement that Judge Rakoff Rejected, Institutional Investor Securities Blog, March 15, 2012

Citigroup’s $75 Million Securities Fraud Settlement with the SEC Over Subprime Mortgage Debt Approved by Judge, Stockbroker Fraud Blog, October 23, 2010

Alleged Ponzi-Like Real Estate Investment Scam that Defrauded Victims of $9M Leads to SEC Charges Against New Jersey Man, Institutional Investor Securities Blog, May 24, 2012

Continue reading "Several Claims in Securities Fraud Lawsuit Against Ex-IndyMac Bancorp Executives Are Dismissed by Federal Judge" »

May 29, 2012

Institutional Investment Securities Round-Up: Citigroup Agrees to $3.5M FINRA FIne Related to Subprime RMBS, Ex-Broker Consents to $600K CFTC Fine Over Alleged Options Trading Scam, and Senate Ag Chair Presses Regulators To Fully Implement Dodd-Frank

Citigroup Global Markets Inc. (CLQ) has consented to pay the Financial Industry Regulatory Authority a $3.5M fine to settle allegations that he gave out inaccurate information about subprime residential mortgage-backed securities. The SRO is also accusing the financial firm of supervisory failures and inadequate maintenance of records and books.

Per FINRA, beginning January 2006 through October 2007, Citigroup published mortgage performance information that was inaccurate on its Web site, including inaccurate information about three subprime and Alt-A securitizations that may have impacted investors’ assessment of subsequent RMB. Citigroup also allegedly failed to supervise the pricing of MBS because of a lack of procedures to verify pricing and did not properly document the steps that were executed to evaluate the reasonableness of the prices provided by traders. The financial firm is also accused of not maintaining the needed books and records, including original margin call records. By settling, Citigroup is not denying or admitting to the FINRA securities charges.

In other institutional investment securities news, in U.S. District Court for the Southern District of New York, Kent Whitney an ex-registered floor broker at the Chicago Mercantile Exchange, agreed to pay $600K to settle allegations by the Commodity Futures Trading Commission that he made statements that were “false and misleading” to the exchange and others about a scam to trade options without posting margin. The CFTC contends that between May 2008 and April 2010, Whitney engaged in the scam on eight occasions, purposely giving out clearing firms that had invalid account numbers in connection with trades made on the New York Mercantile Exchange CME trading floors. He is said to have gotten out of posting over $96 million in margin.

The CFTC says that before an option was about to expire, Whitney would make orders to sell front-month out-of-the-money options. By doing this, he was “implicitly” representing that the accounts were open and had enough margin to cover trades (In truth, the accounts had no margin and were closed). When the clearing firms would turn the trades down because the accounts were closed, they would give back the trades to the executing floor brokers’ clearing firms. The following day, Whitney would give account numbers that were valid to clear the trades. The CFTC says that this process allowed him to avoid the margin posting. Also, when Whitney traded, he would allegedly collect the options premium. By settling, he is not denying or admitting to the CFTC allegations.

Meantime, Senate Agriculture Committee Chairman Debbie Stabenow (D-Mich.) has written a letter to the heads of the Securities and Exchange Commission, the CFTC, the US Treasury Department, the Federal Reserve Board, the Comptroller of the Currency, and Federal Deposit Insurance Corporation urging them to go ahead and complete its implementation of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. Right now, regulators are a year behind on the deadline for most of the law’s rules.

Stabenow cited JPMorgan Chase's (JPM) recent over $2 billion trading loss and MF Global Inc.’s (MFGLQ) bankruptcy last fall as clear examples of the need to pass Dodd-Frank. She worried that there hasn't been sufficient rulemaking to enforce the act’s new derivatives laws. She said that now is the time to finish writing the rules and “fully” implementing the law.

Our institutional investment lawyers at Shepherd Smith Edwards and Kantas, LTD, LLP represents investors throughout the US. We also have clients that are located abroad.

FINRA fines Citigroup Global Markets $3.5 million, Reuters, May 22, 2012

Federal Court in New York Orders Chicago Resident and Former Floor Broker, Kent R.E. Whitney, to Pay $600,000 for Margin Call Avoidance Scheme, CFTC, May 23, 2012

Chairwoman Stabenow: It Is Time To Fully Implement Wall Street Reform, AG.Senate.gov, May 18, 2012


More Blog Posts:

SEC Practice of Settling Enforcement Actions Without Requiring Defendants to Deny or Admit to Allegations Gets Support from Federal Judges and Democrats, Institutional Investor Securities Blog, May 26, 2012

Alleged Ponzi-Like Real Estate Investment Scam that Defrauded Victims of $9M Leads to SEC Charges Against New Jersey Man, Institutional Investor Securities Blog, May 24, 2012

SEC Charges New York-Based Fund Manager and His Two Financial Firms Over Alleged $11M Ponzi Scheme, Stockbroker Fraud Blog, May 28, 2012

May 26, 2012

SEC Practice of Settling Enforcement Actions Without Requiring Defendants to Deny or Admit to Allegations Gets Support from Federal Judges and Democrats

At a House Financial Services Committee hearing on May 17, a number of Democratic lawmakers spoke out against the Securities and Exchange Commission's practice of settling securities enforcement actions without making defendants deny or admit to the allegations. There is concern that companies might see this solution as a mere business expense.

The hearing was spurred by U.S. District Court for the Southern District of New York Judge Jed Rakoff’s rejection of the SEC’s $285 million securities settlement with Citigroup (C) over its alleged misrepresentation of its role in a collateralized debt obligation that it marketed and structured in 2007. Citigroup had agreed to settle without denying or admitting to the allegations.

Rakoff, however, refused to approve the deal. In addition to calling for more facts before the court could accurately judge whether or not to approve the agreement, he spoke out against the SEC’s policy of letting defendants off the hook in terms of not having to deny or admit to allegations when settling. The U.S. Court of Appeals for the Second Circuit later went on to stay Rakoff’s ruling that SEC v. Citigroup Global Markets, Inc. go to trial.

At this Congressional hearing, a number of the lawmakers were “sympathetic” to Rakoff’s reasoning, said Rep. Carolyn Maloney (D-N.Y.). Rep. Al Green (D-Texas) stressed the importance of holding businesses accountable for alleged wrongdoings. The Democrats, however, were clearly mindful of the fact that SEC did not have the resources to take on additional, lengthy lawsuits, as well as of the delays that a change in the SEC’s current settlement policy would cause for investors seeking financial recovery, and they did not call for any actual policy change.

Meantime, SEC Enforcement Director Robert Khuzami, who was also at the hearing, talked about how not only would securities cases take longer to resolve if defendants were made to deny or admit wrongdoing when settling, but also, there would be a lot less settlements.

His views were backed by a number of attending Republican lawmakers who support the SEC’s settlement policy. Committee Chairman Spencer Bachus (R-Ala.) said he felt that agencies should have the primary discretion when it comes to deciding whether to settle or try a case, while Vice Chairman Jeb Hensarling (R-Texas) also said that eliminating the SEC’s policy would result in a huge increase in the number of securities lawsuits.

Earlier this month, at the Alan B. Levenson Symposium in Washington, current and former judges spoke for federal judges’ right to turn down settlement agreements if they didn’t think they had been given enough facts or considered the deals to be fundamentally unfair. They spoke about the importance of judicial independence and how judges shouldn’t be forced to merely rubber stamp settlement deals. For example, U.S. District Court for the District of Columbia Judge Beryl Howell said that regardless of whether parties had agreed to a settlement, a court still must be given sufficient facts to be able to determine whether a deal is reasonable.

Contact our SEC securities lawyers at Shepherd Smith Edwards and Kantas, LTD, LLP today.

Examining the Settlement Practices of U.S. Financial Regulators, House.gov, May 17, 2012

Courts Must Reject Settlement Pacts Where Necessary, Former, Current Judges Say, Bloomberg BNA, May 15, 2012

SEC v. Citigroup Global Markets, Inc., Justia (the Opinion and Summary)


More Blog Posts:
SEC Looks Likely to Win Appeal in $285M Securities Settlement that Judge Rakoff Rejected, Institutional Investor Securities Blog, March 15, 2012

Citigroup’s $285M Settlement With the SEC Is Turned Down by Judge Rakoff, Stockbroker Fraud Blog, November 28, 2012

Citigroup’s $75 Million Securities Fraud Settlement with the SEC Over Subprime Mortgage Debt Approved by Judge, Stockbroker Fraud Blog, October 23, 2010

May 22, 2012

Senate Democrats Want Volcker Rule’s “JP Morgan Loophole” Allowing Portfolio Hedging Blocked

In a letter to the Federal Reserve Board, the Securities and Exchange Commission, the Commodity Futures Trading Commission the Office of the Comptroller of the Currency Administrator of National Banks, and the Federal Deposit Insurance Commission, Senators Jeff Merkley (D-Ore.) and Carl Levin (D-Mich.) spoke out against what they are calling the current draft of the Volcker rule’s “JPMorgan loophole,” which they say allows for the kinds of trading activities that resulted in the investment bank’s recent massive trading loss. Merkley and Levin want the regulators to make sure that the language in October’s draft version is more stringent so that “clear bright lines” exist between legitimate activities and proprietary trading activities that should be banned (including risk-mitigating hedging and market-making).

According to Levin and Merkley, who are both principal co-sponsors of the Volcker rule and its restrictions on proprietary trading, the regulation’s latest draft disregarded “clear legislative language and clear statement of Congressional intent” and left room for “portfolio hedging.” Under the law, risk-mitigating hedge activities are allowed as long as they aim to lower the “specific risks” to a financial firm’s holdings, including contracts or positions. This is supposed to let banks lower their risks by letting them to take part in actual, specific hedges. However, the senators are contending that because the language that was necessary to enforce wasn’t included in the last draft, hence the "JPMorgan loophole" (among others) that will allow proprietary trading to occur even after the law goes into effect. They blame pressure from Wall Street lobbyists for these gaps.

The senators are pressing the regulators to get rid of such loopholes and put into effect a solid Volcker Rule, with stricter language, and without further delays. They noted that despite getting trillions of dollars in public bailout money, a lot of large financial firms continue to fight against the “most basic… reforms,” which is what they believe that Wall Street has been doing with its resistance to the Volcker rule. (Also in their letter, Levin and Merkley reminded the regulators that it was proprietary trading positions that resulted in billions of dollars lost during the recent economic crisis.)

SSEK Talking to Investors About JPMorgan Trading Losses
JPMorgan Chase's (JPM) over $2 billion loss was on a series of complex derivative trades that it claims were made to hedge economic risks. Now, according to a number of people who work at trading desks that specialize in the kind of derivatives that the financial firm used when making its trades, the financial firm's loss has likely grown to closer than $6 billion to $7 billion.

Read the Letter by Merkley and Levin

Volcker Rule Resource Center, SIFMA


More Blog Posts:
JPMorgan Chase Had No Treasurer When Chief Investment Office Made Trades Resulting In More than $2B Loss, Reports WSJ, Institutional Investor Securities Blog, May 19, 2012

JPMorgan Chase Shareholders File Securities Lawsuits Over $2B Trading Loss, Institutional Investor Securities Blog, May 17, 2012

SEC Chairman Mary Schapiro Stands By Agency’s 2011 Enforcement Recordhttp://www.stockbroker-fraud.com/lawyer-attorney-1132963.html, Stockbroker Fraud Blog, March 15, 2012

Continue reading "Senate Democrats Want Volcker Rule’s “JP Morgan Loophole” Allowing Portfolio Hedging Blocked" »

May 19, 2012

JPMorgan Chase Had No Treasurer When Chief Investment Office Made Trades Resulting In More than $2B Loss, Reports WSJ

According to the Wall Street Journal, during five of the months when JPMorgan Chase’s (JPM) Chief Investment Office made the trades that has led to over $2 billion in losses, the financial firm lacked a treasurer. Also, the executive appointed to head up department’s risk management might not have had the necessary experience to do the job. A few ex- and current employees of the financial firm have alluded to poor decisions in staffing as a reason that bad positions were allowed to go unchecked.

Apparently, until the appointment of Sandie O’Connor as treasurer was announced in March, the last person to hold that position was Joseph Bonocore. He left the financial firm in October 2011, which was before trading losses soared. Prior to leaving, he expressed general worries about risks that were being made by the JPMorgan’s London office, which is where many of the questionable trades originated. (He also had previously served as the investment unit’s chief financial officer for about 11 years.) Now, questions are being raised by those on the outside as to how a bank as big as JPMorgan could go so long without a treasurer.

As for its chief risk officer, Irving Goldman, he is related by marriage to JPMorgan executive Barry Zubrow. Goldman was moved into the post this February, one month after Zubrow was made the bank’s chief of corporate regulatory affairs. Goldman’s background in trading is extensive. He previously worked for Salomon Brothers, Credit Suisse First Boston, and Cantor Fitzgerald (CANTRP), where he also was president of its asset management and debt capital markets divisions. A JPMorgan spokesperson defended Goldman’s professional background, saying it wasn’t uncommon for a risk manager to be heavy on trading experience.

In February, Zubrow, Goldman and now ex-chief investment officer head Ina Drew and former CFO John Wilmot reportedly told Federal Reserve officials that new regulations might impede a banking entity’s ability to properly manage its structural risks. They contended that certain types of trading (including the trading that has led to this major loss) shouldn’t be part of a proposed proprietary trading ban under the Volcker ruler.

Although JPMorgan’s Chief Executive James Dimon had announced $2 billion trading loss, additional losses have continued to accrue by up to $150 million a day since his announcement last week. The losses may eventually exceed $5 billion.

JPMorgan has acknowledged that it employed a strategy that was not only badly designed but also poorly executed. It is conducting its own internal probe in conjunction with outside auditors. Meantime, the US Justice Department and a number of regulators, including the SEC and the Federal Reserve, have opened their own investigations into the losses.

Shepherd Smith Edwards and Kantas, LTD, LLP wants to hear from individual institutional investors affected by JPMorgan Chase’s trading losses, contact our securities fraud attorneys today.

Key Void at Top for J.P. Morgan, The Wall Street Journal, May 17, 2012

JPMorgan Chase Chief Investment Office Played By Different Rules, Huffington Post, May 16, 2012


More Blog Posts:

JPMorgan Chase $2B Trading Loss Leads to Probes by the SEC, Federal Reserve, and FBI, Institutional Investor Securities Blog, May 15, 2012

JPMorgan Chase Shareholders File Securities Lawsuits Over $2B Trading Loss, Institutional Investor Securities Blog, May 17, 2012

JP Morgan Chase To Pay $150M to Settle Securities Lawsuit Over Lending Program Losses of Union Pension Funds, Stockbroker Fraud Blog, March 26, 2012

JP Morgan Chase To Pay $150M to Settle Securities Lawsuit Over Lending Program Losses of Union Pension Funds, Stockbroker Fraud Blog, March 26, 2012

May 17, 2012

JPMorgan Chase Shareholders File Securities Lawsuits Over $2B Trading Loss

Two securities lawsuits have been filed on behalf of shareholders and investors of JPMorgan Chase & Co. (JPM) over the financial firm’s $2 billion trading loss from synthetic credit products. According to CEO Jamie Dimon, the massive loss is a result of “egregious” failures made by the financial firm’s chief investment office and a hedging strategy that failed. Both complaints were filed on Tuesday in federal court.

One securities case was brought by Saratoga Advantage Trust -- Financial Services Portfolio. The Arizona trust is seeking to represent everyone who suffered losses on the stock that it contends were a result of alleged misstatements the investment bank had made. Affected investors would have bought the stock on April 13 (or later), which is the day that Dimon had minimized any concerns about the financial firm’s trading risk during a conference call.

Per Saratoga Advantage Trust v JPMorgan Chase & Co., the week after the call, losses from the trades went up to about $200 million a day. The Arizona Trust is accusing Dimon and CFO Douglas Braunstein of issuing statements during that conversation that were misleading and “materially false,” as well as misrepresenting not just the losses but also the risks from major bets placed on “derivative contracts involving credit indexes reflecting corporate bonds interest rates.” As a result, when the derivate bets faltered “horribly,” the company suffered “billions of dollars in lost capital,” as well as additional losses in the billions for JPMorgan shareholders in terms of market capitalization. The securities fraud lawsuit is seeking unspecified damages for investors.

The second complaint, submitted by plaintiff James Baker, is a shareholder derivative lawsuit. He is an individual investor seeking damages on behalf of JPMorgan Chase from Dimon, Braunstein and members of the bank’s board. In JPMorgan Chase & Co. v James Dimon, Baker accuses the CEO of publicly disputing that any investment safety regulation was warranted on the grounds that JPMorgan of its own accord was “purportedly so careful” with its investments. Baker says the financial firm failed to disclose that the losses were because of a “marked shift” in its “allowable risk model” and the “clandestine conversion” of a company unit, which was supposed to provide a “conservative risk-reduction function,” into one that touted high risk, short-term trading that ended up exposing JPMorgan to huge losses.

Baker who is charging bank officers and directors with waste of corporate assets, breach of fiduciary duty, and unjust enrichment, is seeking unspecified damages from the bank officers and directors. He also wants a court order mandating that JPMorgan install two shareholder representatives on its board, let shareholders vote on proposals regarding enhancing board supervision, and test internal audit and control policies to make sure that they immediately notify management about trading risks that are not acceptable.

If you are an investor that has lost money because of JPMorgan’s $2 Billion trading loss, please contact our securities fraud lawyers at Shepherd Smith Edwards and Kantas, LTD, LLP today.

JPMorgan Shareholders Sue Dimon Over $2 Billion Loss, Bloomberg, May 16, 2012

Saratoga Advantage Trust v JPMorgan Chase & Co., Justia.com

JPMorgan Chase & Co. v James Dimon

Dimon: Investment Portfolio is 'Very Conservative’, Bloomberg, April 13, 2012


More Blog Posts:

JPMorgan Chase $2B Trading Loss Leads to Probes by the SEC, Federal Reserve, and FBI, Institutional Investor Securities Blog, May 15, 2012

Investors Want JP Morgan Chase & Co. To Explain Over $95B of Mortgage-Backed Securities, Institutional Investor Securities Blog, December 17, 2011

JP Morgan Chase To Pay $150M to Settle Securities Lawsuit Over Lending Program Losses of Union Pension Funds, Stockbroker Fraud Blog, March 26, 2012


May 15, 2012

JPMorgan Chase $2B Trading Loss Leads to Probes by the SEC, Federal Reserve, and FBI

In the wake of JPMorgan Chase’s (JPM) announcement that it lost $2 billion in a trading portfolio that is supposed to hedge against the risks that it takes against its own money, the Securities and Exchange Commission, the Federal Bureau of Investigation, the Federal Reserve and other regulators are launching their respective investigations to find out exactly what happened. JPMorgan is the largest bank in the US.

As the financial firm’s stock plummeted nearly 7% in after-hours trading after the announcement, its CEO, Jamie Dimon, attributed the losses to “many errors, sloppiness and bad judgment." He also said that the portfolio, which consisted of derivatives, ended up being “riskier” and not as effective as an economic hedge as the financial firm had previously thought. Also seeing drops in their stocks following JPMorgan’s announcement of its massive trading loss were other banks, including Bank of America (BAC), Morgan Stanley (MS), Citigroup (C) and Goldman Sachs (GS)http://www.securities-fraud-attorneys.com/.

Now, the SEC and other regulators are looking into whether possible civil violations were involved in JPMorgan’s massive loss. The Commission had recently opened a preliminary probe into the financial firm’s public disclosures about its trades and accounting practices. According to The New York Times, questions regarding JP Morgan’s chief investment office, which is in charge of its hedging activities, were raised in April following reports that a trader in London was taking large bets that were “distorting the market.” Dimon, at the time, dismissed worries about the bank’s trading activities.

The FBI is also looking into potential wrongdoing related to the $2 trading loss.

Known for its excellence in trading until now and earning up to $5.4 billion of securities gains last year, JPMorgan’s chief investment office has now seen a reversal of fortune. Per The New York Times, the financial firm’s problems may have begun with its bond portfolio, which was valued at $379 billion in March. Just 30% of the portfolio had been invested in securities that the federal government had guaranteed—a change from 2010 when government guaranteed bonds made up 42% of the portfolio.

Signs of trouble with JPMorgan’s trading strategy started to brew at the end of March when the market went against corporate bonds. Yet during its first-quarter earnings call in mid-April, Dimon did not give any indication that there were problems with the bank’s trading.

Last week, however, Dimon told a different story by announcing the $2 billion trading loss. He said the investment bank’s problems were caused in part by its value-at-risk measure, which underestimated the losses on hedge funds that depended on credit derivatives. Yet were the trades even actual hedges? Banks have been known to perform elaborate trades that at first seemed to be a hedge but eventually become a bad bet.

SEC Opens Review of JP Morgan, The Wall Street Journal, May 11, 2012

F.B.I. Begins Preliminary Inquiry Into JPMorgan, The New York Times, May 15, 2012

JPMorgan Chase Discloses $2 Billion Trading Loss, NPR/AP, May 11, 2012


More Blog Posts:
Investors Want JP Morgan Chase & Co. To Explain Over $95B of Mortgage-Backed Securities, Institutional Investor Securities Blog, December 17, 2011

Washington Mutual Bank Bondholders’ Securities Fraud Lawsuit Against J.P. Morgan Chase & Co. is Revived by Appeals Court, Institutional Investor Securities Blog, June 29, 2011

JP Morgan Chase To Pay $150M to Settle Securities Lawsuit Over Lending Program Losses of Union Pension Funds, Stockbroker Fraud Blog, March 26, 2012

Continue reading "JPMorgan Chase $2B Trading Loss Leads to Probes by the SEC, Federal Reserve, and FBI" »

May 8, 2012

The 11th Circuit Revives SEC Fraud Lawsuit Against Morgan Keegan Over Auction-Rate Securities

The 11th U.S. Circuit Court of Appeals has revived the US Securities and Exchange Commission’s fraud lawsuit against Morgan Keegan & Co. accusing the financial firm of allegedly misleading investors about auction-rate securities. The federal appeals court said that a district judge was in error when he found that alleged misrepresentations made by the financial firm’s brokers were immaterial. The case will now go back to district court. Morgan Keegan is a Raymond James Financial Inc. (RJF) unit.

The SEC had sued Morgan Keegan in 2009. In its complaint, the Commission accused the financial firm of leaving investors with $2.2M of illiquid ARS. The agency said that Morgan Keegan failed to tell clients about the risks involved and that it instead promoted the securities as having “zero risk” or being “fully liquid” or “just like a money market.” The SEC demanded that Morgan Keegan buy back the debt sold to these clients.

In 2011, U.S. District Judge William Duffey ruled on the securities fraud lawsuit and found that Morgan Keegan did adequately disclose the risks involved. He said that even if some brokers did make misrepresentations, the SEC had failed to present any evidence demonstrating that the financial firm had put into place a policy encouraging its brokers-dealers to mislead investors about ARS liquidity. Duffey pointed to Morgan Keegan’s Web site, which disclosed the ARS risks. He said this demonstrated that there was no institutional intent to fool investors. He also noted that a “failure to predict the market” did not constitute securities fraud and that the Commission would need to show examples of alleged broker misconduct before Morgan Keegan could be held liable.

Citing the US Supreme Court’s ruling in Basic v Levinson, the circuit court found that the misleading statements made by Morgan Keegan brokers and the alleged failure to reveal the known risks involving ARS could have easily been perceived by a reasonable investor to be a modification of the information about ARS that Morgan Keegan had made available. The 11th circuit panel also said that seeing as Morgan Keegan knew there were auctions that were failing in 2007 and early 2008, giving clients "general cautionary language" about the debt behind trading confirmations was not enough. (Although the panel agreed that a written disclosure of the risks involved could trump any sales pitch omissions, it pointed to circuit precedent, which did not allow this “as a matter of law.”)

The appeals court rejected the district judge’s narrow focus on how many alleged victims there might have been, as well as his emphasis on the Commission having to prove institutional intent.

Investors were left in a financial bind when the $330 billion ARS market froze in February 2008. They could not get their now frozen money from this largely, illiquid debt, which was a shock to them seeing as most of them were told that auction-rate securities were liquid, like cash. Morgan Keegan and other financial firms have since been pursued by regulators, as well as investors seeking financial recovery.

Over the last few years, a number of financial firms have had to pay back billions in dollars of ARS to their clients. Our auction-rate securities lawyers have been helping investors recover such losses. Contact Shepherd Smith Edwards and Kantas, LTD, LLP today.

Broker Omissions Could Doom Morgan Keegan, Courthouse News Service, May 7, 2012

Fraud lawsuit vs Morgan Keegan revived, Chicago Tribune, May 2, 2012

SEC v. Morgan Keegan & Co., 11th U.S. Circuit Court of Appeal (PDF)


More Blog Posts:
Oppenheimer & Co. Must Buyback $6M in Auction-Rate Securities from Investor, Says FINRA Arbitration Panel, Institutional Investor Securities Blog, January 11, 2012

Raymond James Financial to Buy Morgan Keegan from Regions Financial for $930 Million, January 14, 2012

Texas Securities Fraud: Raymond James Financial Services Pays Elderly Senior Investor About $1.8M Following Loss of Appeal, Stockbroker Fraud Blog, December 2, 2011

April 28, 2012

Morgan Stanley Sued by MetLife for Securities Fraud Over $757 Million in Residential Mortgage-Backed Securities

Metlife (MET) is suing Morgan Stanley (MS) for securities fraud. According to Bloomberg, the insurance company bought over $757 million in residential mortgage-backed securities from the financial firm in 2006 and 2007. In the institutional investment fraud lawsuit, Morgan Stanley had vouched that the properties behind the loans were “accurately appraised” and that the loans met underwriting guidelines. The insurer, however, contends that the loans’ originators were actually some of the subprime lending industry’s “worst culprits.”

The RMBS lawsuit comes right after MetLife agreed to pay half a billion dollars to settle a probe by a number of states over its payment practices. The investigation involves the Social Security "Death Master" file, which includes a list of names of people who have recently passed away. Insurance companies are accused of using the list to stop issuing to dead clients their annuity payments and not using the list to confirm that life insurance policyholders had died.

MetLife announced on Thursday that it was leaving the reverse mortgage industry. Nationstar Mortgage LLC (NSM) will buy its portfolio. The move is a big change for the insurance company, which had been the market leader.

Meantime, Morgan Stanley has been battling other residential mortgage-backed securities lawsuits. Earlier this year, Sealink Funding Ltd. filed a case against it over more than $556 million in RMBS that it purchased. Sealink Funding, a European fund, was set up to manage Landesbank Sachsen AG’s most high-risk assets.

The fund bought the securities from Morgan Stanley after the financial firm said it had done its due diligence on the lenders of the investments and that the loans satisfied underwriting standards and merited their AAA ratings. Sealink called the loans’ originators among the subprime lending industry’s “worst culprits.”

Last year, Allstate Insurance Co. (ALL) filed its RMBS lawsuit against Morgan Stanley over more than $104 million in RMBS it bought in several offerings. The insurer’s contention over reassurances the financial firm made about the securities is similar to the allegations made by Sealink and Metlife. Allstate has also filed RMBS lawsuits against other financial firms, including Merrill Lynch (MER) units, Citigroup Inc. (C), and Bank of America Corp.'s (BAC) Countrywide.

As previously noted by SEC Enforcement director Robert Khuzami, mortgage products played a crucial role in the financial crisis that began a few years ago. Unprecedented losses resulted when mortgage-backed securities failed. Many institutional investors are still trying to recover. They claim they were misled about the risks involved and they want their money back.

MetLife Pays $500 Million To Settle Probe Into Unpaid Claims For Dead Policy Holders, Huffington Post, April 23, 2012

MetLife to pay $500 million in multi-state death benefits probe, Los Angeles Times, April 23, 2012

Morgan Stanley Sued by Allstate on Mortgage Claims, Bloomberg, August 18, 2011


More Blog Posts:
H & R Block Subsidiary Option One Mortgage Corporation to Pay $28.2M to Residential Mortgage-Backed Securities Investors, Institutional Investor Securities Blog, April 25, 2012

Bank of New York Mellon Corp. Must Contend with Pension Fund Claims Over Countrywide Mortgage-Backed Securities, Institutional Investor Securities Blog, April 10, 2012

Continue reading "Morgan Stanley Sued by MetLife for Securities Fraud Over $757 Million in Residential Mortgage-Backed Securities" »

April 10, 2012

Bank of New York Mellon Corp. Must Contend with Pension Fund Claims Over Countrywide Mortgage-Backed Securities

The U.S. District Court for the Southern District of New York has decided that investors can sue Bank of New York Mellon (BK) over its role as trustee in Countrywide Financial Corp.’s mortgage-backed securities that they say cost billions of dollars in damages. While Judge William Pauley threw out some of the clams filed in the securities fraud lawsuit submitted by the pension funds, he said that the remaining ones could proceed. The complaint was filed by the Benefit Fund of the City of Chicago, the Retirement Board of the Policemen’s Annuity, and the City of Grand Rapids General Retirement System. The retirement board and Chicago’s benefit fund hold certificates that 25 New York trusts and one Delaware trust had issued, and BNY Mellon is the indentured trustee for both. Pooling and servicing agreements govern how money is allocated to certificate holders.

In Retirement Board of Policemen's Annuity and Benefit Fund of City of Chicago v. Bank of New York Mellon, the plaintiffs are accusing BNYM of ignoring its responsibility as the investors’ trustee. They believe that the bank neglected to review the loan files for mortgages that were backing the securities to make sure that there were no defective or missing documents. The bank also allegedly did not act for investors to ensure that loans having “irregularities” were taken from the mortgage pools. As a result, bondholders sustained massive losses and were forced to experience a great deal of uncertainty about investors’ ownership interest in the mortgage loans. The plaintiffs are saying that it was BNYM’s job to perfect the assignment of mortgages to the trusts, certify that documentation was correct, review loan files, and make sure that the trust’s master servicer executed its duties and remedied or bought back defective loans. Countrywide Home Loans Inc. had originally been master servicer until it merged with Bank of America (BAC).

The district court, in granting its motion, limited the lawsuit to the trusts in which the pension fund had interests. It also held that the fund only claimed “injury in fact” in regards to the trusts in which it held certificates. The court found that the certificates from New York are debt securities and not equity and are covered under the Trust Indenture Act. The plaintiffs not only did an adequate job of pleading that Bank of America and Countrywide were in breach of the PSAs, but also they adequately pleaded that defaults of the PSAs were enough to trigger BNYM’s responsibilities under Sections 315(b) and (c). The court, however, threw out the claims that BNYM violated Section 315(a) by not performing certain duties under the PSAs and certain other agreements.

BNYM says it will defend itself against the claims that remain.

Bank of NY Mellon must face lawsuit on Countrywide, Reuters, April 3, 2012

Judge Rejects Bank Of NY Mellon Motion To Dismiss Countrywide Suit, Fox, April 3, 2012


More Blog Posts:

District Court in Texas Decides that Credit Suisse Securities Doesn’t Have to pay Additional $186,000 Arbitration Award to Luby’s Restaurant Over ARS, Stockbroker Fraud Blog, June 2, 2011

Credit Suisse Group AG Must Pay ST Microelectronics NV $431 Million Auction-Rate Securities Arbitration Award, Stockbroker Fraud Blog, April 5, 2012

Citigroup to Pay $285M to Settle SEC Lawsuit Alleging Securities Fraud in $1B Derivatives Deal, Institutional Investor Securities Blog, October 20, 2011


Continue reading "Bank of New York Mellon Corp. Must Contend with Pension Fund Claims Over Countrywide Mortgage-Backed Securities " »

April 5, 2012

Merrill Lynch to Pay Brokers Over $10M for Alleged Fraud Over Deferred Compensation Plans

A Financial Industry Arbitration panel has ordered Merrill Lynch (BAC) to pay over $10 million to two brokers who claim the financial firm wrongly denied their deferred compensation plans to vest. Per the FINRA arbitration panel, senior management at Merrill purposely engaged in a scam that was “systematic and systemic” to prevent its former brokers, Tamara Smolchek and Meri Ramazio, from getting numerous benefits, including the ones that they were entitled to under the financial firm’s deferred-compensation programs, so that it wouldn’t be liable after the acquisition. The panel accused Merrill of taking part in “delay tactics” and “discovery abuses.”

Some 3,000 brokers left Merrill after Bank of America Corp. (BAC) acquired it in 2008. A lot of these former employees are now claiming that they were improperly denied compensation.

Smolchek and Ramazio alleged a number claims related to their deferred compensation plans’ disposition. Causes of action against Merrill included breach of duty of good faith and fair dealing, breach of contract, breach of fiduciary duty, unjust enrichment, constructive trust, conversion, defamation, unfair competition, tortious interference with advantageous business relations, violating FINRA Rule 2010, fraud, and negligence.

Broker employment contracts usually mandate that an employee stay with a financial firm for several years before they are entitled to vest the money they are earning in their tax-deferred accounts. However, several of Merrill’s deferred compensation programs allow brokers that have left the firm for “good reason” to have their money vest.

The FINRA panel expressed shock that after the departure of 3,000 Merrill advisers following the Bank of America acquisition, the firm did not approve a single claim for vesting that cited a “good reason” under the deferred compensation programs. Per Merrill’s own analysis, had it approved the vesting requests, the financial firm might have paid anywhere from the hundreds of millions to billions of dollars in possible liability.

Per the compensation ruling, Merrill has to pay Ramazio $875,000 and Smolchek $4.3 million in compensatory damages for unpaid deferred compensation, unpaid wages, lost wages, lost book, lost reputation, and value of business. The FINRA panel also awarded $1.5 million in punitive damages to Ramazo and $3.5 million to Smolchek.

The same day that the decision was issued, Merrill filed an appeal. The financial firm wants the ruling overturned, claiming that it never received a fair hearing and that panel chairwoman Bonnie Pearce was biased. Merrill contends that Pearce did not disclose that her husband is a plaintiff’s lawyer who sued the financial firm for customers and brokers in at least five lawsuits. Merrill is accusing Pearce of “overt hostility.”

Merrill Lynch Loses $10 Million Compensation Ruling, The Wall Street Journal, April 4, 2012

Merrill Lynch Savaged by FINRA Arbitrators in Historic Employee Dispute, Forbes, April 4, 2012


More Blog Posts:
Securities Claims Accusing Merrill Lynch of Concealing Its Auction-Rate Securities Practices Are Dismissed by Appeals Court, Stockbroker Fraud Blog, November 30, 2011

Merrill Lynch Faces $1M FINRA Fine Over Texas Ponzi Scam by Former Registered Representative, Stockbroker Fraud Blog, October 10, 2011

Merrill Lynch, Pierce, Fenner & Smith Ordered to Pay $1M FINRA Fine for Not Arbitrating Employee Disputes Over Retention Bonuses, Institutional Investor Securities Blog, January 26, 2012

Continue reading "Merrill Lynch to Pay Brokers Over $10M for Alleged Fraud Over Deferred Compensation Plans" »

March 30, 2012

Five Morgan Stanley Smith Barney Managed Future Funds Report $79.1M in Losses in 2011

Morgan Stanley (MS) Smith Barney is reporting that five of its managed future funds sustained 9.5% in average losses—that’s $79.1 million—in the wake of client withdrawals last year. Only one of the funds was profitable. The largest fund by assets, Morgan Stanley Smith Barney Spectrum Select LP, faced $55.2 million in redemptions and lost $67.9 million.

Subsidiary Ceres Managed Futures LLC, the funds’ manager, had placed assets with outside trading advisers. In the wake of these losses, Ceres let go two underlying managers: John W. Henry & Co. and Sunrise Capital Partners. Spectrum Currency, which is the fund that they both managed, sustained losses of 9.8% in 2011. That fund is now called Spectrum Currency and Commodity.

Managed-future funds use futures or forwards contracts when betting on the declines or advance in securities, including bonds, commodities, stocks, and currencies. Some funds also invest in securities connected to certain events, such as changes in interest rates or the weather.

It’s been a tough time recently for Morgan Stanley. Last year, the financial firm had to give back approximately $700 million to investors in its flagship global real-estate fund. It also was forced to cut fees (both the fee charged on investments and management fees) to get them to stay. The fund’s size was also cut by $4 billion, resulting in investors getting some of their money back.

Over two-thirds of investors have consented to give Msref VII until June 2013 to invest rather than having billions of dollars returned to them sooner. Morgan Stanley’s earlier fund, which closed in 2007, suffered losses of 62% through March despite a 23% net return during that period’s last 12 months.

Also last December, media sources reported that Zynga stock purchased by Morgan Stanley’s mutual funds for $75 million in the late-stage round dropped in price from $14/share to $9/share, even as the financial firm cashed in two times: on private placement fees (if there were fees) and on fees for the IPO underwriting.

There was also the huge loss sustained by Morgan Stanley in the settlement it reached with bond insurance company MBIA. The two entities had sued one another over insurance sold on mortgage-backed securities. For a $1.1 billion payment by MBIA, Morgan Stanley agreed to give up insurance claims over guarantees on mortgage bonds. However, as a result, the financial firm took a pretax $1.8 billion charge in the fourth quarter of 2011. Morgan Stanley had purchased the insurance against bond defaults.

Meantime, MBIA dismissed its complaint against Morgan Stanley over the quality of the mortgage bonds. The insurer had accused the financial firm of misrepresenting these, which was what the insurance company was supposed to guarantee. (As MBIA’s credit-default swap bets started to falter at the start of the financial crisis, regulators were forced to divide the insurance company into a structured finance unit and a municipal guarantee business.)

Morgan Stanley Settles MBIA Suits, Will Take $1.8B Hit, Forbes, December 13, 2011

Morgan Stanley Brokerage Managed-Futures Funds Lose 9.5%, Bloomberg/Businessweek, March 28, 2012

MBIA and Morgan Stanley Settle Bond Fight, The Wall Street Journal, December 14, 2011

Morgan Stanley Managed Futures Funds Fall In '11, FINalternative, March 29, 2012


More Blog Posts:

Morgan Stanley Faces $1M FINRA Fine for Excessive Markups and Markdowns on Corporate and Municipal Bond Transactions, Institutional Investor Securities Fraud, September 17, 2011

Morgan Stanley Smith Barney Employee Fined and Suspended by FINRA Over Unauthorized Signatures, Stockbroker Fraud Blog, September 19, 2011

$63 Million Mortgage-Backed Securities Lawsuit Against Bank of America is Second One Filed by Western and Southern Life Insurance Co. Against the Financial Firm, Institutional Investor Securities Fraud, August 29, 2011


Continue reading "Five Morgan Stanley Smith Barney Managed Future Funds Report $79.1M in Losses in 2011 " »

March 29, 2012

Institutional Investor Fraud Roundup: SEC Seeks Approval of Settlement with Ex-Bear Stearns Portfolio Managers, Credits Ex-AXA Rosenberg Executive for Help in Quantitative Investment Case; IOSCO Gets Ready for Global Hedge Fund Survey

The Securities and Exchange Commission is seeking district court approval of its proposed securities fraud settlement with two ex-Bear Stearns & Co. portfolio managers. The SEC presented its second plea to the U.S. District Court for the Eastern District of New York earlier this month.

In a letter to the court, the SEC cited the Second Circuit Appeals Court’s decision earlier this month to stay a district court judge’s ruling turning down the Commission’s proposed $285M settlement with Citigroup Global Markets Inc. It said that the order in that matter “supports approval and entry” of this pending consent judgment.

If the settlement is approved, former Bear Stearns portfolio managers Matthew and Tannin and Ralph Cioffi would settle SEC charges accusing them of misleading bank counterparties and investors about the financial condition of two hedge funds that failed because of subprime mortgage-backed securities in 2007. Per the terms of the proposed settlement, Tannin would pay $200,000 in disgorgement plus a $50,000 fine and Cioffi would pay $700,000 in disgorgement and a $100,000 fine.

This is the second attempt by the SEC and the defendants to the court for settlement approval after District Court Judge Frederic Block cited concerns made by Judge Rakoff, who is the one who threw out the proposed $285M settlement in the SEC-Citigroup case and ordered both parties to trial. The Second Circuit has since stayed those proceedings. (In the securities case between the SEC and Citigroup, the regulator had accused the financial firm of misrepresenting its involvement in a $1 billion collateralized debt obligation that the latter and structured and marketed five years ago.)

In other SEC news, the Commission has honored its commitment to providing greater transparency when it comes to cooperation credit by notifying the public that it credited an ex-AXA Rosenberg senior executive for his substantial help in an enforcement action against the quantitative investment firm. AXA Rosenberg is accused of concealing a material error in the computer code of the model it used to manage client assets.

The SEC said it would not take action against the former executive not just because of the help he provided, but also because the alleged misconduct in question was one that mattered so much. Fortunately, the SEC was able to give clients back the $217 million they lost, as well is impose penalties of $27.5 million. This was the Commissions first case over mistakes in a quantitative investment model.

Meantime, the International Organization of Securities Commissions' Technical Committee says it has updated the data categories for information it plans to collect in a global survey of hedge funds that will take place later this year. Modified reporting categories include general information about firms, funds, and advisors, geographical focus, market and product exposure for strategy assets, leverage and risk, trading and clearing.

According to IOSCO, responses to the survey will bring together an array of hedge fund information that regulators can look at to determine systemic risk. The committee believes that having securities regulators regularly monitor hedge funds for systemic risk indicators/measures will be beneficial and provide necessary insight into possible issues hedge funds might create for the global financial system. This will be IOSCO’s second survey on hedge funds.

SEC, Citing 2d Circuit Order, Asks Court To Approve Deal With Bear Stearns Execs, BNA Securities Law Daily, March 20, 2012

SEC Credits Former Axa Rosenberg Executive for Substantial Cooperation during Investigation, SEC, March 19, 2012

IOSCO publishes updated systemic risk data requirements for hedge funds, HedgeWeek, March 23, 2012


More Blog Posts:
Securities Fraud: Mutual Funds Investment Adviser Cannot Be Sued Over Misstatement in Prospectuses, Says US Supreme Court, Stockbroker Fraud Blog, June 16, 2011

Janus Avoids Responsibility to Mutual Fund Shareholders for Alleged Role in Widespread Market Timing Scandal, Stockbroker Fraud Blog, June 11, 2007

SEC Chairwoman Defends ‘No Wrongdoing’ Settlements, Institutional Investor Securities Blog, February 27, 2012

Continue reading "Institutional Investor Fraud Roundup: SEC Seeks Approval of Settlement with Ex-Bear Stearns Portfolio Managers, Credits Ex-AXA Rosenberg Executive for Help in Quantitative Investment Case; IOSCO Gets Ready for Global Hedge Fund Survey" »

March 27, 2012

Citigroup Ordered by FINRA to Pay $1.2M Over Bond Markups and Markdowns

FINRA says that Citigroup Inc. subsidiary Citi International Financial Services LLC must pay over $1.2M in restitution, fines, and interest over alleged excessive markdowns and markups on agency and corporate bond transactions and supervisory violations. The financial firm must also pay $648,000 in restitution and interest to over 3,600 clients for the alleged violations. By settling, Citi International is not denying or admitting to the allegations.

According to FINRA, considering the state of the markets at the time, the expense of making the transactions happen, and the value of services that were provided, from July ’07 through September ’10 Citi International made clients pay too much (up to over 10%) on agency/corporate bond markups and markdowns. (Brokerages usually make clients that buy a bond pay a premium above the price that they themselves paid to obtain the bond. This is called a “markup.”) Also, from April ’09 until June ’10, the SRO contends that Citi International did not put into practice reasonable due diligence in the sale or purchase of corporate bonds so that customers could pay the most favorable price possible.

The SRO says that during the time periods noted, the financial firm’s supervisory system for fixed income transactions had certain deficiencies related to a number of factors, including the evaluation of markups/markdowns under 5% and a pricing grid formulated on the bonds’ par value rather than their actual value. Citi International will now also have to modify its supervisory procedures over these matters.

In the wake of its order against Citi International, FINRA Market Regulation Executive Vice-President Thomas Gira noted that the SRO is determined to make sure that clients who sell and buy securities are given fair prices. He said that the prices that Citi International charged were not within the standards that were appropriate for fair pricing in debt transactions.

If you believe that you were the victim of securities misconduct or fraud, please contact our stockbroker fraud law firm right away. We represent both institutional and individual investors that have sustained losses because of inadequate supervision, misrepresentations and omissions, overconcentration, unsuitability, failure to execute trades, churning, breach of contract, breach of promise, negligence, breach of fiduciary duty, margin account abuse, unauthorized trading, registration violations and other types of adviser/broker misconduct.

Before deciding to work with a brokerage firm that is registered with FINRA, you can always check to see if they have a disciplinary record by using FINRA’s BrokerCheck. Last year, 14.2 million reviews of the records of financial firms and brokers were conducted on BrokerCheck.

Read the Letter of Acceptance, Waiver, and Consent

Citigroup Fined for Bond Markup, The Wall Street Journal, March 19, 2012

FINRA BrokerCheck®


More Blog Posts:

Securities Claims Accusing Merrill Lynch of Concealing Its Auction-Rate Securities Practices Are Dismissed by Appeals Court, Stockbroker Fraud Blog, November 30, 2011

Merrill Lynch Faces $1M FINRA Fine Over Texas Ponzi Scam by Former Registered Representative, Stockbroker Fraud Blog, October 10, 2011

Bank of America’s Merrill Lynch Settles for $315 million Class Action Lawsuit Over Mortgage-Backed Securities, Institutional Investor Securities Blog, December 6, 2011

Continue reading "Citigroup Ordered by FINRA to Pay $1.2M Over Bond Markups and Markdowns" »

March 15, 2012

SEC Looks Likely to Win Appeal in $285M Securities Settlement that Judge Rakoff Rejected

In a primarily procedural decision, the U.S. Court of Appeals for the Second Circuit has ruled that the Securities and Exchange Commission’s case against Citigroup, which resulted in a proposed $285M securities fred settlement, be stayed pending a joint appeal of U.S. Senior District Judge Jed Rakoff’s ruling that the civil lawsuit proceed to trial. Rakoff had rejected the settlement on the grounds that he didn’t believe that it was “adequate.” He also questioned the Commission’s practice of letting parties settle securities causes without having to admit or deny wrongdoing. The trial in SEC v. Citigroup Global Markets, Inc. had been scheduled for July 2012.

In December, the SEC filed a Notice of Appeal to the 2nd Circuit contending that the district court judge made a legal mistake in declaring an unprecedented standard that the Commission believes hurts investors by not allowing them to avail of “benefits that were immediate, substantial, and definite.” The notice also stated that it considered it incorrect for the district court to require an admission of facts or a trial as terms of condition for approving a proposed consent judgment—especially because the SEC provided Rakoff with information demonstrating the “reasoned basis” for its findings.

The 2nd circuit’s ruling deals a blow to Rakoff’s decision, which other federal judges have cited when asking if the public’s interest is being served when federal agencies propose settlements. The three-judge panel’s appellate ruling, which was a per curiam (unsigned) decision, found that the SEC and Citi would likely win their contention that Rakoff was in error when he turned down the securities settlement. The appeals court justices said that they had to defer to an executive agency’s evaluation of what is best for the public and that there was no grounds to question the SEC’s claim that the $285M securities settlement with Citigroup is in that interest.

The 2nd circuit said that Rakoff “misinterpreted” precedent related to his discretion to determine public interest and went beyond his judicial authority. Also, per the appellate panel, while district court judges should not merely rubber stamp on behalf of federal agencies it is not their job to define the latter’s policies.

It is important to note, however, that the 2nd circuit’s ruling only tackles the preliminary issue of whether the securities case should be stayed pending the completion of the appeal. The panel said it would be up to the justices that hear the appeal to resolve all matters and that this ruling should not have any “preclusive” impact. Counsel would also be appointed to argue Rakoff’s side during the appeal.

Ruling Gives Edge to U.S. in Its Appeal of Citi Case, NY Times, March 15, 2012

Second Circuit: Rakoff, Mind, Wall Street Journal, March 15, 2012


More Blog Posts:
Citigroup’s $285M Settlement With the SEC Is Turned Down by Judge Rakoff, Stockbroker Fraud Blog, November 28, 2011

Citigroup’s $285M Mortgage-Related CDO Settlement with Raises Concerns About SEC’s Enforcement Practices for Judge Rakoff, Institutional investor Securities Blog, November 9, 2011

Citigroup’s $75 Million Securities Fraud Settlement with the SEC Over Subprime Mortgage Debt Approved by Judge, Stockbroker Fraud Blog, October 23, 2010

Continue reading "SEC Looks Likely to Win Appeal in $285M Securities Settlement that Judge Rakoff Rejected" »

February 23, 2012

$698M MBS Lawsuit Seeking Damages from Goldman Sachs Group Can Take on Class Action Status, Says District Judge

U.S. district judge says that Public Employees' Retirement System of Mississippi v. Goldman Sachs Group Inc., a securities fraud lawsuit, may proceed as a class action case. Some 150 investors would fall under this class plaintiff category as they seeking damages related to a $698 million mortgage-backed securities offering.

According to the complaint, loan originator New Century Financial Corp. did not abide by its own underwriting standards and overstated what the value was of the collateral backing the loans. The plaintiffs are accusing Goldman Sachs of failing to conduct the necessary due diligence when it purchased the loans seven years ago. The financial firm then structured, issued, and sold the mortgage pass-through certificates in a single offering.
Goldman attempted to fight certification on the grounds of numerosity, typicality, commonality, statute of limitations, typicality, and alleged conflicts involving buyers of different tranches, what investors knew, and other claims.

Judge Harold Baer Jr. turned down the defendants’ contention that class claims wouldn’t predominate due to individual investors’ knowledge of possibly false statements that may have been made in the offering documents when the acquisition took place. The defendants also had argued that class status should not be granted because investors, who conducted their own research and due diligence, interacted directly with loan originators, as well as had access to data that gave them information about New Century’s practices and the loan pool.

The court also turned down the defendants’ claim revolving around investors’ relying on asset managers and the change in information that was made publicly available over time. The court said that determining whether individual or common issues predominate is reliant upon whether putative class members took part in or knew about the alleged behavior and that likelihood of knowledge is not enough.

Public Employees' Retirement System of Mississippi had been seeking to certify as a Class any entity or person that bought or otherwise publicly acquired offered certificates of GSAMP Trust 2006-S2 and, as a result, sustained damages. Not included in the Class are defendants, respective officials, directors, affiliates, these parties’ immediate relatives, heirs, legal representatives, successors, assigns, and any entity that defendants had or have controlling interested in.

Goldman Sachs Mortgage-Backed Securities Suit Granted Class-Action Status, Bloomberg, February 3, 2012

$698 Million Class Can Sue Goldman, Courthouse News Service, February 7, 2012


More Blog Posts:
Goldman Sachs CEO Hires Prominent Defense Attorney in the Wake of Justice Department Probe into Mortgage-Backed Securities, Institutional Investor Securities Fraud Blog, August 24, 2011

Mortgage-Backed Securities Lawsuit Against Bank of America’s Merrill Lynch Now a Class Action Case, Stockbroker Fraud Blog, June 25, 2011

Two Ex-Credit Suisse Executives Plead Guilty to Mortgage-Backed Securities Fraud, Institutional Investor Securities Fraud Blog, February 7, 2012

Continue reading "$698M MBS Lawsuit Seeking Damages from Goldman Sachs Group Can Take on Class Action Status, Says District Judge" »

February 7, 2012

Two Ex-Credit Suisse Executives Plead Guilty to Mortgage-Backed Securities Fraud

Salmaan Siddiqui and David Higgs have pled guilty to conspiracy to commit wire fraud and conspiracy to falsify books in the mortgage-backed securities fraud case against them. Higgs was former a Credit Suisse managing director while Siddiqui had been vice president.

The US Securities and Exchange Commission and the Justice Department have been conducting coordinated enforcement efforts against Higgs, Siddiqui, and Kareen Serageldin. They are charged with fraudulently inflating asset-backed bonds’ prices during late 2007 and early 2008. The bonds consisted of commercial mortgage-backed securities and subprime residential mortgage-backed securities in Credit Suisse’s trading books. Their alleged manipulation of the bond prices resulted in the financial firm getting a $2.65B write-down of its end of the year financial results for 2007. Meantime, seeing as trading book profitability determines bonuses, the three defendants obtained hefty ones.

In addition to the three men, the SEC is also suing Faisal Siddiqui as a fourth defendant. In its securities fraud complaint, the Commission accused the men of being involved in a scam to fraudulently overstate the prices of over $3B of subprime bonds. Recorded phone calls document their fraudulent actions.

Serageldin, who was Credit Suisse’s Structured Credit Trading global head, reportedly initiated the MBS fraud while Higgs, who was with the financial firm’s Hedge Trading, oversaw the operation. The Siddiquis, who are not related to each other, were brokers that allegedly falsely processed the bonds’ prices.

In August 2007, the defendants reportedly started pricing the bonds in a way that would benefit them, rather than recording the fair value. The MBS scam would continue to accelerate as the credit markets faltered. By the end of the year, they were pricing the bonds at falsely high levels. Higgs would later on get the bond prices raised beyond their year-end levels to gain favorable P & L results at the end of January.

In February, Credit Suisse reported having a 2007 net income of $7.12 billion and fourth quarter earnings of $1.16B. Seeing as these figures incorporated the false gains, the information was materially misleading and false. Their scam fell apart when Credit Suisse senior management realized that specific bonds that the defendants’ controlled had been priced abnormally high.

MBS Pricing by Credit Suisse Traders
Credit Suisse traders must price the securities that they hold at fair value, which is determined by current market price or the current price for a similar liability or asset. When there is no liquid market, the traders have to refer to other indicia to determine their assets’ fair value. Credit Suisse brokers know that the ABX indices are the benchmark for specific securities backed by home loans and that they must refer to it when placing a price on RMBS bonds and related products.


Ex-Credit Suisse bond players plead guilty to MBS fraud, Housing Wire, February 2, 2012

Manhattan U.S. Attorney and FBI Assistant Director in Charge Announce Charges Against Two Former Credit Suisse Managing Directors and Vice President for Fraudulently Inflating Subprime Mortgage-Related Bond Prices in Trading Book, FBI, February 2012

SEC Charges Former Credit Suisse Investment Bankers in Subprime Bond Pricing Scheme, SEC, February 1, 2012


More Blog Posts:

District Court in Texas Decides that Credit Suisse Securities Doesn’t Have to pay Additional $186,000 Arbitration Award to Luby’s Restaurant Over ARS, Stockbroker Fraud Blog, June 2, 2011

Credit Suisse Group AG Must Pay ST Microelectronics NV $431 Million Auction-Rate Securities Arbitration Award, Stockbroker Fraud Blog, April 5, 2012

Citigroup to Pay $285M to Settle SEC Lawsuit Alleging Securities Fraud in $1B Derivatives Deal, Institutional Investor Securities Blog, October 20, 2011

Continue reading "Two Ex-Credit Suisse Executives Plead Guilty to Mortgage-Backed Securities Fraud" »

January 28, 2012

Citigroup Woes Continue With FINRA Order to Pay Financial Adviser Team $24M Over Inadequate Compensation

A Financial Industry Regulatory Authority panel wants Citigroup to pay financial advisor siblings Robert Vincent Minchello and James Bryan Minchello, as well as administrator Martha Jane Sullivan, $24 million. The claimants, who were formerly employed by the financial firm, contend that they did not receive fair compensation for transactions involving an institutional investor client.

Prior to working for Citigroup they were with Banc of America Securities. When they landed at Citi, they brought a number of institutional investors with them. Transactions that the brothers conducted with one the clients, a technology incubator that at the time they already had a 10-year working relationship with, is at the center of the dispute with Citigroup.

The Claimants contend that Citi only partially paid them on a few of the initial transactions and then removed them from relationship with the client while refusing to compensate them for subsequent transactions. After leaving the financial firm in 2009 they submitted an arbitration claim with Citigroup. They had wanted $156.1 million in punitive damages and interest, as well as $78 million in compensatory damages ( and attorneys’ fees and other costs).

The FINRA panel awarded the team about $24 million for compensatory damages and 6% yearly interest for the period of December 15, 2004 through January 13, 2012. Citi must also pay the advisors $1M in sanctions. The Claimants’ securities fraud attorney says the award seem to be a “rebuke” of the practice that some investment banks engage in of not paying advisors that connect them with lucrative transactions or clients. The brothers and Sullivan are now with JP Morgan Securities LLC.

As you can read about in some of our recent blog posts, Citigroup has come under fire a lot recently over alleged violations. FINRA just fined Citigroup Global Markets $725,000 for allegedly failing to disclose certain conflicts of interest in its research reports and during research analyst public appearances. In December 2011, a judge turned down Citigroup’s request to have a $54.1M arbitration award against it overturned. That FINRA award was over Citigroup’s alleged failure to disclose to investors the risks involved in putting their money in municipal bonds.

Of course, there is also the $285 million settlement reached between Citigroup and the Securities and Exchange Commission that US District Judge Jed S. Rakoff has refused to approve. Instead, he ordered both parties to court to resolve this matter. The SEC as the housing market was collapsing in 2007, Citigroup sold Class V Funding III and then betting against the $1B mortgage-linked CDO. Clients were not told about this conflict and investors eventually lost almost $700 million. Meantime, the financial firm made approximately $160 million.

Boston financial advisors and assistant win $24 million in arbitration, Boston, January 23, 2012

Citigroup Ordered To Pay Advisor Team $24M in Arbitration Dispute, OnWallStreet, January 24, 2012


More Blog Posts:
Citigroup Request to Overturn $54.1M Municipal Bond Arbitration Ruling Denied by Judge, Institutional Investor Securities Blog, December 27, 2011

Citigroup’s $285M Mortgage-Related CDO Settlement with Raises Concerns About SEC’s Enforcement Practices for Judge Rakoff, Institutional Investor Securities Blog, November 9, 2011

Unsealed Documents in $54.4M FINRA Arbitration Case Reveal that Citigroup Did Not Disclose Municipal Bond Risks to Investors, Stockbroker Fraud Blog, January 21, 2012


Continue reading "Citigroup Woes Continue With FINRA Order to Pay Financial Adviser Team $24M Over Inadequate Compensation " »

January 26, 2012

Merrill Lynch, Pierce, Fenner & Smith Ordered to Pay $1M FINRA Fine for Not Arbitrating Employee Disputes Over Retention Bonuses

FINRA says that Merrill Lynch, Pierce, Fenner & Smith must pay a $1M fine because it didn’t arbitrate employee disputes about retention bonuses. Registered representatives that took part in the bonus plan had signed promissory notes stating that should such disagreements arise, they would go to New York state court and not through arbitration to resolve them. FINRA says this agreement violated its rules, which requires that financial firms and associated individuals go through arbitration if the disagreement is a result of the business activities of the associated person or the firm.

It was after merging with Bank of America that Merrill Lynch set up a bonus plan to keep high-producing registered reps. The financial firm gave over 5,000 registered representatives $2.8B in retention bonuses that were structured as loans in 2009. By agreeing that they would go to state court, the representatives were greatly hindering their ability to make counterclaims. FINRA also says that because Merrill Lynch designed the bonus program so that it would seem as if the money for it came from MLIFI, which is a non-registered affiliate, the financial firm was able to go after recovery amounts on MLIFI’s behalf in court, which allowed Merrill Lynch to circumvent the arbitration requirement. After a number of registered representatives did leave the financial firm without paying back the amounts due on the promissory notes in 2009, Merrill Lynch filed more than 90 actions in state court to collect these payments.

Since September 14, 2009, FINRA has been expediting cases involving claims made by brokerage firm over associated persons accused of not paying money owed on a promissory note. Such disputes are supposed to be resolved through arbitration.

The SRO has also been known to get involved in other types of financial firm-employee disputes. For example, in another recent FINRA proceeding, an arbitration panel ordered Citigroup to pay a former investment advisor team and their administrator $24M for not fairly compensating them for transactions involving an institutional client that they brought with them when they moved from Banc of America Securities. Robert Vincent Minchello, his brother James Bryan Minchello, and Martha Jane Sullivan claimed that Citigroup only partially compensated them for a few of the transactions before cutting them out of that business relationship.

Merrill fined $1 mln for failure to arbitrate, Reuters, January 25, 2012

SEC Approves Rule Establishing Expedited Procedures for Arbitrating Promissory Note Cases, FINRA, September 14, 2009


More Blog Posts:

Securities Claims Accusing Merrill Lynch of Concealing Its Auction-Rate Securities Practices Are Dismissed by Appeals Court, Stockbroker Fraud Blog, November 30, 2011

Merrill Lynch Faces $1M FINRA Fine Over Texas Ponzi Scam by Former Registered Representative, Stockbroker Fraud Blog, October 10, 2011

Bank of America’s Merrill Lynch Settles for $315 million Class Action Lawsuit Over Mortgage-Backed Securities, Institutional Investor Securities Blog, December 6, 2011

Continue reading "Merrill Lynch, Pierce, Fenner & Smith Ordered to Pay $1M FINRA Fine for Not Arbitrating Employee Disputes Over Retention Bonuses" »

January 19, 2012

UBS Global Asset Management to Pay $300,000 to Settle SEC Charges Related to Alleged Mutual Fund Price Violations

The Securities and Exchange Commission says that UBS Global Asset Management will pay $300,000 to resolve charges that it did not give securities in three mutual fund portfolios the proper price. This alleged failure caused investors to receive a misstatement regarding the funds’ net asset values. By agreeing to settle the charges, UBSGAM is not admitting to or denying the findings.

The SEC start investigating UBSGAM after SEC examiners conducted a routine check of the financial firm. According to its order, in 2008 UBSGAM bought about 54-complex fixed-income securities of $22 million, which was an aggregate purchase price. The majority of the securities were part of subordinated tranches of nonagency MBS with underlying collateral, which were were mortgages that weren’t in compliance with requirements to be part of MBS-guaranteed or to have been issued by Fannie Mae, Freddie Mac, or Ginnie Mae. CDO’s and asset-backed securities were among these securities.

After the securities were bought, 48 of them were priced substantially over the transaction price. This is because the pricing sources that provided the valuations to UBSGAM didn’t appear to factor in the price that the funds paid for the securities. Some quotations were not priced on a daily basis, while others were formulated using ending price from the last month. It wasn’t until over 2 weeks after UBSGAM started getting price-tolerant reports pointing out such discrepancies that it’s Global Valuation Committee finally met.

By using the prices that the 3rd party pricing service or a broker-dealer provided, the SEC contends that the mutual funds did not abide by their own valuation procedures, which mandate that the securities use the transaction price value until the financial firm makes a fair value determination or gets a response to a price challenge based on the discrepancy noted in the price tolerance report. The transaction price can be used for 5 business days, when a decision would have to be made on the fair value. The SEC concluded that by not making sure that these procedures were being followed, the financial firm caused the mutual funds to violate the Investment Company Act’s Rule 38a-1.

The SEC also determined that due to the securities not being timely or properly priced at fair value for a number of days in 2008, the funds were misstated (up to 10 cents in some cases) and they were then purchased, sold, or redeemed based on NAVs that were not accurate and higher than they should have been.

Read the SEC's Order Against UBS (PDF)


More Blog Posts:
SIFMA Wants FINRA to Take Tougher Actions Against Brokers that Don’t Repay Promissory Notes, Institutional Investor Securities Blog, January 17, 2012

Raymond James Financial to Buy Morgan Keegan from Regions Financial for $930 Million, Institutional Investor Securities Blog, January 14, 2012

$78M Insider Trading Scam: "Operation Perfect Hedge” Leads to Criminal Charges for Seven Financial Industry Professionals, Stockbroker Fraud Blog, January 18, 2012

Continue reading "UBS Global Asset Management to Pay $300,000 to Settle SEC Charges Related to Alleged Mutual Fund Price Violations" »

January 14, 2012

Raymond James Financial to Buy Morgan Keegan from Regions Financial for $930 Million

This week, Regions Financial Corp. (NYSE: RF) issued a statement announcing that Raymond James Financial Inc. (RJF) will be paying it $930 million to purchase Morgan Keegan & Company, Inc. and related affiliates in a stock purchase agreement. (Regions Morgan Keegan Trust and Morgan Asset Management, however, are not part of the sale.) Prior to closing, Morgan Keegan will pay Regions $250 million. This agreement, of course, will have to receiver regulatory approvals and meet closing conditions.

Also per the agreement:
• For all litigation matters connected to pre-closing activities, Regions will protect Raymond James against these losses. Meantime, Regions will benefit from already existing reserves by Regions at Morgan Keegan.

• Raymond James’ Public Finance and Fixed Income businesses will be headquartered in Memphis, Tennessee, which is also Morgan Keegan’s main base.

• Raymond James and Regions will become involved in a number of business relationships that will benefit both parties.

Regions placed Morgan Keegan on the market last June.

The sale is expected to close during the first quarter of 2012. This stock purchase agreement would allow Raymond James to grow its retail brokerage network, turning it into one of the largest firms in the US.

According to Regions, the deal would give it additional revenue opportunities, as a result of its solid partnership with Raymond James, for loan referrals, processing relationships, and deposits. The sale would also help Regions pay the federal government back some of the $3.5 billion that it received during the height of the economic crisis in 2008. However, Regions also anticipates a $575 million to $745 million impairment charge from the deal.

The Wall Street Journal says that to keep some Morgan Keegan management and financial advisers from leaving in the wake of the sale, Raymond James intends to offer up to $215 million in retention payments (restricted stock units and cash) as part of the acquisition deal. Already, a number of key Morgan Keegan employees have placed their signatures to employment contracts with Raymond James. The deal ups Raymond James headcount of financial advisers to 6000—a 60% increase and a 1000 more than prior to the deal. This will rank it third behind Morgan Stanley Smith Barney and just under Bank of America Corp.'s (BAC) Merrill Lynch.

It’s Official: Raymond James Buys Morgan Keegan, for $930 Million, The Wall Street Journal, January 11, 2012

Raymond James Said to Near $930 Million Purchase of Broker Morgan Keegan, Bloomberg, January 11, 2012


More Blog Posts:
Raymond James Must Pay $925,000 Over Auction-Rate Securities Dispute, Institutional Investor Securities Blog, September 1, 2010

Morgan Keegan & Company Ordered by FINRA to Pay $555,400 in Texas Securities Case Involving Morgan Keegan Proprietary Funds, Stockbroker Fraud Blog, September 6, 2011

Claims Filed Against Morgan Keegan Division of Regions Financial Causes Shortage of Arbitrators, Stockbroker Fraud Blog, February 8, 2010

Continue reading "Raymond James Financial to Buy Morgan Keegan from Regions Financial for $930 Million" »

January 11, 2012

Oppenheimer & Co. Must Buyback $6M in Auction-Rate Securities from Investor, Says FINRA Arbitration Panel

A Financial Industry Regulatory Authority arbitration panel has ordered Oppenheimer & Co. to repurchase the $5.98 million in New Jersey Turnpike ARS that it sold Nicole Davi Perry in 2007. The investor reportedly purchased the securities through Oppenheimer Holdings Inc. (OPY).

Perry, who, along with her father, filed her ARS arbitration claim against the financial firm in 2010, accused Oppenheimer of negligence and breach of fiduciary duty. She and her father, Ronald Davi, were reportedly looking for liquidity and safety, but instead ended up placing their funds in the auction-rate securities. They contend that they weren’t given an accurate picture of the risks involved or provided with a thorough explanation of the securities’ true nature.

Oppenheimer disagrees with the panel’s ruling. In addition to buying back Perry’s ARS, the financial firm has to cover her approximately $134,000 in legal fees.

It was just in 2010 that Oppenheimer settled the ARS securities cases filed against it by the states of New York and Massachusetts. The brokerage firm consented to buy back millions of dollars in bonds from customers who found their investments frozen after the ARS market collapsed and they had no way of being able to access their funds.

Oppenheimer is one of a number of brokerage firms that had to repurchase ARS from investors. These financial firms are accused of misrepresenting the risks involved and inaccurately claiming that the securities were “cash-like.” A number of these brokerage firms' executives allegedly continued to allow investors to buy the bonds even though they already knew that the market stood on the brink of collapse and they were selling off their own ARS.

ARS
Auction rate securities are usually corporate bonds, municipal bonds, and preferred stock with long-term maturities. Investors receive interest rates or dividend yields that are reset at each successive auction.

ARS auctions take place at regular intervals—either every 7 days, 14 days, 28 days, or 5 days. The bidder turns in the lowest dividend yield or interest rate he or she is willing to go to purchase and hold the bond during the next auction interval. If the bidder wins at the auction, she/he must buy the bond at par value.

Failed auctions can happen when there are not enough bidding buyers available to acquire the entire ARS block being offered. A failed auction can prevent ARS holders from selling their securities in the auction.

There are many reasons why an auction might fail and why there is risk involved for investors. It is important that investors are notified of these risks before they buy into the securities and that they only they get into ARS if this type of investment is suitable for their financial goals and the realities of their finances.

Panel Says Oppenheimer Must Buy Back $6M In Auction-Rate Securities, Wall Street Journal, January 10, 2012

Oppenheimer settles with Massachusetts, NY, Boston, February 24, 2010

More Blog Posts:
Oppenheimer Funds Investors Can Proceed with Their Securities Fraud Lawsuit, Stockbroker Fraud Blog, November 19, 2011

Investors in Oppenheimer Mutual Funds Considering Opting Out of $100M Class Action Settlement Have Until August 31, Institutional Investor Securities Blog, August 6 2011

Raymond James Settles Auction-Rate Securities Case with Indiana Securities Division for $31M, Stockbroker Fraud Blog, August 27, 2011

Continue reading "Oppenheimer & Co. Must Buyback $6M in Auction-Rate Securities from Investor, Says FINRA Arbitration Panel" »

December 27, 2011

Citigroup Request to Overturn $54.1M Municipal Bond Arbitration Ruling Denied by Judge

A US judge has denied Citigroup’s request that the $54.1M Financial Industry Regulatory Authority arbitration award issued to investors that sustained losses in municipal bond funds be overturned. This is one of the largest securities arbitration awards that a broker-dealer has been ordered to pay individual investors. Brush Creek Capital, retired lawyer Gerald D. Hosier, and investor Jerry Murdock Jr. are the award’s recipients. However, these Claimants are not the only investors to come forward contending that they were told the funds were suitable for investors that wanted to preserve their capital.

The investor losses were related to several leveraged municipal bond arbitrage funds that saw their value significantly drop between 2007 and 2008. Citigroup Global Markets had sold the municipal bond funds through MAT Finance LLC. Proceeds were invested in longer-term muni bunds while borrowing took place at low, short-term rates. The strategy proved to be unsuccessful, resulting in investors losing up to 80% of their money.

According to The Wall Street Journal, when it issued its ruling the arbitration panel appeared to reject three defenses that financial firms usually make:

• The financial crisis, and not the financial firm, is to blame for the losses.
• Sophisticated, rich investors should have known what risks were involved.
• The prospectus had warned in advance that investors could lose everything.

The Claimants alleged fraud, failure to supervise, and unsuitability. They had sought no less than $48 million in compensatory damages, fees, lost-opportunity costs, commission, lawyers’ fees, and interest.

The FINRA arbitration panel awarded $21.6 million in compensatory damages, plus 8% per annum, to Hosier, $3.9 million in compensatory damages, plus 8% per annum, to Murdock, Jr, and $8.4 million in compensatory damages, plus 8% per annum, to Brush Creek Capital LLC.

All Claimants were also awarded $3 million in lawyers’ fees, $17 million in punitive damages, $33,500 in expert witness fees, $13,168 in court reporter expenses, and $600 for the Claimant’s filing fee.

Following the FINRA ruling, Citigroup contended that the arbitration panel had ignored the law when arriving at the award. The brokerage firm also claimed that investors could not have depended on verbal statements that the financial firm had expressed about purchases because the clients had acknowledged through signed agreements that they could lose everything they invested. By denying Citigroup’s request to throw out the arbitration award, Judge Christine Arguello, however, said that the court found Citigroup’s “argument wholly unpersuasive.”

A Crack in Wall Street’s Defenses, New York Times, April 24, 2011

Citigroup Slammed With $54 Million Award by FINRA Arbitrators in MAT / ASTA Case, Municipal Bond, April 12, 2011

Citigroup loses suit to overturn $54-million ruling, Reuters, December 22, 2011


More Blog Posts:

JPMorgan Chase to Pay $211M to Settle Charges It Rigged Municipal Bond Transaction Bidding Competitions, Stockbroker Fraud Blog, July 9, 2011

Citigroup Ordered by FINRA to Pay $54.1M to Two Investors Over Municipal Bond Fund Losses, Stockbroker Fraud Blog, April 13, 2011

Citigroup’s $285M Mortgage-Related CDO Settlement with Raises Concerns About SEC’s Enforcement Practices for Judge Rakoff, Institutional Investor Securities Blog, November 9, 2011

Continue reading "Citigroup Request to Overturn $54.1M Municipal Bond Arbitration Ruling Denied by Judge" »

December 23, 2011

Barclays Capital Ordered by FINRA to Pay $3M Fine For Alleged Subprime Mortgage Securitization-Related Misrepresentations

FINRA says that Barclays Capital Inc. will pay $3 million over charges of inadequate supervision related to the residential subprime mortgage securitizations and the misrepresentation of delinquency data. The SRO claims that between 3/07 and 10/10, Barclays misrepresented three RMBS’s historical delinquency rates.

Per industry rules, financial firms have to give investors certain performance information for securities that they issue. FINRA says that Barclay’s Capital misrepresented the historical delinquency rates for the RMBS between March 2007 and December 2010. This inaccurate data was published on the company’s website, which impacted how investors were able to evaluate other securitizations.

Historical delinquency rates, which provide historical performance information for previous securitizations with mortgage loans, are key in helping an investor determine and RMBS’s value and whether mortgage holders’ inability to make loan payments could disrupt future returns. The inaccurate information that was posted on the Barclay’s Capital website was referred to as historical delinquency rates in five subsequent residential subprime mortgage securitizations and had errors that were key enough to impact investors.

According to FINRA Enforcement Chief Brad Bennett, Barclay lacked a system that could ensure that delinquency data that was published was accurate.

Barclays has settled the case. However, the financial firm is not denying or admitting to the charges.

It was just earlier this year that FINRA fined Merrill Lynch $3 Million and Credit Suisse Securities $4.5 Million over misrepresentations involving RMBS. Both financial firms settled the allegations without denying or admitting to the charges.

According to the SRO, in 2006, 21 RMBS’s historical delinquency rates were misrepresented by Credit Suisse. The financial firm allegedly knew that this information was not accurate yet failed to adequately look into the mistakes, tell clients about the errors, or correct the information, which was published on its we site. The delinquency errors for six of the 21 securitizations were enough to impact the way investors were able to evaluate subsequent securitizations. Credit Suisse also allegedly did not define or name the methodology that was applied in determining the mortgage delinquencies in five other subprime securitizations. (Disclosing which method was issued is required because there are different standards for determining delinquencies.)

Regarding the charges against Merrill Lynch, the SRO claims 61 of the financial firm’s subprime RMBS had historical delinquency rates that were misrepresented. However, upon discovering the mistakes, Merrill Lynch published the correct data online. In eight cases, the delinquencies impacted investors’ ability to assess subsequent securitizations.

FINRA Fines Barclays Capital $3 Million for Misrepresentations Related to Subprime Securitizations, FINRA, December 22, 2011

Finra Fines Credit Suisse, Bank of America Over RMBS Errors, Bloomberg, May 26, 2011


More Blog Posts:
Morgan Keegan Settles Subprime Mortgage-Backed Securities Charges for $200M, Stockbroker Fraud Blog, June 29, 2011

Investors Want JP Morgan Chase & Co. To Explain Over $95B of Mortgage-Backed Securities, Institutional Investor Securities Blog, December 17, 2011

Federal Home Loan Banks Say Countrywide Financial Corp Mortgage Bond Investors May Be Owed Way More than What $8.5B Securities Settlement with Bank of America Corp. is Offering, Institutional Investor Securities Blog, July 22, 2011

Continue reading "Barclays Capital Ordered by FINRA to Pay $3M Fine For Alleged Subprime Mortgage Securitization-Related Misrepresentations" »

December 21, 2011

Bank of America to Pay $335M to Countrywide Financial Corp. Borrowers Over Allegedly Discriminating Lending Practices

Bank of America Corp. has agreed to a record $335 million settlement to pay back Countrywide Financial Corp. borrowers who were billed more for loans because of their nationality and race, while creditworthiness and other objective criteria took a back seat. All borrowers that were discriminated against qualified to receive mortgage loans under Countrywide’s own underwriting standards.

The settlement is larger than any past fair-lending settlements (totaling $30M) that the US Justice Department has been able to obtain to date. Countrywide was acquired by Bank of America in 2008.

According to the Justice Department, Countrywide charged higher fees and interest rates to over 200,000 Hispanic and black borrowers while directing minorities to more costly subprime mortgages despite the fact that they qualified for prime loans. Meantime, the latter were given to non-Hispanic white borrowers who had similar credit profiles.

Under federal civil rights laws, a lending practice is illegal if it has a negative effect on borrowers that are minorities. The US Justice Department’s complain contends that “steering,” which involves using discrimination to place borrowers in subprime loans, was able to occur because it was Countrywide’s practice to let employees and mortgage brokers place a loan applicant in a subprime loan even when that party qualified for a prime loan. Also, mortgage brokers were allowed to use discretion when asking for exceptions to the underlying guidelines.

Subprime loans usually come with higher-cost conditions, such as exploding adjustable interest rates that can suddenly go up after a couple of years, as well as prepayment penalties. All of this can place a borrower at higher risk of foreclosure and render payments unaffordable.

Per the settlement, Countrywide will have to put in place practices and policies to bar discrimination if it decides to go back to the lending business in the next four years. Also resolved are the Justice Department’s claims that the Bank of America subsidiary violated the Equal Credit Opportunity Act.

Countrywide is accused of using marital status to discriminate against non-applicant spouses of borrowers by trying to get them to sign away their rights to home ownership through quitclaim deeds and other documents that ended up giving the borrowing spouse the interest and legal rights in property held by both of them.

A judge still has to approve the settlement. If it goes through, impacted lenders will get between several hundred to several thousand dollars.

Our securities fraud attorneys represent investors that lost money during the subprime mortgage crisis. If you believe that negligence on the part of a financial professional caused your losses, do not hesitate to contact Shepherd Smith Edwards and Kantas, LTD LLP today.

BofA Agrees Record $335M Fair-Lending Deal, Bloomberg, December 21, 2011

Countrywide Will Settle a Bias Suit, New York Times, December 21, 2011


More Blog Posts:

Federal Home Loan Banks Say Countrywide Financial Corp Mortgage Bond Investors May Be Owed Way More than What $8.5B Securities Settlement with Bank of America Corp. is Offering, Institutional Investors Securities Blog, July 22, 2011

California Investigating Whether Bank of America & Countrywide Financial Used False Pretenses to Sell Mortgage-Backed Securities to Investors, Institutional Investors Securities Blog, October 21, 2011

FDIC Objects to Bank of America’s Proposed $8.5B Settlement Over Mortgage-Backed Securities, Stockbroker Fraud Blog, August 30, 2011

December 17, 2011

Investors Want JP Morgan Chase & Co. To Explain Over $95B of Mortgage-Backed Securities

Institutional investors that placed their money in over $95B in mortgage-backed securities want the trustees overseeing JP Morgan & Chase. Co.-issued securities to figure out whether certain loans shouldn’t have been included as a result of faulty underwriting. US Bank, Bank of New York Mellon, Wells Fargo & Co., HSBC, and Citibank are the trustees.

PIMCO and BlackRock Inc. are two of the institutional investors requesting the investigation. According to their legal representatives, the group of investors represent over 25% of voting rights on 243 residential mortgage-backed securities. The institutional investors want to know whether mortgages that were not eligible ended up included in the collateral backing the bonds. The investor group is the same one that reached an $8.5 billion securities settlement with Bank of America. (The 22 investors include the Federal Reserve Bank of New York, Black Rock Inc., Goldman Sachs Asset Management, MetLife Inc., and PIMCO). However, the settlement is still pending and has been challenged by other mortgage bondholders.

Related to this current requested probe, JP Morgan and its different arms put out the securities between 2005 and 2007. Included were bonds from Washington Mutual and Bear Stearns. About $450 billion in residential MBS were issued by JP Morgan to investors between 2005 and 2008. Approximately $169 billion of that principal is outstanding.

A lot of the loans were not originated at JP Morgan, but the investment bank and its other entities did buy them. JP Morgan has contented that it should be the originator that should buy back the loans that were part of the securities contract.

According to the New York Times, if investors were to settle with JP Morgan by applying the same loss ratio used in arriving at the Bank of America agreement, this figure would probably hit about $1.9 billion. Meantime, JP Morgan must contend with approximately $31 billion in securities class-action cases.

Because of mortgage-related concerns, beginning in 2010, JP Morgan placed $8.5 billion into its reserves for litigation. At the end of the third quarter, the investment bank’s mortgage repurchase reserves were $3.6 billion.

Meantime, state attorneys generals and the Federal Housing Finance Agency continue to look at how investment banks handled mortgage-backed securities leading up to the housing market. More securities litigation from investors is expected.


Investors target JPMorgan over $95 billion of RMBS, Reuters, December 16, 2011

Mortgage Investors Put J.P. Morgan in Cross Hairs, The Wall Street Journal, December 17, 2011

Bank of America in $8.5 billion settlement, CNN, June 29, 2011

More Blog Posts:
Bank of America’s Merrill Lynch Settles for $315 million Class Action Lawsuit Over Mortgage-Backed Securities, Institutional Investor Securities Blog, December 6, 2011

FDIC Objects to Bank of America’s Proposed $8.5B Settlement Over Mortgage-Backed Securities, Stockbroker Fraud Blog, August 30, 2011

Some of the SEC Charges Against Investment Adviser Over Alleged Involvement In J.P. Morgan Securities LLC Collateralized Debt Obligation Are Dismissed, Institutional Investor Securities Blog, September 24, 2011

Continue reading "Investors Want JP Morgan Chase & Co. To Explain Over $95B of Mortgage-Backed Securities" »

December 14, 2011

Bankruptcy Judge Grants MF Global Permission to Use $21M from JPMorgan Chase

U.S. Bankruptcy Judge Martin Glenn says that MF Global Holdings Inc. can use approximately $21 million in cash collateral from JPMorgan Chase & Co, which is its mortgage lender. In issuing this decision, Glenn overruled customer objections that this money could be part of the $1.2B that has gone missing from their accounts. MF Global and JP Morgan have arrived at an agreement over how the cash will be used.

At the start of MF Global’s bankruptcy, JPMorgan had already consented to let the brokerage firm use $26M. This was per an agreement that would give the investment bank a lien on all MF Global assets.

It was just earlier this month that Glenn ruled that MF Global Inc. clients could recover 72% of what they lost when the broker-dealer filed for bankruptcy. Ruling against objections made by the brokerage firm’s creditors, he approved trustee James Giddens’ request. Per Glenn's decision, MF Global’s clients can receive another $2.2 billion distribution, which lets them get back .72 on the dollar.

While the majority of the transfers were to go out within a few days, some were expected to take up to four weeks. In a separate decision, the Glenn approved transferring approximately 330 MF Global client securities accounts to Perrin, Holden & Davenport Capital Corp. MF Global has already moved approximately 38,000 commodities accounts to other financial firms.

Glen plans to tackle the issue of physical goods distribution, such as silver and gold bars, next month. Clients have complained about not being able to get their share of ownership of such items, which cannot be physically divided. HSBC Holdings Plc (HSBA) has even filed a lawsuit against Giddens. The financial firm is trying to determine whois the owner of the 15 silver bars and five gold bars underlying several Comex contracts between a client and MF Global.

Previous payouts to commodity clients are already at about $2 billion. However, some customers have said they didn’t receive any money from these initial payments.

In other MF Global-related news, CME Group has stopped issuing grants through its primary foundation in the wake of the brokerage firm's bankruptcy filing. The Chicago-based commodities exchange had issued $22 million to Chicago-area schools and charities in the last five years. CME has said that it will continue to support charitable organizations through other corporate foundations and programs.

In November, CME said it would give ex- MF Global customers the $50 million that was held by CME Trust. Originally meant to assist traders, the trust had turned into a primary source of charitable giving for the exchange operator.

Exclusive: CME Trust's charity grants halt on MF failure, Reuters, December 18, 2011

MF Global Wins Permission to Use JPMorgan’s Cash as Judge Suggests Probe, Bloomberg, December 14, 2011

MF Global clients get back 72 cents on the dollar, Bloomberg/Investment News, December 9, 2011


More Blog Posts:

$1.2 Billion of MF Global Inc.’s Clients Money Still Missing, Stockbroker Fraud Blog, December 10, 2011

MF Global Shortfall May Be More than $1.2B, Says Trustee, Stockbroker Fraud Blog, November 26, 2011

MF Global Holdings Ltd. Files for Bankruptcy While Its Broker Faces Liquidation and Securities Lawsuit by SIPC, Institutional Investor Securities Blog, October 31, 2011

Continue reading "Bankruptcy Judge Grants MF Global Permission to Use $21M from JPMorgan Chase" »

December 8, 2011

Wells Fargo Settles for $148M Municipal Bond Bid-Rigging Charges Against Wachovia Bank

Wells Fargo & Co. has agreed to settle for $148 million the civil claims and criminal charges accusing Wachovia Bank of taking part in a bid-rigging scam with other financial firms and overcharging local and state governments on their investments. The settlement resolves allegations that for eight years, Wachovia rigged at least 58 transactions involving proceeds from over $9 billion of municipal bonds. By agreeing to settle, Wells Fargo, which acquired Wachovia three years ago, is not denying or admitting to these allegations.

In its allegations against Wachovia, the SEC said the financial firm earned ill-gotten gains in the millions of dollars by using tips provided about rival bids, turning in bogus bids to give competitors an advantage, and working with some of them to rig auctions so it would benefit. The Justice Department said Wachovia’s illegal behavior corrupted the bidding system for investment contracts while preventing municipalities from getting to avail of a competitive process. However, because the financial firm admitted to the illegal conduct, cooperated with the investigation, took action to deal with anti-competitive behavior, the federal government decided not to prosecute.

Involved in investigating Wachovia were the SEC, attorneys general in more than two dozen states, and the US Justice Department. The federal agencies have been looking at how a number of Wall Street firms and local-government advisers worked together to rig competitive auctions in order to charge excessive fees to public agencies that bought the investments.

More than dozen banks have been named as alleged co-conspirators. Other financial firms that have settled similar claims over muni bond bid-rigging are Bank of America, Corp., UBS AG, and JPMorgan Chase & Co. With this latest settlement, the banks will have paid $673 million to settle the municipal bond-related allegations.

The charges against the financial firms involve investment contracts purchased by cities and state with proceeds from the municipal-bond market. At competitive auctions organized by financial advisers, these contracts should have gone to banks offering the highest return.

According to investigators, what instead ended up happening is that some of these advisers would direct business to a certain bidder in exchange for kickbacks. Meantime, other banks would purposely make bids they knew wouldn’t win to cover up the alleged conspiracy. Because governments usually have to invest bond proceeds in the short term until it is time to spend the cash on public projects, the bogus bidding practices adversely impacted what municipalities ended up paying for reinvestment products. The bid-rigging cost the US Treasury and other governments money.

Wells Fargo Pays $148 Million to Settle Wachovia Muni Bid-Rigging Charges, Bloomberg, December 8, 2011

Wells Settles Wachovia Bid-Rig Case, Wall Street Journal, December 9, 2011


More Blog Posts:
Bank of America’s Merrill Lynch Settles for $315 million Class Action Lawsuit Over Mortgage-Backed Securities, Institutional Investor Securities Blog, December 6, 2011

Former US Treasury Secretary Henry Paulson Told Hedge Funds About Fannie Mae and Freddie Mac Bailouts in Advance, Institutional Investor Securities Blog, November 30, 2011

$75K FINRA Arbitration Award Against Wells Fargo Advisors LLC For Defaming an Ex-Employee in Form U-5 is Confirmed by District Court, Stockbroker Fraud Blog, November 30, 2011

Continue reading "Wells Fargo Settles for $148M Municipal Bond Bid-Rigging Charges Against Wachovia Bank" »

December 6, 2011

Bank of America’s Merrill Lynch Settles for $315 million Class Action Lawsuit Over Mortgage-Backed Securities

Bank of America, Corp. has agreed to pay investors $315 million to settle their class action claim accusing Merrill Lynch of misleading them about the risks involved in investing in mortgage-backed securities. If approved, the proposed settlement would be one of the largest reached over MBS that caused investors major losses when the housing market collapsed. The lead plaintiff in this securities case is the Public Employees' Retirement System of Mississippi pension fund.

The class action lawsuit accused Merrill of misleading investors about $16.5 billion of MBS in 18 offerings that were made between 2006 and 2007. They are claiming possible losses in the billions of dollars. (The offerings occurred before Bank of America bought Merrill.)

The plaintiffs contend that Merrill’s offering documents were misleading. They also believe that the original investment-grade ratings for the securities, which had been backed by loans from Countrywide, IndyMac Bancorp Inc., First Franklin Financial unit, and New Century Financial Corp. were unmerited. Most of these investments were later downgraded to “junk” status.

By agreeing to settle, Bank of America is not admitting to or denying wrongdoing.

This settlement must be approved by US District Judge Jed Rakoff, who just last week rejected the proposed $285M securities settlement between Citigroup Global Markets Inc. and the Securities and Exchange Commission. He ordered that the case be resolved through trial. Rakoff was also the one who refused to approve another proposed Bank of America securities settlement—the one in 2009 with the SEC—for $33 million over misstatements that were allegedly made regarding the purchase of Merrill. Rakoff would later go on to approve the revised settlement of $150 million.

Rakoff has criticized a system that allows financial firms to settle securities fraud allegations against them without having to admit or deny wrongdoing. He also has expressed frustration at the “low” settlements some investment banks have been ordered to pay considering the amount of financial losses suffered by investors.

Our securities fraud lawyers represent individual and institutional clients that sustained losses related to non-traded REITs, private placements, principal protected notes, auction-rate securities, collateralized debt obligations, mortgage-backed securities, reverse convertible bonds, high yield-notes and other financial instruments that were mishandled by broker-dealers, investment advisers, or their representatives. We also work with victims of Ponzi scams, affinity scams, elder financial fraud and other financial schemes.

BofA Merrill unit in $315 mln mortgage settlement, Reuters, December 6, 2011

Public Employees' Retirement System of Mississippi


More Blog Posts:

Citigroup’s $285M Settlement With the SEC Is Turned Down by Judge Rakoff, Stockbroker Fraud Blog, November 28, 2011

Citigroup’s $285M Mortgage-Related CDO Settlement with Raises Concerns About SEC’s Enforcement Practices for Judge Rakoff, Institutional Investor Securities Blog, November 9, 2011

Ex-Lehman Brothers Holdings Chief Executive Defends Request that Insurance Fund Pay Legal Bills, Stockbroker Fraud Blog, October 19, 2011

Continue reading "Bank of America’s Merrill Lynch Settles for $315 million Class Action Lawsuit Over Mortgage-Backed Securities " »

November 19, 2011

Chase Investment Services Corporation Ordered by FINRA to Pay Back $1.9M for Unsuitable Sales of Floating-Rate Loan Funds and UITs.

FINRA says that Chase Investment Services Corporation will pay back investors for losses sustained from the unsuitable recommendation made that they buy floating rate loan funds and unit investment trusts. In addition to paying back clients $1.9M, Chase must also pay a $1.7M fine.

According to FINRA, brokers with Chase recommended these financial instruments to clients even though the investments were not suitable for them—either because they had hardly any investment experience or only wanted to take conservative risks. The SRO also says that the Chase brokers had no reasonable grounds to think the financial products would be a right fit for these investors.

FINRA believes that Chase failed to properly train its brokers or give them guidance about the suitability of floating-rate loan funds and UITs, as well as the risks involved. For example, there were UITs that contained a significant portion of assets in closed-end funds with high-yield or junk bonds. Yet, despite the risks involved, brokers from Chase made about 260 recommendations that were not suitable for clients who had little (if any) investment experience or were averse to high-risk investments. These investors ended up losing about $1.4 million.

Also subject to substantial credit risk and illiquidity were the floating-rate loan funds. Despite the fact that concentrated positions in the fund were unsuitable for specific clients, FINRA says that Chase brokers still recommended these to clients who wanted low risk, very liquid investments or preferred to preserve principal. Because of these allegedly unsuitable recommendations, investors lost almost $500K.

FINRA says that WaMu, Investments Inc., also recommended that customers by floating-rate loan funds, even though these were not appropriate for the investors. The financial firm, which had merged with Chase in 2009, is also accused of not properly training or supervising its employees that sold the investments.

More About UITs
Unit investment trusts involve diversified securities baskets that may contain high-yield bonds. While junk bonds can make greater returns for investors than investment-grade bonds, they also come with a high degree of risk.

More About Floating-Rate Loan Funds
These mutual funds are invested in short-term bank loans for companies with a below investment grade crediting rating. What investors earn will fluctuate depending on what interest rates the banks happen to be charging on the loans.

In the wake of the allegations against Chase, FINRA Executive Vice President and Chief of Enforcement Brad Bennett said that it was key that financial firms provide the proper guidance and training to brokers about product sales while supervising sales practices.

JPMorgan unit fined $1.7M over investment sales, Bloomberg Business Week/AP, November 15, 2011

FINRA Orders Chase to Reimburse Customers $1.9 Million for Unsuitable Sales of UITs and Floating-Rate Loan Funds, FINRA, November 15, 2011


More Blog Posts:
Morgan Stanley Faces $1M FINRA Fine for Excessive Markups and Markdowns on Corporate and Municipal Bond Transactions, Institutional Investor Securities Blog, September 17, 2011

Wedbush Ordered By FINRA Panel To Pay $3.5M to Trader Over Withheld Compensation, Institutional Investor Securities Blog, July 16, 2011

Bank of America Merrill Lynch to Settle UIT Sales-Related FINRA Charges for $2.5 Million, Stockbroker Fraud Blog, August 22, 2010

Continue reading "Chase Investment Services Corporation Ordered by FINRA to Pay Back $1.9M for Unsuitable Sales of Floating-Rate Loan Funds and UITs. " »

November 17, 2011

Morgan Stanley Investment Management Settles SEC Charges Over Allegedly Inappropriate Fee Deal for Over $3.3M

The Securities and Exchange Commission says Morgan Stanley Investment Management (MSIM) set up a fee arrangement that charged a fund (as well as its investors) for services that they weren’t actually getting from another party. MSIM has agreed to pay over $3.3M to settle the charges that it violated securities laws.

As the main investment adviser to The Malaysia Fund, MSIM told the fund’s board of directors and investors that a sub-adviser, an AM Bank Group subsidiary, had been contracted to provide research, advice, and support even though according to the SEC, the sub-adviser did not actually provide these services. Rather, AMMB issued just two monthly reports stemming from information that was available to the public. MSIM did not ask for the reports nor did it use the data provided to manage the fund. Still, the fund’s board renewed the contract with this sub-adviser each year from 1996 to 2007 and this cost investors $1.845 million.

The SEC contends that MSIM failed in its obligation to let board members know information that could help them properly assess the terms of the fund’s contract with the sub-adviser. The Commission also says that MSIM’s involvement and oversight with AMMB was inappropriate. Not only did the investment adviser lack the written procedures to properly oversee its sub-advisers, but also, it lacked the procedures to review the work that AMMB did.

The SEC also claims that since no advisory services were actually provided by AMMB, MSIM ended up submitting false information in its semi-yearly and yearly reports. Per the Commission’s order, MSIM violated sections of the Investment Company Act and Investment Advisers Act of 1940 and Rule 206(4)-7 thereunder.

By agreeing to settle, MSIM isn’t denying or agreeing to the SEC’s findings. It has, however, agreed to a cease and desist from future violations of both acts and Rule 206(4)-7 thereunder. Of the $3.3 million settlement, $1.5 million is a penalty.

Background:
The Malaysia Fund is a closed-end company belonging to Morgan Stanley’s funds complex. MSIM and the Fund entered into a written advisory agreement in 1987. MSIM gives the Fund investment management services, as well as serves as Fund administrator.

Per Section 15(a) of the Investment Company Act, no person can act as a registered investment company’s investment adviser without a written contract that meets certain requirements and has been approved by most voting securities. The original contract can continue to be renewed as long as the Board or most of the outstanding voting securities approves it.

SEC Charges Morgan Stanley Investment Management for Improper Fee Arrangement, SEC, November 16, 2011

SEC charges Morgan Stanley Investment Management with violations, Miami Herald, November 16, 2011


More Blog Posts:
Retirement Fund’s CDO Lawsuit Against Morgan Stanley is Dismissed by District Court, Institutional Investor Securities Fraud, October 27, 2011

Morgan Stanley Faces $1M FINRA Fine for Excessive Markups and Markdowns on Corporate and Municipal Bond Transactions, Institutional Investor Securities Fraud, September 17, 2011

Morgan Stanley Smith Barney Employee Fined and Suspended by FINRA Over Unauthorized Signatures, Stockbroker Fraud Blog, September 19, 2011


Continue reading "Morgan Stanley Investment Management Settles SEC Charges Over Allegedly Inappropriate Fee Deal for Over $3.3M" »

November 11, 2011

UBS Settles for $8M SEC Charges Over the Inaccurate Recordkeeping of Short Sales

Less than a month after UBS Securities, LLC agreed to pay $12M to settle Financial Industry Regulatory Authority claims of supervisory failures and violating regulation SHO in securities short sales, the broker-dealer has now consented to an $8M penalty to settle Securities and Exchange Commission charges over poor recordkeeping related to the short sales.

Under Regulation SHO, broker-dealers have to accurately record how it has given out locates. A locate is a determination of that broker-dealer’s representation that it has set up to borrow, already borrowed, or reasonably believes it is able to borrow the security to settle a short sale. The SEC contends that UBS employees regularly attached a lender’s employee name to such locates even though that person had never been contacted to confirm availability. Thousands of locates were sourced this way.

The Commission also claims that at least for the last four years, UBS’s “locate log” inaccurately showed which locates came from direct confirmation with lenders and which ones were based on electronic feeds. (Although broker-dealers employees usually can access the electronic availability feed that lenders send to broker-dealers, they can’t always depend on the feeds and need to get directly in touch with lenders to confirm the security’s actual availability.) The SEC’s probe found that UBS employed practices made it hard to determine whether it had reasonable grounds for granting locates.

While the Commission’s order did not find that the broker-dealer executed short sales without a reasonable grounds for thinking that it could borrow the stock to complete its settlement obligations, it did find that UBS violated sections of Regulation SHO and the Exchange Act. SEC Director George S. Canelllos noted that it is important that regulators be able to know that a firm’s records are accurate and can serve as evidence that the financial firm is complying with the law in addition to safeguarding “against illegal short selling.” With short sales, the security being sold doesn’t belong to the seller. The short seller must either buy or borrow the security to deliver it.

In addition to the $8M penalty, UBS greed to hire an independent consultant that will review the UBS Securities Lending Desk’s policies, practices, and procedures regarding locate requests. By settling, the broker-dealer is not denying or admitting to wrongdoing.

Regulation SHO
Under Regulation SHO, broker-dealers cannot accept short-sale orders in equity securities or a effect a short sale in one unless the dealer or broker has borrowed the security, become involved in an arrangement to borrow it, or has reasonable grounds to believe it can borrow the security to be delivered when due. Documented compliance must come with this requirement. A “locate” shows that the broker-dealer has fulfilled these requirements. It is fairly common for customers to ask for locates from broker-dealers.

With the FINRA case, the SRO contended that it was supervisory failures that allowed UBS’s employees to commit the Regulation SHO violations. Significant deficiencies with UBS aggregation units were also believed to be factors resulting in locate violations and order-marking.

SEC Charges UBS With Faulty Recordkeeping Related to Short Sales, SEC, November 10, 2011

FINRA Fines UBS Securities $12 Million for Regulation SHO Violations and Supervisory Failures, FINRA, October 25, 2011


More Blog Posts:
UBS Fined $12M for Supervisory Failures and Regulation SHO Violations in Securities Short Sales, Institutional Investor Securities Blog, October 25, 2011

UBS Financial Services Fined $2.5M and Ordered to Pay $8.25M Over Lehman Brothers-Issued 100% Principal-Protection Notes, Stockbroker Fraud Blog, April 12, 2011

UBS Trader Charged with Fraud Related to $2B Trading Loss, Stockbroker Fraud Blog, September 23, 2011

Continue reading "UBS Settles for $8M SEC Charges Over the Inaccurate Recordkeeping of Short Sales" »

November 9, 2011

Citigroup’s $285M Mortgage-Related CDO Settlement with Raises Concerns About SEC’s Enforcement Practices for Judge Rakoff

In Federal District Court today, Judge Jed S. Rakoff expressed concerns about the $285M securities settlement that Citigroup had reached with the Securities Exchange Commission. The financial firm was accused selling $1B in high-risk mortgage-linked collateralized debt obligation that it allegedly knew were at risk of failing. A federal judge must approve the settlement.

Rakoff is the same judge that wouldn’t approve Bank of America’s $33M securities settlement with the SEC for allegedly misleading investors. He later approved a revised settlement of $150 million.

At today’s hearing over the Citigroup deal, Rakoff said the settlement raises issues of concerns about the SEC’s enforcement practices. Approving the agreement would close the case on regulators’ claims that the financial firm.

While Rakoff has not yet made a decision about whether he will approve the settlement, he did question whether the SEC had any genuine desire to find out exactly what happened rather than just settling up. The SEC allows parties to settle without denying or admitting to any wrongdoing. Rakoff also raised concerns about the banks often break the promise they make when settling that they won’t violate securities laws in the future. This is the fifth time that Citigroup has settled securities claims with the SEC over alleged civil fraud. Rakoff also raised questions about why the bank’s settlement involves just a $95 million penalty when investors’ are estimated to have lost $700 million on the CDO.

Even though Citigroup didn’t jump into subprime mortgage loan packaging, it got involved in the housing boom just as that was reaching its heights As the market collapsed, Citigroup sustained over $30 billion in losses, and the government had to bail the bank out twice.

Last year, the financial firm consented to pay $75 million over allegations that it intentionally didn’t notify investors that their investment in the subprime mortgage market were declining in value when the financial crisis hit. Citigroup has since reorganized its risk management function

Citigroup’s $285M Settlement
The SEC claims Citigroup misled clients over a $1 billion derivatives deal involving Class V Funding III, which is a collateralized debt obligation. Not only did the financial firm select the portfolio but it also bet against it. Investors were not told of Citigroup’s conflicting allegiances and they sustained huge losses. Meantime, Citigroup made $126 million from taking a short position against the CDO’s assets, as well as another $34 million in fees.

Judge in Citigroup Mortgage Settlement Criticizes S.E.C.’s Enforcement, NY Times, November 9, 2011

Judge Dredd may scotch $285M Citi settlement: Attorney, Investment News, November 8, 2011


More Blog Posts:
Citigroup to Pay $285M to Settle SEC Lawsuit Alleging Securities Fraud in $1B Derivatives Deal, Institutional Investor Securities Blog, October 20, 2011

FDIC Objects to Bank of America’s Proposed $8.5B Settlement Over Mortgage-Backed Securities, Stockbroker Fraud Blog, August 30, 2011

Bank of America and Countrywide Financial Sued by Allstate over $700M in Bad Mortgaged-Backed Securities, Stockbroker Fraud Blog, December 29, 2010

Continue reading "Citigroup’s $285M Mortgage-Related CDO Settlement with Raises Concerns About SEC’s Enforcement Practices for Judge Rakoff " »

October 31, 2011

MF Global Holdings Ltd. Files for Bankruptcy While Its Broker-Dealer Faces Liquidation and Securities Lawsuit by SIPC

In U.S. Bankruptcy Court in Manhattan, MF Global Holdings Ltd. has filed for Chapter 11 bankruptcy. The holding company for broker-dealer MF Global Inc., which faces liquidation, has listed assets of $41 billion and debt of $39.7 billion.

This is the fifth-largest financial industry public company bankruptcy when measured according to assets. Larger ones were those involving Lehman Brothers Holdings Inc., Conseco Inc., CIT Group Inc., and Washington Mutual Inc. Per BankruptcyData.com., of any public company, it is the eight largest bankruptcies by assets.

Meantime, the Commodity Futures Trading Commission and the Securities and Exchange Commission says that they were notified by MF Global Holdings Ltd. that there might be some deficiencies with certain customer accounts. The regulators are trying to determine whether approximately under $700 million has gone missing.

in U.S. District Court in Manhattan, Securities Investor Protection Corp. is suing MF Global. SIPC wants the united liquidated for the protection of customer assets. Because MF Global is a broker-dealer, it cannot seek bankruptcy protection and either has to liquidate or sell its assets. Sale negotiations have faltered. Potential buyers had included Jeffries & Company and Interactive Brokers. The latter was about to seal the deal but backed out after finding out about the missing monies.

Jon Corzine, who was the former co-chair of Goldman Sachs Group Inc. (GS), runs MF GLOBAL INC. . It owns $6.3 billion of Portuguese, Italian, Irish, Belgian, and Spanish debt. Worries that in light of Europe’s debt crisis it might lose money on the holdings, regulators urged it to raise capital, issue margin calls, make credit downgrades, and file for bankruptcy, which was ultimately determined to be the safest course of action for customers’ protection.

The CFTC reports that as of the end of August, MF Global had $7.2 billion of customer funds in segregated accounts. The broker dealer of equity, derivatives, commodities, and foreign exchange belongs to over 70 financial exchanges and was one of the main dealers allowed to trade US government securities with the New York Fed.

For now, Corzine and MF Global have not been accused of any wrongdoing. Regulators are still trying to determine whether sloppy internal systems caused the money from client accounts to become misallocated or if something more intentional was at play. While it isn’t rare for some funds to be MIA when a financial firm falters, the mount of money missing from the broker-dealer is disturbing.

Unsecured creditors for MF Global include JPMorgan ( less than $80 million of the debt), Headstrong Services LLC, ($3.9 million) , Sullivan & Cromwell LLP ($596,939), CNBC (845,397), Bloomberg Finance LP ($276,064), and Oracle Corp. (302,704).

Related Web Resources:
Regulators Investigating MF Global for Missing Money, NY Times, October 31, 2011

Corzine's B-D could be liquidated, Investment News, November 1, 2011


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Shareholder Securities Lawsuit Against China North East Petroleum Holdings Ltd., is Dismissed by District Court, Institutional Investor Securities Blog, October 30, 2011

Money Laundering Charges Filed Against of Houston Criminal Defense Lawyer Accused of Defrauding Defendants of Over $1M, Stockbroker Fraud Blog, October 28, 2011

UBS Fined $12M for Supervisory Failures and Regulation SHO Violations in Securities Short Sales, Institutional Investor Securities Blog, October 25, 2011


Continue reading "MF Global Holdings Ltd. Files for Bankruptcy While Its Broker-Dealer Faces Liquidation and Securities Lawsuit by SIPC " »

October 27, 2011

Retirement Fund’s CDO Lawsuit Against Morgan Stanley is Dismissed by District Court

A district court judge has dismissed a securities fraud lawsuit filed by the Employees’ Retirement System of the Government of the Virgin Islands against Morgan Stanley (MS). The investor complaint, submitted in 2009, accused the financial firm of defrauding investors.

The pension fund had purchased the notes as part of a CDO that was marketed and set up by Morgan Stanley. The plaintiffs believe that the financial firm worked with Standard & Poor's and Moody's Investor Services to set up “false and misleading Triple-A credit ratings” for the notes. Because the high ratings, the plaintiffs bought the notes at a price that was inflated. The fund contends that the financial firm knew that in fact Morgan Stanley had insider information that the MBS underlying the notes were a lot riskier than they were led to believe and came from lenders that employed flawed underwriting standards. Many of notes were downgraded to junk by the end of 2007. The plaintiffs said the firm purposely got investors to get behind the CDO because it was taking a short position on underlying assets.

The portfolio, which was 92% residential mortgage-backed securities and was backed by $1.2 billion in assets, was exposed to $100 million from New Century Mortgage Corp. and over $130 million in loans from Option One Mortgage Corp. According to the retirement fund, the two homebuyers had poor credit scores. The Libertas collateralized debt obligation went into credit-default swaps, which referenced specific residential MBS.

Per U.S. District Court for the Southern District of New York, the Virgin Islands government pension fund did not adequately plead that Morgan Stanley misled it about the quality of the MBS that were underlying the Libertas CDO. Judge Barbara S. Jones, said the plaintiffs failed to state a fraud claim because its pleadings were not successful in alleging that Morgan Stanley made misstatements about the credit ratings of notes based on the underlying mortgage-backed securities. Also, the court noted that it wasn’t Morgan Stanley that issued the ratings or the statements in the CDO’s operating memorandum disclosures. Because of this, the court said that the plaintiff could not allege that Morgan Stanley had issued to it a materially false statement.

Shepherd Smith Edwards and Kantas founder and securities fraud attorney William Shepherd said, “Our law firm has been successful in maintaining similar cases in arbitration or state courts. I am curious as to just how and why this case was filed, or otherwise ended-up, in a federal court. Pleading requirements under federal securities laws are problematic, and there are a number of other hurdles one must overcome in federal court proceedings. There is no private right of action available under New York’s securities statute (The Martin Act). Other types of claims may be pursued under NY state law.”

Morgan Stanley Wins Dismissal of Virgin Islands Pension Fund’s CDO Lawsuit, Bloomberg, September 30, 2011

Morgan Stanley sued over failed $1.2 billion CDO, Reuters, December 29, 2009


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Stifel, Nicolaus & Co. and Former Executive Faces SEC Charges Over Sale of CDOs to Five Wisconsin School Districts, Stockbroker Fraud Blog, August 10, 2011

Continue reading "Retirement Fund’s CDO Lawsuit Against Morgan Stanley is Dismissed by District Court " »

October 25, 2011

UBS Fined $12M for Supervisory Failures and Regulation SHO Violations in Securities Short Sales

UBS Securities has agreed to pay FINRA a $12 million fine over violations that led to millions of short sale orders of securities being mismarked or entered into the market even though there was no reasonable basis for thinking that they could be delivered or borrowed. FINRA says that UBS did not properly supervise the short sales and violated Regulation SHO. In settling, the financial firm is not denying or admitting to the charges. UBS has, however, agreed to an entry of FINRA’s findings.

Per Reg SHO, a broker must have reason to believe that a security can be delivered or borrowed before allowing a short sale order. Financial firms have to document this “locate information” prior to the sale happening so as to decrease the amount of potential failed deliveries. Broker-dealers also are supposed to designate an equity securities sale as either short or long.

Short sales involve sellers that don’t own the security that they are selling. To deliver the security, the short seller has to either borrow or buy it.

FINRA says that UBS had a flawed Reg SHO supervisory system when it came to locates and marking sale orders and that this resulted in supervisory failure, which played a role in serious regulation failures showing up throughout the investment bank’s equities trading business. In addition to putting into the marketplace millions of short order sales without locates (involving supervisory and trading systems, accounts, desks, strategies, the financial firm’s technology operations, and procedures), millions of sale orders were also mismarked—many of them as “long” —which led to more Reg SHO violations. FINRA also claims that “significant deficiencies” involving UBS’s aggregation units could have played a role in more locate violations and significant order-marking.

Because of UBS’s alleged supervisory failures, many of the violations weren’t fixed or detected until after the FINRA probe prompted the financial firm to evaluate its systems and procedures. UBS has since taken steps to upgrade these in an effort to have stricter Reg SHO controls.

Per FINRA Chief of Enforcement Brad Bennett, financial firms are responsible for making sure that they have the proper supervisory and trading systems so that naked short selling that is “potentially abusive” doesn’t happen. He noted that the violations committed by UBS could have hurt the market’s integrity.

Supervisory failures is a type of broker misconduct. It is a brokerage firm’s responsibility to create and execute written procedure that do the job of monitoring its employees’ activities so securities fraud and mistakes don’t happen that can cause investors to suffer losses and/or the market to go into chaos.

FINRA Fines UBS Securities $12 Million for Regulation SHO Violations and Supervisory Failures, FINRA, October 25, 2011

FINRA Fines UBS $12 Million Over Short Sales, AdvisorOne, October 25, 2011

FINRA


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Continue reading "UBS Fined $12M for Supervisory Failures and Regulation SHO Violations in Securities Short Sales" »

October 22, 2011

California Investigating Whether Bank of America & Countrywide Financial Used False Pretenses to Sell Mortgage-Backed Securities to Investors

Not long after bowing out of talks over a possible $25 billion dollar settlement between state and federal officials and the country’s largest banks (including Bank of America Corp, Citigroup, and JP Morgan Chase & Co.) over alleged foreclosure abuses, California’s Attorney General’s office has subpoenaed BofA as part of its investigation into whether it and subsidiary Countrywide Financial employed false pretenses to get private and institutional investors to purchase risky mortgage-backed securities. By walking out of the negotiations on the grounds that the banks weren’t offering a big enough settlement, the state of California has given itself the option of arriving at a larger settlement.

California Attorney General Kamala D. Harris has called the proposed settlement “inadequate” for the homeowners in her state. She has also has set up a mortgage fraud strike force tasked with investigating all areas of mortgage fraud.

Countrywide is credited with playing a role in the housing boom and its later collapse because of subprime loans it gave clients with poor/no credit histories, mortgages that let borrowers pay such a small amount that their loan balances went up instead of down, and “liar” loans that were issued without assets and income being confirmed. Also, a lot of the most high-risk loans were bundled up to support private-label securities that became highly toxic for investors and banks.

Meantime, Federal and state officials are trying to get California to rejoin the larger talks. Just this week, they presented the possibility of helping troubled creditworthy owners refinance their loans. California’s involvement is key for any deal because the state so many borrowers that owe more than the value of their homes, are in foreclosure, or are running behind on mortgages.

New York, too, has backed out of the group—a move that proved to be another blow for negotiations, as well as for the Obama Administration. Officials from other states, such as Nevada, Delaware, Minnesota, Massachusetts, and Kentucky, have also expressed worry about the breadth of the settlement and whether all potential misconduct has been investigated.

With its acquisition of Countrywide in 2008, BofA has sustained high losses over settlements as a result of its subsidiary’s loans. According to the Los Angeles Times, these settlements include:

• A promise to forgive up to $3 billion in principal for Massachusetts Countrywide borrowers
• $600 million to former Countrywide shareholders
• Billions of dollars to Freddie Mac and Fannie Mae over buybacks of bad home loans
• $8.5 billion to institutional investors over the repurchase of Countrywide mortgage-backed bonds
• $5.5 billion reserved for mortgage bond investors with similar claims

California reportedly subpoenas BofA over toxic securities, Los Angeles Times, October 20, 2011

California Pulls Out of Foreclosure Talks, Wall Street Journal, October 1, 2011


More Blog Posts:
$63 Million Mortgage-Backed Securities Lawsuit Against Bank of America is Second One Filed by Western and Southern Life Insurance Co. Against the Financial Firm, Institutional Investor Securities Blog, August 29, 2011

Federal Home Loan Banks Say Countrywide Financial Corp Mortgage Bond Investors May Be Owed Way More than What $8.5B Securities Settlement with Bank of America Corp. is Offering, Institutional Investor Securities Blog, July 22, 2011

Bank of America and Countrywide Financial Sued by Allstate over $700M in Bad Mortgaged-Backed Securities, Stockbroker Fraud Blog, December 29, 2010

Continue reading "California Investigating Whether Bank of America & Countrywide Financial Used False Pretenses to Sell Mortgage-Backed Securities to Investors" »

October 20, 2011

Citigroup to Pay $285M to Settle SEC Lawsuit Alleging Securities Fraud in $1B Derivatives Deal

Citigroup has consented to pay $285 million to settle a Securities and Exchange Commission complaint accusing the bank of misleading investors in a $1 billion derivatives deal—a collateralized debt obligation called Class V Funding III. It was Citigroup that chose the assets for the portfolio that it then bet against. Investors were not told that Citigroup’s interests were contrary to theirs. The $285 million will go to the deal’s investors.

According to the SEC, Citigroup had significant influence over the $500 million of portfolio assets that were selected. It then took a short position against the assets, standing to profit if they dropped in value. All 15 investors were not made aware of any of this and practically all of their investments (in the hundreds of millions of dollars) were lost when the CDO defaulted in under 9 months after it closed on February 28, 2007. Credit ratings agencies had downgraded over 80% of the portfolio.

Financial instrument insurer Ambac, which was the deal’s biggest investor and had taken on the role of assuming the credit risk, was forced to pay those who bet against the bonds. In 2009, Ambac sought bankruptcy protection.

Meantime, Citigroup made about $126 million in profits from the short position and earned about $34 million in fees. S.E.C.’s division of enforcement director Robert Khuzami says that under the law, Citigroup was required to give these CDO investors “more care and candor.”

Per the SEC’s civil action, Citigroup employee Brian Stoker is the one that mainly put the deal together, while Credit Suisse portfolio manager Samir H. Bhatt was primarily in charge of the transaction. Credit Suisse was the CDO transaction’s collateral manager.

Stoker is fighting the SEC’s case against him. Meantime, Bhatt has settled the SEC’s charges by agreeing to pay $50,000. He has also been suspended from associating with any investment adviser for six months. Credit Suisse Group AG settled for $2.5 million.

As part of this settlement, Citigroup will pay a $95 million fine. It was just last year that the financial firm agreed to pay $75 million over federal claims that it purposely didn’t let investor know that their subprime mortgage investments were losing value during the financial crisis. Citigroup has said that since then, it has revamped its risk management function and gone back to banking basics.

Last year, Goldman Sachs Group Inc. agreed to settle for $550 million allegations that it did tell investors that the hedge fund that helped choose a CDO’s assets also was betting against it. JPMorgan Chase & Co. settled similar allegations earlier this year for $153.6 million.

Citigroup to Pay $285 Million to Settle SEC Claims on Mortgage-Linked CDO, Bloomberg, October 19, 2011

Citigroup to Pay Millions to Close Fraud Complaint, NY Times, October 19, 2011


Related Blog Resources:
Goldman Sachs Settles SEC Subprime Mortgage-CDO Related Charges for $550 Million, Stockbroker Fraud Blog, July 30, 2010

JPMorgan Chase to Pay $211M to Settle Charges It Rigged Municipal Bond Transaction Bidding Competitions, Stockbroker Fraud Blog, July 9, 2011

Citigroup Global Markets to Pay Back $95.5M Over ARS Sold to LandAmerica Exchange Fund, Institutional Investors Securities Blog, November 11, 2010

Continue reading "Citigroup to Pay $285M to Settle SEC Lawsuit Alleging Securities Fraud in $1B Derivatives Deal " »

October 16, 2011

SIFMA Offers Up Best Practices for How Financial Firms Can Interact with Expert Networks

The Securities Industry and Financial Markets Association is recommending a number of best practices for financial firms that work with Expert Networks and their Consultants.
According to SIFMA, expert networks are entities that receive a fee to refer industry professionals, known as consultants, to third parties. Although the acknowledges how helpful these networks can be in helping broker-dealers implement and design investment strategies while offering advice, information, market expertise, analysis, or other expertise in making investment decisions, SIFMA General Counsel Ira Hammerman said in a release that these best practices should help with compliance while helping avoid what could like “impropriety.” The government has recently targeted them when investigating insider trading.

Among the recommendations:
1) Establishing policies and procedures for how to use Expert Networks and Consultants. SIFMA is recommending a risk-based approach for figuring out what controls should be put in place.

2) Providing training for associated persons that deal with Expert Networks and Consultants on matters such as insider training, information barriers, confidential information, conflicts of interest, or material, non-public information (MNPI).

3) Ensuring that supervisory oversight is integrated into a financial firm’s use of Expert Networks and associated consultants.

4) Setting up policies and procedure that mandate that financial firms act quickly on “red flags” that may indicate there is a possibility of disclosure of confidential information of conflicts of interest or MNPI.

5) Establishing written agreements with Expert Networks over arrangements that are substantial or repeating in nature, such as those involving making sure that Consultants are checked for securities law violations, preventing Consultants from revealing MNPI or Confidential Information, requiring that Consultants undergo periodic training or communication about certain restrictions, and requiring that Consultants are periodically certified as to the adherence of these limits.

6) Setting up procedures on how to advice Expert Networks-affiliated Consultants about Confidential Information and MNPI.

7) Establishing procedures for getting non-confidential, relevant information from an Expert Network or one of its Consultants about employment and arrangements where a Consultant may have access to Confidential Information or MNPI, as well as setting up appropriate controls for assessing risks of dealing with Consultants that work with Expert Networks that have Confidential Information or MNPI.

In providing these best practices, however, SIFMA wants to make clear that these are only intended as guidance and are not mandates for how financial firms must work with Expert Networks and Consultants.

If you are an investor that has suffered losses you believe were caused by broker misconduct, you should talk to a securities fraud attorney right away.

More on the SIFMA best practices, SIFMA


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Micah S. Green, Expected New CEO of Largest Securities Industry Group, Resigns During Scandal, Stockbroker Fraud Blog, May 18 2007

Continue reading "SIFMA Offers Up Best Practices for How Financial Firms Can Interact with Expert Networks" »

October 12, 2011

SEC Says Former United Commercial Bank Executives Concealed Millions of Dollars in Losses that Caused Bank’s Failure

The Securities and Exchange Commission has filed securities fraud charges against former United Commercial Bank executives accusing them of concealing loss from assets and loans from auditors that resulted in UCBH Holdings Inc., its public holding company, to understate its operating losses in 2008 by at least $65 million. As the bank’s loans continued to go down in value, the financial firm went on to fail and the California Department of Financial Institutions was forced to shut it down. This resulted in a $2.5 billion loss to the Federal Deposit Insurance Corporation’s insurance fund.

Per the SEC’s complaint, former chief operating officer Ebrahim Shabudi, chief executive officer Thomas Wu, and senior officer Thomas Yu were the ones that hid the bank’s losses. All three men are accused of delaying the proper recording of the loan losses and making misleading and false statements to independent auditors and investors and concealing from them that there had been the major losses on a number of large loans, property appraisals had gone down, property appraisals had been reduced, and loans were secured by worthless collateral.

Also accused of securities fraud by the SEC is former United Commercial Bank chief financial officer Craig On. The Commission said that he aided in the filing of false financial statements and misled outside auditors. To settle the SEC charges, On has agreed to pay a $150,000 penalty. He also agreed to an order suspending him from working before the SEC as an accountant for five years. He is permanently enjoined from future violations of specific recordkeeping, reporting, anti-fraud, and internal controls provisions of federal securities laws.

Criminal charges have also been filed against Shabudi and Wu. A grand jury indicted both men of conspiring to conceal loan losses, misleading regulators and investors, and lying to external auditors. Wu and Shabudi allegedly used accounting techniques and financial maneuvers, including concealing information that would have shown its decline, understating loan risks, and falsifying books, to hide the fact that that the bank was in trouble.

This is the first time such charges have been made against executives who worked at a bank that obtained government money—$298 million from TARP—to keep it running during the economic collapse.

Prior to its demise, United Commercial Bank, which was the first US bank to acquire a bank in China was considered a leader in the industry. It amassed assets of up to $13.5 billion in 2008. However, it also soon $67.7 million—way down from its $102.3 million profit in 2007. East West Bank acquired United Commercial Banks after regulators took it over in 2009.

Meantime, the FDIC is taking steps to bar 10 former United Commercial Bank officers from ever taking part in the banking industry.

SEC Charges Bank Executives With Hiding Millions of Dollars in Losses During 2008 Financial Crisis, SEC, October 11, 2011

Read the SEC Complaint (PDF)

Feds file charges against execs of failed United Commercial Bank, Mercury News, October 11, 2011


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Continue reading "SEC Says Former United Commercial Bank Executives Concealed Millions of Dollars in Losses that Caused Bank’s Failure" »

October 7, 2011

Don’t Create Uniform Fiduciary Standard for Broker-Dealers and Investment Advisers, Say Some Republicans to the SEC

House Financial Services subcommittee Chairman Scott Garrett (R-N.J.) is encouraging the Securities and Exchange Commission to refrain from rulemaking for establishing a uniform fiduciary standard that would apply to both broker-dealers and investment advisers unless the federal agency can come up with adequate evidence to support this action. Garrett made his views known at a Subcommittee on Capital Markets and Government Sponsored Enterprises oversight hearing. Committee Chairman Spencer Bachus (R-Ala.) and Rep. Ed Royce (R-Calif.) also echoed these same sentiments.

Says Shepherd Smith Edwards & Kantas LTD LLP Founder and Securities Fraud Attorney William Shepherd, “Washington is again bowing to Wall Street pressure to exempt them from liability for their wrongful acts. It is incredible that, considering the unmitigated investment fraud perpetrated on the American public in the last decade, Congress would even consider thwarting the very investors who elected them from receiving the justice they deserve!”

Under the Dodd-Frank Wall Street Reform and Consumer Protection Act’s Section 913, the SEC has the authority to start up the rulemaking for this uniform fiduciary standard but is under no obligation. Earlier this year, the SEC put out a report recommending that it take up this rulemaking.

While Garrett questioned whether “hard factual data” existed demonstrating that a suitability standard is not enough to protect investors, others noted that it is a fiduciary standard and not a suitability standard that addresses cost, which impacts investors’ long-term performance. The majority of those that testified at the hearing also supported a uniform fiduciary standard that would apply to both investment advisers and broker-dealers. Consumer Federation of America director of investor protection Barbara Roper said that investors lose money when the person giving them investment advice must only meet a suitability standard and not a fiduciary one.

Meantime, while financial industry representatives have expressed support for a uniform fiduciary standard for investment advisers and broker-dealers, they don’t believe that it could be properly executed under the 1940 Investment Advisers Act.

Securities Industry and Financial Markets Association senior managing director and general counsel Ira Hammerman has said that the Act is unable to work with the business models for broker-dealer, while Financial Services Institute government affairs director and general counselor David Bellaire said that imposing a 1940 Act fiduciary duty on broker-dealers would decrease investor choice and decrease services, which would all significantly affect the market.

Currently, broker-dealers have to abide by a suitability standard, which is more lenient than the fiduciary duty standard for investment advisers. SEC Chairman Mary Schapiro has told staff that they need to recommend a proposal before the year is over.

Also up for discussion was the draft that Senator Bachus released last month mandating that there be at least one self-regulatory organization tasked with overseeing investment advisers. The Financial Industry Regulatory Authority is a top candidate for the role and has expressed interest in taking on this new responsibility. However, not everyone is a supporter of FINRA becoming SRO.

Republicans Urge SEC Not to Take Up Rulemaking on Uniform Fiduciary Standard, BNA, September 14, 2011


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FINRA Will Customize Oversight to Investment Adviser Industry if Chosen as Its SRO, Stockbroker Fraud Blog, April 8, 2011

Continue reading "Don’t Create Uniform Fiduciary Standard for Broker-Dealers and Investment Advisers, Say Some Republicans to the SEC" »

October 4, 2011

Govt.'s Mortgage-Backed Securities Case Against JPMorgan Case Leads to Lawsuit Against 23 Former Washington Mutual Employees

The federal government has fi