July 20, 2016

HSBC Executives Are Charged with FX Rigging

US prosecutors have arrested HBSC (HSBC) executive Mark Johnson for his alleged involvement in a front-running scam. Johnson is the global head of foreign exchange cash trading at HSBC Bank, which is a HSBC Holdings subsidiary. Also facing criminal charges is Stuart Scott, who is the former head of HSBC foreign exchange cash trading for Europe, Africa, and the Middle East. He was let go in 2014. Johnson and Scott are the first individuals to face criminal charges in the forex rigging probe.

According to the criminal complaint, which charges the two men with conspiracy to commit wire fraud, in 2011 Scott and Johnson inappropriately used information that the bank’s client gave them about a planned sale of one of the client’s subsidiaries. The client had retained HSBC to execute the foreign exchange transaction, which necessitated changing about $3.5B in sale proceeds into British Pound Sterling.

HSBC was supposed to keep the details of this pending transaction confidential. However, Scott and Johnson allegedly misused this information, buying Pound Sterling for the bank’s proprietary accounts, which they held until the transaction went through. This caused the transaction to take place in a way intended to compel the Pound Sterling’s price to jump up.

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July 9, 2016

Four Former Barclays Traders Get Prison Terms for Libor Rigging

Four ex-Barclays (BCS) bankers who were convicted for conspiring to manipulate global benchmark interest rates have been sentenced to time behind bars for their crimes. The defendants and their prison terms are: Jay Merchant, for six-and-a-half years; Jonathan Mathew for four years; Peter Johnson for four years, and Alex Pabon for two years and nine months.

While Merchant, Mathew, and Pabon were convicted of their crimes, Johnson, a former senior dollar Libor submitter and the ex-head of dollar cash trading, pleaded guilty in the case against him in 2014. They all were charged with conspiracy to defraud involving Libor rigging to benefit their banks and one another as they defrauded others.

The judge who presided over the former Barclays traders’ case accused them of abusing their position, committing the offenses more than once over a significant period of time, and compromising the banking industry. All of the men will serve half their prison terms before being released on license.

The manipulation of Libor, the London interbank offered rate, and other benchmark interest rates led to a global probe that has resulted in hefty fines for the firms whose brokers colluded together to rig rates. In 2012, Barclays admitted that it let its derivatives traders rig Libor rates. The bank paid $450M to authorities in the US and Europe to settle charges. Collectively, the banks accused in the Libor manipulation scandal have paid billions of dollars in penalties. There have been at least 13 convictions.

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July 7, 2016

Goldman Sachs Settles CDO Fraud Lawsuit Brought by Basis Yield Alpha Fund

Goldman Sachs Group Inc. (GS) and Basis Capital’s Basis Yield Alpha Fund have reached an agreement to settle the $1B collateralized debt obligation fraud lawsuit brought by the Australian hedge fund against the bank several years ago. The Basis Yield Alpha Fund accused Goldman Sachs of making false statements related to its marketing of the Timberwolf, a mortgage-linked investment, and the Point Pleasant collateralized debt obligation (CDO). (The Timberwolf investment was named in the 2011 U.S. Senate report that found that Goldman misled clients about mortgage-backed securities.)

The Australian hedge fund, in its complaint, claimed that Goldman falsely claimed that the market for CDO investments had become stable even though it knew that was not the case. These particular securities dropped in value within weeks of purchase by the fund.

The Basis Yield Alpha Fund is convinced that Goldman sold the securities to rid itself of the toxic subprime mortgages while making money by shorting the securities. The fund sought repayment of over $67M it claims was lost by investing in the collateralized debt obligations, as well as $1B in punitive damages. Goldman, which argued that the fund’s losses were caused by the demise of the housing market and not because of any alleged misrepresentations, claimed that the Australian hedge fund filed its CDO fraud lawsuit to try to get the bank to pay these losses.

A federal judge had previously dismissed the case but the Basis Yield Alpha Fund then went to state court to sue Goldman. A judge denied the firm’s next attempt to get the complaint thrown and an appeals court upheld that decision two years ago.

Our CDO fraud law firm represents institutional investors and high net worth individual investors seeking to recover their investment losses. Contact The SSEK Partners Group today.

Goldman Sachs Settles Suit Over CDO That Became Crash Symbol, Bloomberg, June 14, 2016

Goldman Settles Mortgage Suit with Australian Hedge Fund, MSN.com, June 6, 2016

June 30, 2016

Raymond James Sued Over $350M Development Fraud, Settles with Vermont for $5.95M

A receiver appointed by the U.S. Securities and Exchange Commission has filed a lawsuit against Raymond James Financial Inc. (RJF) over its alleged involvement in a $350M development fraud. The case stems from a complaint that the regulator filed earlier this year against William Stenger and Ariel Quiros. Along with their companies, the two of them are accused of making omissions and false statements when raising funds from foreign investors to supposedly build a biomedical research facility and ski resort facilities.

Raymond James and its employees are not defendants in that lawsuit. However, the firm is mentioned in the complaint to have received wire transfers starting in 2008 from a Vermont bank. The money went to brokerage accounts at Raymond James and they were in Quiros’s name. The funds were from investors and intended for the Peak resort in Vermont.

Quiros went on to borrow against the money in his Raymond James accounts that included high interest margin loans. He purportedly used investor money to pay almost $2.5M in margin interest loans to Raymond James.

Continue reading "Raymond James Sued Over $350M Development Fraud, Settles with Vermont for $5.95M" »

June 29, 2016

Securities Headlines: SEC Announces $17M Whistleblower Lawsuit, Delta Employees File 401(K) Lawsuit Against Fidelity, Blackstone President Says Hedge Funds Could See 25% Asset Loss, and Deutsche Bank is Fined $6M By FINRA

SEC Issues Its Second Largest Whistleblower Award
U.S. Securities and Exchange Commission has awarded the ex-employee of a company more than $17M for a whistleblower tip that helped move the regulator’s probe forward, ultimately resulting in a successful enforcement action against that company. This is the second largest award that the regulator has issued since it started its whistleblower program in 2011.

To date, the program has awarded over $85M to 32 whistleblowers. The largest SEC whistleblower award so far has been $30M and it was issued in 2014. In the last five months alone, five whistleblowers have been awarded over $26M.

Under the SEC whistleblower program, whistleblowers may be entitled to receive a monetary award if the information they’ve voluntarily given the regulator is original and helpful, resulting in an enforcement action, and the monetary sanction arrived at is greater than $1M. In such cases the whistleblower may be entitled to 10-30% of the funds collected. The payments come out of an investor protection fund paid for by monetary sanction payments issued to the SEC for securities law violations.


Delta 401(K) Participants File Lawsuit Against Fidelity
Fidelity Investment units are now defendants in a 401(K) lawsuit filed by participants in a Delta Air Lines Inc. retirement plan. The plaintiffs want class action status.

They claim that Financial Engines, which was retained to give investment advice to the Delta Family-Care Savings Plan, is paying Fidelity a substantial chunk of the fees it receives from the 401(k) plan members. This has purportedly inflated the cost of investment advice services that are essential to the plan and is a violation of Fidelity’s fiduciary duty. They also claim that Fidelity’s management of BrokerageLink, a self-directed brokerage account, acquires share classes with high expense ratios that pay the broker dealer significant revenue-sharing payments. The plaintiffs believe Fidelity is “effectively” utilizing the assets of the plan to its benefit.

Fidelity claims the allegations are meritless.


Continue reading "Securities Headlines: SEC Announces $17M Whistleblower Lawsuit, Delta Employees File 401(K) Lawsuit Against Fidelity, Blackstone President Says Hedge Funds Could See 25% Asset Loss, and Deutsche Bank is Fined $6M By FINRA" »

June 27, 2016

401K Lawsuits: MassMutual Settles with Employees for $31M and TransAmerica Settles for $3.8M

Massachusetts Mutual Life Insurance Co. has arrived at a nearly $31M settlement with plaintiffs of a class action securities case. They are accusing the retirement service provider of charging excessive fees in its retirement plans. The 401k lawsuit involved MassMutual’s $200M Agent Pension Plan and its $2.2B Thrift Plan. The settlement includes a $30.9M payment and non-monetary provisions that would benefit participants of the plan.

The case is Dennis Gordan et al v. Massachusetts Mutual Life Insurance Co. et al, and plaintiffs include ex-plan participants and current ones. They are accusing defendants of breaching their fiduciary duty under ERISA through the charging of excessive administrative fees and offering a costly and unnecessarily risky fixed-income choice, as well as investments that were expensive despite not performing well.

The non-monetary provisions of the settlement include the hiring an independent consultant to make sure that plan participants are not asked to pay excessive fees for record-keeping services or record-keeping fees based on asset percentages, a review a of all investment options, and the consideration of a minimum of at least three finalists when making an investment selection.

The settlement has been submitted to a district court for preliminary approval. MassMutual has not admitted to liability or fault despite settling.

Continue reading "401K Lawsuits: MassMutual Settles with Employees for $31M and TransAmerica Settles for $3.8M" »

June 24, 2016

Financial Firm Settlements: BNY Mellon Settles Yen Libor and European Tibor Rigging Claims for $30M & HSBC Holdings to Pay Investors $35M for FX violations

HSBC Holdings Plc (HSBC) will pay $35M to resolve an anti-trust lawsuit accusing the bank of Euroyen Tibor and yen Libor rigging. The securities case, brought by Sonterra Capital Master Fund, Hayman Capital Management, California State Teachers’ Retirement System, lead plaintiff Jeffrey Laydon, and other institutional investors, accused HSBC and other banks of manipulating benchmark rates over several years.
According to the investor lawsuit, Laydon sustained losses in the thousands of dollars in 2007 when shorting the Euroyen Tokyo Interbank Offered Rate (Euroyen Tibor).

As part of the settlement, HSBC will provide attorney proffers detailing facts that the bank uncovered during its own probes into Euroyen Tibor and Euroyen Libor manipulation, witness statements made by its employees, specific documents that it has given to the Federal Reserve Board of New York and regulators, and other information.

A judge has to approve the deal.

Continue reading "Financial Firm Settlements: BNY Mellon Settles Yen Libor and European Tibor Rigging Claims for $30M & HSBC Holdings to Pay Investors $35M for FX violations " »

June 17, 2016

HSBC Holdings to Pay $1.575B In Mortgage Lending Lawsuit

HSBC Finance Corp., an HSBC Holdings Plc. (HSBC) unit, will pay $1.575B to settle a shareholder class action securities case that was brought in 2002. The case involves Household International, the consumer finance business that HSBC purchased in 2003. Household International is now HSBC Finance.

Household shareholders accused the company of inflating its share price by hiding its poor lending practices and bad quality loans. When Household consented to pay U.S. state regulators $484M to resolve predatory lending claims in 2011, its share price dropped by over 50%.

HSBC became the defendant against claims by Household shareholders when it purchased the company for $14.2B. That deal eventually led to write-downs for tens of billions of dollars for bad loans in the wake of the subprime mortgage crisis.

Shareholders won a $2.46B judgment against the British Bank in 2013. In May 2015, however, a federal appeals court tossed the award and demanded a new trial to decide whether “nonfraud factors” that were specific to the firm played a part in the Household's share price dropping.


Continue reading "HSBC Holdings to Pay $1.575B In Mortgage Lending Lawsuit" »

June 13, 2016

Libyan Fund Accuses Goldman Sachs of Financial Exploitation

In the High Court in London, the trial in the lawsuit brought by the Libyan Investment Authority (LIA) against Goldman Sachs (GS) is under way. The sovereign wealth fund claims that in 2008 the Wall Street bank misled it about a number of derivatives transactions, causing it to lose $1.2B when the contracts matured five years ago. The transactions are tied to Citigroup (C) stock and other companies' stmck.

Court filings state that LIA had wanted to buy stakes in global companies that it could potentially partner up with in the future for development. The sovereign wealth fund was set up in 2006 to manage money from the country’s oil fields after Libya was taken off the U.S. government’s list of states that were considered terrorist sponsors.

Goldman made over $200M on the transactions. Meantime, the Libyan fund lost its investment when the economic crisis caused stock prices to drop.

Goldman disputes the allegations made by the Libyan Investment Authority, which claims that it was an unsophisticated investor that the firm took advantage of, persuading it to invest in transactions that it didn’t want or understand. In court, a lawyer for the sovereign wealth fund accused Goldman of using gifts, trips to Morocco, London, and Dubai, training programs, and an internship for the brother of the deputy executive officer of the fund to get the fund to invest.

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June 4, 2016

Citibank Settles Libor, Euroyen Tibor, and YenLibor Rigging Allegations With $425M Fine

Citibank (C) is the first U.S. bank to settle allegations of benchmark interest rate manipulation. To resolve the Commodities Futures Trading Commission claims that it manipulated the London Interbank Offered Rates (LIBOR), Citibank will pay $250M. It will pay $175M to resolve Euroyen Tibor and Yen Libor rigging claims. Also settling charges within this case are Citibank Japan Ltd (CJL) and Citigroup Global Markets Japan Inc. (CGMJ).

The CFTC claims that between ’07 and ‘12 Citigroup had specific traders input false information so their trading positions would benefit. It also claims that the bank’s affiliates issued false reports related to dollar Libor rates and ISDAFIX benchmark rates during the financial crisis so that its reputation would be protected.

Citigroup Global Markets Japan is charged with trying to rig Euroyen TIBOR and Yen LIBOR. Citibank Japan Ltd. is accused of engaging in false reporting related to the Euroyen TIBOR so that derivatives trading positions priced according to Euroyen TIBOR and Yen LIBOR would purportedly benefit.

Libor, along with the Tokyo Interbank Offered Rate (Tibor), is what banks use to establish the cost of borrowing from one another. Libor is also used to set the rates on mortgages, credit cards, derivatives, and other financial products.

Continue reading "Citibank Settles Libor, Euroyen Tibor, and YenLibor Rigging Allegations With $425M Fine" »

June 1, 2016

Female Executive Accuses Bank of America of Misleading Trading Clients, Including Citigroup and Blackstone

Megan Messina is suing Bank of America (BAC). She is a managing director at the bank’s structured credit products division. In her lawsuit, Messina claims that the bank tried to get rid of her when she questioned the way some clients were treated and complained about the sexism she allegedly experienced. She also contends that clients such as Citigroup (C) and Blackstone Group LP (BX) were misled by her employer.

According to Bloomberg, in her complaint, Messina provides examples of alleged misconduct at the bank, including coworkers front-running trades made by clients, such as Citigroup, while keeping information from other clients, such as Blackstone. Messina claims that Bank of America apologized to client Anchorage Capital Group after the bank purposely provided the firm with false information. Bank of America also purportedly apologized to Pimco for “doctoring” trading records.

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May 26, 2016

Raymond James to Pay $17M Fine for Anti-Money Laundering Compliance Failures

The Financial Industry Regulatory Authority is fining Raymond James Financial Inc. http://www.securities-fraud-attorneys.com(RJFS) and Raymond James & Associates (RJA) $17M. The self-regulatory organization is accusing the company of widespread failures related to anti-money laundering compliance.

According to FINRA, from ’06 to ‘14 the processes that the firm had in place to stop money laundering failed to line up with its business growth. The SRO said that the company instead depended on “patchwork” systems and procedures to identify suspect activity. Because of this, Raymond James was unable to notice certain “red flags” that arose.

FINRA also said that both firms did not perform the mandated due diligence and risks reviews for foreign institutions. RJFS is accused of not putting into place and maintaining a Customer Identification Program that was adequate.

It was just in 2012 that Raymond James Financial Services was subject to sanctions for its inadequate procedures related to anti-money laundering. The firm said that it would evaluate its AML procedures and programs.

Also sanctioned and fined is former Raymond James Anti-Money Laundering Compliance Officer Linda Busby. She is suspended for three months and must pay a $250K fine. FINRA said that along with the two firms, she did not succeed in setting up AML programs geared toward the two companies, respectively.

By settling, Raymond James Financial Services, Raymond James & Associates, and Busby are not denying or admitting to the FINRA charges.

It is important that financial firms have systems in place to identify suspect transactions that may be signs of money laundering.

Continue reading "Raymond James to Pay $17M Fine for Anti-Money Laundering Compliance Failures" »

May 23, 2016

Investors Can Sue Bank of America’s Merrill Lynch For Illegal Short Selling in State Court, Rules U.S. Supreme Court

The U.S. Supreme Court has issued a unanimous ruling allowing investors to sue Bank of America Corp’s Merrill Lynch (BAC) and other brokerage firms in New Jersey state court even though the lawsuit cites federal laws. The plaintiffs, who are Spectrum Group International Inc. investors, claim that they sustained investment losses because the brokers engaged in illegal short-selling. They are invoking NJ’s RICO statute in their case. RICO is the Racketeer Influenced and Corrupt Organizations Act. It is a federal law that allows for victims of organized crime to seek civil damages. It also provides provisions for other extended penalties. Bank of America Merrill Lynch claims that this naked short selling case is meritless.

The plaintiffs are accusing Merrill Lynch and other broker-dealers of playing a part in causing Spectrum’s market capitalization to drop by $800M in 11 months. The investors said that the firms did this by helping naked short sellers who bet against the company, causing its share price to plunge.

Naked Short Sales
A short sale involves the use of borrowed shares to bet that a security’s price with drop. The short sale is naked if the trader doesn’t borrow the shares required to make the transaction happen. Under Regulation SHO, naked short sales cannot be used to manipulate a security. Still, lawsuits over illegal naked short selling haven’t done too well in federal court.

Continue reading " Investors Can Sue Bank of America’s Merrill Lynch For Illegal Short Selling in State Court, Rules U.S. Supreme Court" »

May 19, 2016

Former UBS Trader is Helping Prosecutors Pursue Forex Rigging Cases Against Individuals

Bloomberg reports that according to sources, Matt Gardiner, a former UBS Group AG (UBS) trader who was part of the instant-messaging group the federal government identified when obtaining guilty pleas from Barclays PLC (BARC), Royal Bank of Scotland (RBS), UBS, Citigroup (C), and JPMorgan Chase & Co.(JPM) over currency-rate manipulation, is working with prosecutors to pursue certain individuals over the rigging allegations. The Cartel chat room to which Gardiner belonged existed from at least 12/07 through 1/013.

According to prosecutors, traders who were part of the chat room communicated in code to share information about orders made by clients and to coordinate euro-dollar trades so that they could make more money. Having someone like Gardiner working with the government could help prosecutors understand what the traders were doing together. It’s unknown at this time whether his cooperation is part of a prosecution deal he may have reached.

His former firm, UBS, was granted immunity from antitrust charges because it was the first financial institution to report the market misconduct. Meantime, the banks whose traders were in the Cartel have turned over chat transcripts to the U.S. Department of Justice and foreign authorities. A lot of the chats occurred right before daily fixes, which is the short period of time when data providers are able to get a picture of trading in order to establish daily rates.

To date, no individuals who were part of this Cartel have been chart.

Our securities lawyers represent investors seeking to recoup their money that they lost due to fraud, negligence, or other wrongful misconduct. Contact The SSEK Partners Group today.

Ex-UBS Trader in ‘Cartel’ Said to Help U.S. in Currency Probe, Bloomberg, April 22, 2016

Forex traders at heart of ‘Cartel’ chat rooms, Financial Times, November 13, 2014

May 17, 2016

Wells Fargo to Pay UBS $1M Over Broker Departure

A FINRA arbitration panel has ordered Wells Fargo Advisors LLC (WFC) to pay UBS Financial Services Inc. $1.1M to resolve a claim involving financial adviser David Kinnear who went to work for the Wells Fargo & Co. brokerage arm after leaving the UBS Group AG (UBS) unit. UBS claims that Kinnear stole thousands of client and business records, as well as proprietary information, after resigning from the firm.

The Wall Street Journal reports that according to a source, Kinnear downloaded the data and distributed it to clients. UBS contends that the compensation Kinnear received at Wells Fargo was related to his ability to successfully bring UBS clients with him. UBS also claims that Kinnear owes it promissory notes.

Wells Fargo denies UBS’s allegations. It submitted a counterclaim accusing the firm of unfair completion, including preventing clients from moving from UBS to Wells Forgo.

Under the Protocol for Broker Recruiting, brokers are only allowed to bring the names and contact information of clients that they serviced while having worked at a firm when moving to another brokerage firm.

Continue reading " Wells Fargo to Pay UBS $1M Over Broker Departure " »

May 13, 2016

Securities News: $5.95B RMBS Lawsuit Against Moody’s is Reinstated, Barclays Traders Remain on Trial, And Former Bank CEO Enters Guilty Plea to Fraud Charges

1st Circuit Reinstates Lawsuit Against Moody’s
The First Circuit Court of Appeals has reinstated the $5.9 billion residential mortgage-backed securities fraud case brought by the Federal Home Loan Bank of Boston against Moody’s Investor’s Service, Inc. and Moody’s Corp. The bank claims that the credit rating agency knowingly issued false ratings on certain RMBSs that it had purchased.

A district court judge in Massachusetts had dismissed the lawsuit citing lack of personal jurisdiction. The judge also held that the court could not move the lawsuit to a different court where jurisdiction would be proper because cases dismissed for lack of jurisdiction could only be transferred if the dismissal was for lack of subject matter jurisdiction, not personal jurisdiction.

Now the First Circuit has vacated that ruling and found that transferring a case that has dismissed for lack of personal jurisdiction is also allowed. It is moving the RMBS case to the district court, which will decide whether to move the case to New York.


Former Barclays Trader Pleaded Guilty to Libor Rigging
According to prosecutors in the U.K., ex-Barclays Plc. (BARC) trader Peter Johnson pleaded guilty to conspiracy to manipulate the London interbank offered rated in 2014. The government announced the guilty plea this week after lifting a court order that had prevented the plea from being reported until now. The disclosure comes as the criminal trial against five of Johnson’s former Barclays co-workers into related allegations is underway.

The defendants on trial are Jay Merchant, Stylianos Contogoulas, Alex Pabon, Ryan Reich, and Jonathan Matthew. They have pleaded not guilty to the charge of conspiracy to commit fraud. The U.K.’s serious fraud office claims that the men acted dishonestly when they turned in or asked others to submit rates for Libor.

Continue reading "Securities News: $5.95B RMBS Lawsuit Against Moody’s is Reinstated, Barclays Traders Remain on Trial, And Former Bank CEO Enters Guilty Plea to Fraud Charges " »

May 12, 2016

JPMorgan to Pay $150M to Pension Funds Over London Whale-Related Losses

A U.S. district court judge has approved a settlement reached at the end of last year between JPMorgan Chase & Co. (JPM) and pension funds related to trades made by Bruno Iksil, who earned the nickname “London Whale” because of his huge market-moving positions in credit derivatives. In their class action securities case, the plaintiffs accused the firm of using its chief investment office in London as a secret hedge fund and hiding up to $6.2M in losses.

Even though the office was supposed to be primarily for managing risk, the plaintiffs believe that it was making high-risk trades for profit, including trading in complex credit derivatives. Depositors’ money was purportedly used in secret for making certain trades. Shareholders claim that JPMorgan knew about the increased risks it was taking and hiding them.

JPMorgan has not admitted to wrongdoing by settling this deal. However, it was also fined over $1B by regulators in the U.K. and the U.S. for management deficiencies related to the London Whale scandal.

Continue reading "JPMorgan to Pay $150M to Pension Funds Over London Whale-Related Losses" »

May 10, 2016

Ex-Deutsche Bank Broker Found Guilty for Insider Trading Related to Operation Tabernula Probe

Martyn Dodgson, a former Deutsche Bank AG (DB) broker and managing director, and Andrew Hind, an accountant, were convicted of insider trading in London. The Financial Conduct Authority said that that Dodgson and another broker gave insider information about certain business deals to Hind, who then passed on the information to two other traders. They allegedly made $10.7M from trading half a dozen stocks in what is being called the largest insider trading case in the U.K.

The probe into the insider trading allegations, known as Operation Tabernula, has been going on for nine years. Already, three other convictions have been rendered related to the investigation. According to prosecutors, those involved employed conventional techniques and modern technology to conceal their trades. For example, they would meet at Indian restaurants where they’d hand over money in envelopes. They also purportedly used pay-as-you-go phones and encrypted memory sticks.

After investigators planted a bug in the office of day trader Benjamin Anderson, a conversation was recorded involving Iraj Parvizi, another day trader, in which Dodgson was described. Anderson and Parvizi, who were both acquitted of criminal charges, claimed that they had no reason to believe that the tips they were receiving was insider information.

It was in 2014 that former Moore Capital Management LLC trader Julian Rifat pleaded guilty to insider trading in an offshoot probe of this investigation. He admitted to sharing insider information that he received while employed at the firm to associate Graeme Shelley, who then traded to benefit the two of them. Shelley, who was formerly with Novum Securities, also pleaded guilty to insider dealing with Rifat and associate Paul Milsom, who entered his own guilty plea.

Continue reading " Ex-Deutsche Bank Broker Found Guilty for Insider Trading Related to Operation Tabernula Probe" »

May 7, 2016

Four Credit Suisse Bankers Accused of Unauthorized Trading in Rich Clients’ Accounts, Bank of America Settles Mortgage Case for $190M, and Goldman Sachs to Pay Illinois Pension Fund $272M

Bank of America to Pay Federal Home Loan Bank of Seattle $190M
Bank of America Corp. will pay $190M to resolve mortgage-backed securities fraud charges brought by the Federal Home Loan Bank of Seattle. The SEC filing stated that the settlement was reached last month and that most of it was previously accrued. The lawsuit alleged misstatements and omissions during the issuance of MBSs.

It was just earlier this year that Bank of America’s Merrill Lynch and 10 other banks agreed to pay over $63M to resolve accusations that they misrepresented residential mortgage-backed securities to the Virginia Retirement System and the state of Virginia.


Judge Approves $270M Mortgage-Backed Securities Fraud Settlement Involving Goldman Sachs
A federal judge has approved the proposed settlement between Goldman Sachs (GS) and lead plaintiff NECA-IBEW Health & Welfare Fund, as well as 400 bondholders and another electrical union pension fund. The Illinois pension fund for electrical workers brought the case in 2008, accusing the firm of leaving out key information and making false statements about the mortgages it sold into 17 trusts the year before.

Continue reading "Four Credit Suisse Bankers Accused of Unauthorized Trading in Rich Clients’ Accounts, Bank of America Settles Mortgage Case for $190M, and Goldman Sachs to Pay Illinois Pension Fund $272M" »

May 4, 2016

Bank of America, Citigroup, JPMorgan Chase, Credit Suisse, Deutsche Bank, and Other Banks Settle ISDAFix Rigging Case for $324 Million

Seven big banks have resolved a U.S. lawsuit accusing them of rigging ISDAFix rates, which is the benchmark for appraising interest rate derivatives, structured debt securities, and commercial real estate mortgages, for $324M. The banks that have reached a settlement are:

· Barclays PLS (BCS) for $30M (In 2015, Barclays paid $115M to U.S. Commodity Futures Trading Commission to resolve charges of ISDAfix rigging.)
· Bank of America Corp. (BAC) for $50M
· Credit Suisse Group AG (CS) for $50M
· Citigroup Inc. (C) for $42M
· JPMorgan Chase & Co. (JPM) for $52M
· Deutsche Bank AG (DB) for $50M
· Royal Bank of Scotland Group plc (RBS) for $50M


The deal must be approved by a Manhattan federal court. The defendants had sought to have the case dismissed, but US District Judge Jesse Furman in Manhattan refused their request. stating that the case raised “plausible allegations” that the defendants were involved in a conspiracy together.

Continue reading "Bank of America, Citigroup, JPMorgan Chase, Credit Suisse, Deutsche Bank, and Other Banks Settle ISDAFix Rigging Case for $324 Million" »

April 30, 2016

Institutional Fraud Cases: Shareholders Sue PJT Partners Over Andrew Caspersen’s $95M Fraud, Sabal Limited Sues Deutsche Bank, and Dallas Pension Fund Sues Firm

Securities Case Brought Over Caspersen Fraud
Shareholders of PJT Partners Inc. have brought a class action lawsuit against the publicly traded investment bank. The complaint comes in the awake of the arrest of Andrew Caspersen, who previously was one of the top officials at the bank’s Park Hill Group unit. Caspersen is accused of running a $95M fraud in secret. He is also a defendant in this lawsuit.

According to authorities, Caspersen falsely told investors that he was raising funds for supposed private equity investments when actually he was placing their money in high-risk options bets. He lost millions of dollars through options trading in his own accounts. Among his investors were the charitable foundation of a hedge fund and other institutional clients.

Caspersen was arrested and charged last month, as well as fired from PJT Partners. Investor Gregory Barrett claims that the investment bank misled shareholders by not disclosing that it had inadequate fraud prevention and compliance controls. The shareholder lawsuit points to purported evidence of alleged control failures, including an anonymous quote in the New York Times stating that Caspersen had availed of Park Hill Group’s payment system to give investors invoices and keep his scam going.


Sabal Sues Deutsche Bank Over Swap Transaction
Sabal Limited LP is suing Deutsche Bank AG (DB). Sabal claims that the German bank falsified documents after coming to the realization that the outcome of a swap transaction wasn’t going to be in its favor. Deutsche Bank is accused of improperly holding nearly $1M from the Texas asset management firm.

According to Sabal, in 2011, Deutsche Bank proposed a way of “cheapening” the firm’s capital costs through a swap tied to the DB Pulse USD Index. Deutsche Bank purportedly said that if the swap was based on this index it would generate a lot of funds. The transaction was finalized a few months later.

Continue reading "Institutional Fraud Cases: Shareholders Sue PJT Partners Over Andrew Caspersen’s $95M Fraud, Sabal Limited Sues Deutsche Bank, and Dallas Pension Fund Sues Firm" »

April 27, 2016

LPL Subject to Lawsuits In the Wake of Stock Drop

A number of lawsuits have been brought against LPL Financial (LPLA) after its stock price fell. There is the securities case brought by the Charter Township of Clinton Police and Fire Retirement System, which is a Michigan pension fund. Also, in New York last March, a number of lawyers filed a shareholder lawsuit.

Both securities cases want damages that shareholders of record would have sustained between 12/8/15 and 2/11/16. A major allegation is that LPL misled investors to raise its stock price while putting through a $250M share buyback plan that benefited one private equity investor.

According to the Michigan pension fund, LPL CFO Matthew Audette and LPL CEO Mark Casady took part in a scam to let private equity investment firm TPG Capital sell LPL shares at a price that was artificially inflated. The NY shareholder lawsuit is accusing the independent brokerage firm of issuing statements that were materially false and misleading to investors and not disclosing that its clients' assets and gross profits were becoming weaker.

Addressing the allegation, Casady downplayed the share buyback program’s timing and execution that allowed the private equity investor to sell 4.3M million stock shares back to the firm soon before the shares, as described by InvestmentNews, “went into a tailspin.” He said the stock buyback happened under a set of expectations that was reasonable.

Continue reading "LPL Subject to Lawsuits In the Wake of Stock Drop" »

April 20, 2016

Wine Mogul Accuses Fidelity of Fraud, Seeks up to $500M in FINRA Arbitration

Wine merchant Peter Deutsch has filed a FINRA arbitration claim seeking $400 - $500M from Fidelity. He claims that he might have earned that amount of money if only the financial firm had not stopped him from obtaining a 66% share of a company in which he had already invested $40M. Meantime, Fidelity is contending that it kept Deutsch from trading because of worries that he was attempting to illegally manipulate the company’s shares.

The dispute began when Deutsch sought to purchase at least another 50 million shares of stock in China Medical Technologies in 2012. His investment efforts, however, were barred by Fidelity, which said it was “uncomfortable” with the transaction. It was in 2011 that a sales team from Fidelity Family Office Services (FFOS) had sought Deutsche out to join its group of wealthy clients.

In court papers, Deutsch alleges that while he was trying to gain control of China Medical Technologies, which is a cancer treatment device maker, FFOS was aggressively buying the stock in secret rather than helping him. He also claims that Fidelity used his shares to its benefit even though this was not what he wanted. He believes that the firm blocked him from trading to conceal its wrongdoing.

He is accusing Fidelity of inappropriate share lending. The firm, however, describes its practice of lending out shares belonging to its clients as fully paid lending. According to Bloomberg, sources said that Fidelity, which insists that the arbitration case is without merit, maintains that it didn’t lend out Deutsch’s shares under its lending program but that it used its authority to lend shares out of his margin account. Securities lending is something that Fidelity clients consent to when they set up a margin account.

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April 18, 2016

Bancorp-UBS Trial over $2.1B of Mortgage-Backed Securities Begins

UBS (UBS) is on trial in Manhattan federal court. According to Reuters, the civil case was brought by UBS Bancorp (USB) for three trusts. The trusts claim that in their contract with the Swiss banking giant, UBS agreed that the mortgages backing the securities would satisfy certain standards. However, they contend, when it became clear the mortgages were faulty, UBS would not repurchase them. Now, the trusts want back the $2.1B that they lost.

UBS’s legal defense team argued that the lawyers of the trust are assessing the loans from the perspective of “hindsight bias.” They want U.S. District Judge Kevin Catel to evaluate whether when the loans were considered defective at the time that they were issued in 2006 and 2007.

According to the mortgage-backed securities lawsuit, over 17,000 loans were pooled into three trusts, which issued securities granting investors the right to borrower-made payments. The problem was, contend the plaintiffs, over 9,600 of the loans were defective, primarily because of borrower fraud or because they did not meet underwriting requirements. The trusts believe that UBS did not properly vet the loans, which it obtained through shady lenders that would go on to fail.

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April 15, 2016

Judge Refuses to Totally Dismiss $1B Mortgage Fraud Case Against Credit Suisse Unit

A judge has ruled that the $1B mortgage fraud case brought against Credit Suisse (CS) unit DLJ Mortgage Capital can be resubmitted. This ruling reiterated U.S. Bank National Association’s contention that a six-year statute of limitations did not bar its claims, which it brought as a trustee.

In 2015, New York Supreme Court Judge Marcy S. Friedman had dismissed the case because the trustee had not made a repurchase demand of Ameriquest, the loan’s originator, according to the pre-suit requirement. However, she rejected DLJ’s claim that because these conditions were not met prior to the statute of limitations they were time barred. Friedman said that if U.S. National were to refile the case, then the issue of the repurchase demand’s impact on the trustee’s ability to file litigation in this matter would be determined on a “fully developed record.”

U.S. National sued DLJ Mortgage Capital in 2013, accusing the securitizer of not complying with its duty to buyback loans that breached of a number of warranties and representations that DLJ made in a contract presiding over the sale of 4,534 residential mortgage loans. The loans, originated by Ameriquest Mortgage Co., were securitized by the trust, sold by DLJ to investors, and came with multiple assurances about their quality. Such guarantees were supposed to place any risks from faulty mortgages with the originator.

The plaintiff contends that rather than construct a loan pool with quality mortgages, Ameriquest, which is no longer in operation, used faulty loans. As a result, contends U.S. National, the trust lost $227M.

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April 12, 2016

The FCA Bars Ex-Royal Bank of Scotland Trader Over Libor Rigging

U.K.’s Financial Conduct Authority is barring Paul White, an ex-Royal Bank of Scotland (RBS) trader, for misconduct involving the rigging of the London interbank offered rate. The FCA said that White behaved with recknlessness and was not in integrity when he would submit information about Libor related to the Swiss frank and the Japanese yen.

According to the British regulator, from 5/07 to 11/10, White improperly considered requests that came from derivatives traders at two banks when issuing Libor submissions. If any of the information he turned in wasn’t been accurate, this could have changed the rate for Libor in a manner benefitting White and others. In a news release, the FCA said that White had a duty to make sure his submissions were correct and not influenced by his own financial interests or the interests of others.

The regulator provided a transcript that included electronic messages between a broker at another bank and White. The messages indicated that they worked together to rig Libor.

White was the recipient of 68 communications from RBS derivatives traders for Libor submissions. In the exchanges, said the FCA, the traders sought to help their trading positions. There was also a Swiss franc trader that purportedly made such requests verbally for twenty months. White also received requests from a yen derivatives trader who did not work at the firm.

The FCA’s final notice states that White claims that although he took into account trading positions when issuing Libor submissions, his entries were always “correct” and within a range that was acceptable according Libor’s definition. White claimed that he engaged in seemingly improper communications only to “appease.” FCA, however, rejects White’s account of what happened. Yet despite imposing an industry bar against him, the regulator waived what could have been a $354,000 fine because White is undergoing financial difficulties.

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April 10, 2016

Morgan Stanley Still Embroiled in $147M RMBS Lawsuit Brought by IKB Deutsche Industriebank

More than three years after IKB Deutsche Industriebank AG sued Morgan Stanley (MS) for over $147.1M in residential mortgage-backed securities, the brokerage firm is asking the New York appeals court to dismiss the case. Morgan Stanley claims that it was the German lender that did not conduct the necessary due diligence.

IKB claims the Morgan Stanley provided offering documents that left out or did not properly characterize different underwriting standards involving the loans that were underlying the securities. The bank claims there were misrepresentations and omissions regarding loan-to value ratios.

The lender says it received inaccurate information about the underlying loans related to how much homeowners had borrowed, the securities’ credit ratings, and the percentage of properties that were occupied by the owners. IKB cited purportedly incorrect statements made about trusts, loans, and mortgages. It accused Morgan Stanley of taking the loans from different originators and bundling them together to package the securities despite knowing there were issues that could make the RMBS problematic.

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April 9, 2016

Goldman Sachs Will Pay $5.06B Over Mortgage-Backed Securities Practices

Goldman Sachs (GS) has settled a mortgage case brought by the U.S. Department of Justice accusing the firm of deceptive mortgage practices leading up to the 2008 financial crisis. As part of the deal, Goldman will pay $5.06B to resolve the charges. According to the DOJ, the bank also admitted that it issued representations that were “false and misleading” to prospective investors about the MBS that were up for sale. Details of the deal were announced in January after an agreement was reached in principal.

In a statement of facts, Goldman said that “significant percentages” of the mortgages it bundled with securities sold between ’05 and ’07 were not in line with the information provided to investors about the loans. The bank’s Mortgage Capital Committee approved every residential mortgage-backed security it assesses between December ’05 and ’07 even though they were aware that a lot of the home loans contained compliance and credit defects.

The settlement shows that Goldman was aware that a lot of the subprime loans it was packaging into securities could be defective, including an RMBS it created in ’06 using loans made by Countrywide Financial, which was the largest subprime loan provider. It was during this time that a Goldman manager issued an equity research report recommending that the stock be brought. Responding to the report, the bank’s due diligence head that had supervised the scrutiny of several Countrywide mortgage pools replied, “If only they knew.”

The government said that 70% of total loan pools were not examined for problems even though in one bond pool about 25% of loans that were examined were dropped because their quality was poor. For example, in 2006, Goldman notified investors via marketing materials that one underwriter in particular was dedicated to “quality over volume” when it came to the loans even though its own analysis determined that the underwriter, a Fremont General Corp unit, applied “off market” guidelines. In early 2007, the Fremont unit was shut down after the Federal Deposit Insurance Corp. said that the lender allowed people who couldn’t afford to pay back the mortgages to have them anyways.

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April 8, 2016

Credit Suisse Wants Appeals Court to Dismiss NY AG’s $11.2B Residential Mortgage-Backed Securities Fraud Lawsuit

A number of Credit Suisse Group (GS) units want a NY court to rule that the RMBS case brought by Attorney General Eric Schneiderman is time-barred in the wake of precedent from the state’s highest court. The AG, who brought the case under the Martin Act, is seeking more than $11.2B.

According to the complaint, in ’06 and ’07 Credit Suisse put together over 60 residential mortgage-backed securities with about 248,000 loans. 24% of the loans have since been liquidated and investors have lost $11.2B on initial balances of about $93.8B. The state claims that investor losses resulted because of the bank’ determination to raise the volume of mortgages it bought and the securities it generated. Credit Suisse employees purportedly paid a higher price for mortgages and didn't address reports of problems identified by due diligence forms so as to preserve relationships with mortgage originators. The bank is accused of making false claims about due diligence when choosing which mortgages to bundle with the securities.

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March 31, 2016

California Sues Morgan Stanley for Purportedly Selling Bad Investments

The State of California is suing Morgan Stanley (MS) for allegedly selling bad residential mortgaged backed securities. According to lawmakers, the firm sold residential mortgage-backed securities as risky loans to subprime lenders while downplaying or hiding the risks and at times encouraging credit raters to bestow the securities with high ratings that were not warranted. Because of these RMBS sales, contends the state, the California Public Employees' Retirement System (CALPERS) and California State Teachers Retirement System (CalSTRS) sustained devastating losses.

California claims that the firm violated the state’s False Claims Act and securities laws. A significant part of the case challenges Morgan Stanley’s behavior when marketing the Cheyne SIV, which was a structured investment vehicle that failed nine years ago. State Attorney General Kamala Harris is seeking $700M from the firm, as well as over $600M in damages.

Meantime, Morgan Stanley has argued that the case is meritless. It contends that the RMBSs were sold and marketed to institutional investors who were sophisticated enough to understand the investments. They claim that the RBMBs performed in a manner that was in line with the sector to which it belonged.

It was just recently that Moody’s Corp. reached an agreement with CalPERS to pay the California pension fund $130M to resolve allegations that the credit rating agency may have acted negligently by giving high ratings to toxic investments. CalPERS contended that its purchase of the investments cost it hundreds of millions of dollars.

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March 30, 2016

Insider Trading: Ex-Goldman Employee to Pay $900K Fine, Former Harman VP Enters Guilty Plea, and Ex-AMO CEO Asks Judge To Stay Lawsuit

Former Goldman Employee Fined Over $900K For SEC Insider Trading Case
Former Goldman Sachs (GS) compliance worker Yeu Han will pay over $903,000 to settle allegations by the U.S. Securities and Exchange Commission accusing him of insider trading. Han was hired by the firm to develop surveillance software to help Goldman identify illegal conduct, including insider trading and market manipulation.

According to the regulator, Han was employed in the firm’s compliance division. He had access to the emails of other Goldman employees who worked on confidential acquisition and merger deals. The SEC contends that even though Han was aware that this information was privileged and nonpublic, and that he would have to get supervisory clearance and disclose his brokerage accounts to engage in any trading, in December 2014 he started trading in the securities of a number of companies before each one publicly announced acquisition and merger news. These companies included Zulily Inc., Yodlee Inc., KLA-Tencor Corp., and Rentrak Corp.

The Commission is accusing Han of making over $468K through his personal account and more than $434K through the account of a relative. Last October, Han left the United States and went to China, where he is a citizen. In November, the SEC filed the insider trading charges against him.

Ex-Harman International VP Pleads Guilty to Insider Trading
Dennis Hamilton, a former vice president of tax at Harman International Industries Inc. has pleaded guilty to insider trading. For the one count of securities fraud, the 45-year-old faces up to 20 years behind bars—although recommended federal guidelines could help him to procure a one-to-two-year prison term instead.

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March 29, 2016

ISDAFix-Rigging Lawsuits Against Bank of America, Citigroup, Deutsche Bank, and Others May Proceed, Says Judge

U.S. District Judge Jesse Furman has turned down the request by Barclays Plc (BARC), Bank of America Corp. (BAC), Deutsche Bank AG (DB), Citigroup Inc. (C), Royal Bank of Scotland Group Plc (RBS), BNP Paribas SA, Credit Suisse Group AG (CS), HSBC Holdings Plc, Goldman Sachs Group Inc. (GS), UBS AG (UBS), JPMorgan Chase & CO. (JPM), Wells Fargo & CO. (WFC), and Nomura Holdings Inc. to dismiss the antitrust lawsuits accusing them of working together to rig the ISDAfix. The benchmark rate is used to establish prices on commercial real estate mortgages, interest-rate swap transactions, and other securities. Another defendant is ICAP Plc, which brokered transactions that set the rate for ISDAfix.

Furman said that plaintiff Alaska Electrical Pension Fund and other investors have brought up “plausible allegations” that there may have been a conspiracy between the defendants that allowed them to collude with one another. The investors are seeking billions of dollars in losses they believe they sustained because ISDAFix was allegedly rigged. In this case, the judge let the breach-of-contract claims and antirust claims proceed to trial but dismissed the other claims.

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March 26, 2016

Mortgage Securities News: Supreme Court Rejects Banks' FDIC Case, Credit Suisse to Pay NCUA $29M in MBS Case Involving Credit Unions, & Former Fannie Mae CEO Must Contend With SEC Fraud Claims

US Supreme Court Turns Down Banks’ Bid that It Examine FDIC Case
The U.S. Supreme Court has decided not to review the 2015 ruling made by the Fifth Circuit Court of Appeals that revived the Federal Deposit Insurance Corporation’s (FDIC) securities case accusing Goldman Sachs (GS), Royal Bank of Scotland (RBS), and Deutsche Bank (DB) of misrepresenting the quality of securities it sold to Guaranty Bank, which later failed. The FDIC took the Texas bank into receivership in 2009 and sued the banks in 2014.

A judge in Austin, Tx. dismissed the case, citing a state law requiring that lawsuits be brought within five years of a mortgage-backed security’s sale. The complaint had been filed at least 9 years after the MBSs were sold.

Last August, the Fifth Circuit cited a 1989 federal law and revived the case. The appeals court said that the FDIC is allowed an extended time period to file complaints for institutions that it insures and have gone into receivership. Circuit Judge Carolyn Dineen King wrote that it was this federal law that made it possible for the FDIC to concentrate on dealing with bank failures rather than worrying about possible statutes and their limitations.

RBS, Goldman, and Deutsche then filed their petitioned with the U.S. Supreme Court. The banks pointed to a past holding by the highest court that barred other courts from preempting state law unless the U.S. Congress has made such a preemption clear.


Credit Suisse Resolves MBS Case for $29M
Credit Suisse (CS) must pay $29M to settle the National Credit Union Administration’s claim that it sold bad mortgage-backed-securities to credit unions. NCUA’s lawsuit revolves around MBSs that UBS (UBS) underwrote and sold to Members United Corporate Federal Credit Union and the Southwest Corporate Federal Credit Union for over $228M from ’06 to ’07. Both credit unions have since failed.

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March 24, 2016

Michigan Pension Plan Sues LPL Financial for $115M

The Charter Township of Clinton Police and Fire Retirement System is suing LPL Financial Holdings Inc. (LPLA) for $115M. In the class action securities case, the plaintiff contends that a stock buyback program cost the firm and its shareholders that amount.

Company shares closed trading at $42.91 on October 29 when LPL announced the $500M program. Less than two months later, its stock began to drop in price. The stock was trading at $25.08/share yesterday morning.

The program was supposed to improve shareholder value. The following month, LPL said it had entered into $700M of new term loans while extending $631M of existing debt to pay for the share repurchase plan. Then, in December, the company said it had arrived at an early completion of the plan.

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March 21, 2016

Financial Firms and Securities Cases: BNY Mellon to Pay $3M Over Computer Glitch that Affected Mutual Funds, Wedbush Fined $675K by FINRA and Nasdaq, and Triad Advisers Settles UIT Charges

BNY Mellon to Pay Massachusetts $3M Over Computer Problem That Impacted Mutual Funds
Bank of New York Mellon (BK) will pay $3 million to the state of Massachusetts to resolve a probe that found that a computer glitch did not calculate net asset values for over 1,000 mutual funds. Although the bank hired SunGard InvestOne to calculate these values, there was one weekend last year when a malfunction occurred.

The Massachusetts Securities Division conducted an investigation and discovered that BNY Mellon lacked a back-up plan to deal with such a malfunction. Because of this, non-uniform and untimely information was sent to clients and funds. As Secretary of the Commonwealth William F. Galvin noted, it is the job of financial institutions like BNY Mellon to oversee third-party vendors and put into place a back-up plan in the event a vendor’s system fails. The bank says that in the wake of the outage, it took action to protect client interests and ensure that the daily net asset values were issued.

BNY Mellon said that it has since made investors and the funds that sustained losses because of the computer error whole. The bank has made changes to supervisory procedures.

WedBush to Pay $675K Fine to Nasdaq and FINRA over Trading and Clearing Errors Involving Exchange-Traded Funds
Wedbush Securities Inc. will pay a $675K fine to the Nasdaq Stock Market and the Financial Industry Regulatory Authority Inc. over clearing and trading mistakes involving redemption and trading activities related to leveraged ETFs. Wedbush served as Scout Trading, LLC’s clearing firm.

According to FINRA, from 1/10 to 2/12, Scout Trading was not long enough in the shares that made up the redemption orders. Scott Trading turned in more than 250 naked redemption orders via Wedbush. These involved nearly a dozen ETFS that totaled over 295 million shares. This activity and ETF shortselling on the second market by Scout Trading led to Wedbush’s failure to deliver on a number of occasions. (This could have led to a naked short sale in which the seller does not arrange to borrow the securities in a manner timely enough for the buyer to receive the delivery within the standard three days.)

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March 7, 2016

Royal Bank of Scotland Ordered to Pay Fired Executive for $2.05M

A Financial Industry Regulatory Authority panel says that Royal Bank of Scotland’s (RBS) securities division in the U.S. must pay Jeffrey Howard, an ex-executive that it fired, $2.05M in compensatory damages because of the way he was let go. The bank must also retract his termination and expunge his regulatory record of any comments that are defamatory.

The FINRA arbitration panel’s case summary said that according to Howard, the bank fired him because it didn’t want people to find out that there was “significant internal turmoil” at the financial institution. Howard, who joined the firm’s RBS Securities in 2012 as head of its prime services for the Americas, eventually went on to become global-co-head of the group and then later its sole head. Previous to all of that he worked at Bank of America (BAC) Merrill Lynch. After he was let go by Royal Bank of Scotland in 2014, Howard filed a breach of contract and defamation case with FINRA contending that the disclosure about his firing was false.

According to the FINRA panel, Howard should not have been let go for cause. It found that the bank made fundamental mistakes and inconsistencies in: the way it interpreted internal policies and put them into effect, the facts it employed to decide to fire him, and the rationale behind that decision. The panel said that Howard did not violate any internal policies.

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March 3, 2016

Bank of New York Mellon Must Face $1.12B RMBS Lawsuit

U.S. District Judge Judge Gregory Woods in Manhattan says that Bank of New York Mellon Corp. (BK) must face a residential mortgage-backed securities fraud lawsuit holding the bank liable for $1.12B of investor losses. Royal Park Investments SA/NV, which is a Belgian investment fund, may now proceed with its claims, including those alleging breach of trust, breach of contract, and Federal Trust Indenture Act violations.

In its case against BNY Mellon, Royal Park wants class action status for other investors. It claims that its RMBS in the trusts at issue are now “”completely worthless.”

The investment fund contends that BNY Mellon, in its role of trustee for five trusts, disregarded the abuse occurring in the way the underlying loans were serviced and underwritten and did not mandate that bad loans be bought back. Royal Park believes that BNY Mellon breached its obligations out of fear it would lose business or make other financial service companies angry.

Over the past year, the investment fund has been allowed to pursue similar cases against HSBC Holdings Plc. (HSBC) And Deutsche Bank AG (DB). In the investment fund’s case against Deutsche Bank. U.S. District Judge Alison J. Nathan in New York recently denied the bank’s bid to get the proposed class action over $3.1B in RMBS losses dismissed. She did, however, dismiss derivative claims. Royal Park claims that Deutsche Bank knew by April 2011 that loans involved were highly defective but refused to force loan sellers to buy back the loans or replace them when it became clear that the mortgages backing the bonds were defaulting. Nathan also said that the plaintiffs detailed claims of significant losses, high default rates, and widespread probes into RMBS securitization were sufficient that the court was able to draw “reasonable inference” that loan guarantees had been breached.


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February 29, 2016

Seminole Tribe Accuses Wells Fargo of Fraud

The Seminole Tribe of Florida is suing Wells Fargo (WFC). The Tribe claims that the bank mismanaged its funds for years while charging it millions of dollars in fees that were not warranted. The plaintiff is claiming over $100M in losses.

The Seminole Tribe said that it set up a trust account with Wachovia Bank, which was Wells Fargo’s predecessor in interest, for the purpose of using the revenue from gaming facilities to help the Tribe garner self-sufficiency, economic development, and strong governments. Rather than helping the Tribe achieve its goals, the bank, instead, purportedly set up confusing and deficient accounts statements to conceal unauthorized fees. The tribe also said that they lost at least $100M from mismanagement and poor investment strategies. The Seminole Tribe contends that the bank failed to give proper investment advice, invested in a deficient portfolio to bilk minor beneficiaries, and charged fraudulent fees.

The trust fund is the Seminole Tribe of Florida Minors' Per Capita Payment Trust Agreement. It was set up in 2005. The Tribe said it put in $16.8M into the trust during the first year, with the Trust principal eventually growing to about $1.4B.

According to the Tribe's complaint, in 11/07, it merged its 2005 trust into three trust investments. Wachovia was reappointed as trustee. Wachovia then revised the fee schedule of the trust five times in five years. The Tribe contends that even though the fees were adjusted downward, Wachovia was also collecting fees that were concealed from the minor beneficiaries. It was last year while reviewing the account records of the Minor’s Trust that the tribe claims that they discovered an elaborate fraud involving the unauthorized fees.


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February 26, 2016

Securities News: UBS To Pay $33M to NCUA For Mortgage-Backed Securities, CFTC, FCA May File More Civil Charges Against Banks for Libor Rigging, Moody’s Waits for end of DOJ’s Subprime Mortgage Probe

UBS to Pay $33M to NCUA Related to MBS Sold to Credit Unions
UBS AG (UBS) will pay $33 million to resolve a lawsuit filed by the National Credit Union Administration accusing the bank of selling toxic mortgage-backed securities to credit unions. The case revolves around MBS that were underwritten and sold by UBS. The securities were purchased by Members United Corporate Federal Credit Union and Southwest Corporate Federal Credit Union for almost $432.4M from ’06 to ’07.

NCUA alleged that offering documents for the securities sold included untrue statements claiming that the loans were originated in a manner that abided by underwriting guidelines when, in fact, the loans’ originators had “systematically abandoned” said guidelines. The false statements made the securities riskier than what was represented to the credit unions. Eventually, the MBS failed, resulting in substantial losses.

To date, NUCA has recovered almost $2.46B from banks over MBS sales that occurred prior to the 2008 financial crisis.


US, UK Regulators May Pursue More Banks Over Libor
According to the The Wall Street Journal, the US Commodity Futures Trading Commission and the UK Financial Conduct Authority are working on pressing the last civil charges against a number of banks for alleged rigging of the London interbank offered rate. LIBOR is the benchmark that underpins interest rates on trillions of dollars of financial contracts around the globe.


Sources tell WSJ that the firms under scrutiny include Citigroup (C), J.P. Morgan Chase & Co (JPM)., and HSBC Holdings (HSBC)—although the FCA has already dismissed its probe into J.P. Morgan.

Continue reading "Securities News: UBS To Pay $33M to NCUA For Mortgage-Backed Securities, CFTC, FCA May File More Civil Charges Against Banks for Libor Rigging, Moody’s Waits for end of DOJ’s Subprime Mortgage Probe" »

February 24, 2016

London Whale Says He is Not Responsible for Over $6.2B in Losses Involving JPMorgan

Bruno Iksil, the man dubbed the London Whale, has finally spoken out. Iksil, a former trader for JPMorgan Chase & Co. (JPM), was blamed for up to $6.2B in losses—a massive sum, hence the nickname. Unlike others involved, however, Iksil has been able to avoid prosecution after reaching a deal in which he agreed to help U.S. authorities with their cases and testify against others involved.

In a letter to Bloomberg, Iskil said that managers in the London chief investment office “repeatedly” told him to execute the strategy that led to the losses. He noted that the nickname he was given, “London Whale,” implies that one person was responsible for the trades involved when, he contends, others were involved in the debacle. Iksil said that his responsibility was to execute a strategy that senior management had put forth, approved, supervised, and ordered.

He maintains that he told superiors that there was a risk of huge loss with a trading strategy that they wanted him to execute, in part to lower the unit’s risk-weighted assets. Despite his concerns, said Iksil, his supervisors continued to tell him to continue with the strategy.

The trades involved were credit-swap index tranches. Tranches let investors bet on different levels of risk among a number of companies. If a borrower doesn’t meet its obligation, then the credit swaps must pay the buyer at face value. If t debt is defaulted, then the value the buyer must be paid is less.

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February 23, 2016

JPMorgan Says to Expect Losses on Energy Loans

JPMorgan Chase 7 Co. (JPM) reported a double-digit drop in investment banking revenues, along with a $500 increase in provisions set aside for losses expected on energy loans. The latter is a result of declining oil prices, market volatility, regulator pressure, low interest rates, and other issues. Crude oil dropping to about $32/barrel has not helped.

According to Forbes, previously, the bank had set aside $815M to cover lending losses in the energy sector. The firm also has exposures to the extent that JPMorgan has put aside $350M for credit losses related to mining. The bank also is involved in $4.1B of commercial real estate lending in areas that are energy sensitive and a $2.7B business banking book in the gas and oil industry.

The Business Recorder reports that the firm's portfolio for oil and gas is $43 billion. Its latest projections are a departure from last month, when JPMorgan told investors that it expected to make incremental increases to loss reserves related to energy-related loans.

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February 19, 2016

Ex-Deutsche Bank Analyst to Pay $100K Penalty To Resolve SEC Charges Related to Rate Stock Certification

The Securities and Exchange Commission is accusing ex-Deutsche Bank (DB) research analyst Charles P. Grom of certifying a rating on a stock in a manner that was not in line with his personal view. According to the regulator, Grom certified that his research report on 3/29/12 about Big Lots was an accurate reflecting of what he honestly believed about the company and it securities even though in private communications with firm research and sales staff, he indicated that he decided not to downgrade the discount retailer from a “BUY” recommendation because he wanted to keep up his relationship with the company’s management. Now, Grom must pay a $100K penalty.

The SEC contends that Grom violated Regulation AC’s analyst certification requirement, which mandates that research analysts include a certification that the views expressed in a research report are an accurate reflection of what they believe about a company and its securities. The regulator said that Grom became worried about what he considered cautious comments by Big Lot executives when he and his firm hosted them during a non-deal roadshow the day before he certified the report at issue in March 2012.

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February 9, 2016

UK Regulator Fines Ex-JPMorgan Executive $1.1 Over London Whale Debacle

The UK’s Financial Conduct Authority is fining former JPMorgan Chase (JPM) executive Achilles Macris approximately $1.1M for failing to cooperate and communicate properly with regulators during the agency probe into the London Whale fiasco. Although Macris is now agreeing to settle the securities charges, he continues to defend himself. He insists that he stayed “above and beyond any reasonable” transparency standards and that he is only agreeing to resolve this case because the F.C.A. had accepted his contention that he did not mislead anyone on purpose. The FCA would not comment on Macris’ statements about the settlement.

The former JPMorgan executive was in charge of the firm’s chief investment office in London, which was supposed to invest funds for the bank and help offset possible losses. Unfortunately, a bad bet made by the unit on credit derivatives cost the bank $6.2B.


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February 5, 2016

Municipal Bond Violations: J.P. Turner to pay $140K to FINRA, SEC Fines Underwriters $4.58M Over False Statements

The Financial Industry Regulatory Authority is sanctioning J.P. Turner & Co. for violating a rule mandating that brokers must make sure that municipal securities transactions between a customer’s account and the firm’s account occur at a price that is “fair and reasonable.” The SRO contends that the firm’s supervisory system did not provide the kind of supervision that could achieve compliance with securities regulations involving fair pricing

As part of the settlement, J.P. Turner will pay a $140K fine and over $76K plus interest in customer restitution.

The brokerage firm will also pay a $75k fine related to the ongoing use of a third-party telemarketer, which continued after it made the decision to stop using the marketing firm. Because the telemarketer stopped getting a do-not-call list from the firm, it continued to call people on the registry.

J.P. Turner agreed to settle both cases without denying or admitting to the charges.

In other news, the Securities and Exchange Commission is charging and fining 14 muni bond underwriting firms for issuing inaccurate information to investors. Collectively, the firms will pay about $4.58M for federal securities law violations that purportedly occurred between ’11 and ’14. The alleged violations involved the sale of municipal debt that used offering documents with materially false statements or omissions about borrower compliance as they pertain to disclosure duties. The SEC said that the firms did not perform proper due diligence to identify issues before selling the bonds.Barclays Capital Inc. (BARC), which will pay $500K, Wells Fargo Bank (WFC) N.A. Municipal Products Group, which will pay $440K, Jefferies LLC (JEF), which will pay $500K, and TD Securities USA LLC, which will pay $500K.

Continue reading "Municipal Bond Violations: J.P. Turner to pay $140K to FINRA, SEC Fines Underwriters $4.58M Over False Statements" »

February 3, 2016

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

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

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

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


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

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

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

February 2, 2016

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

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

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

Continue reading "Citigroup to Pay $23M to Resolve Yen Libor and Euroyen Tibor Rigging Claims" »

January 31, 2016

Senator Warren Accuses the SEC of Poor Enforcement

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

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

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

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

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January 30, 2016

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

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

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

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

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

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January 27, 2016

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

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

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

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


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January 26, 2016

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

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

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

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

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

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

January 19, 2016

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

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

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

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

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


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

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


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

January 15, 2016

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

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

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

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

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

December 30, 2015

Insider Trading News: SAC Capital Resolves Shareholder Lawsuit, Chinese Traders Settle SEC Charges, Another Court Turns Down Rajat Gupta’s Conviction Appeal SAC Capital Advisors Settles Insider Trading Case for $10M

SAC Capital Advisors Settles Insider Trading Case for $10M
SAC Capital Advisors has consented to pay $10M to resolve a securities case brought by shareholders of pharmaceutical company Wyeth. The plaintiffs contend that they sustained losses because the hedge fund had been insider trading in the drugmaker’s stock.

The class action securities lawsuit was brought following the arrest a few years back of Mathew Martoma, an ex-SAC Capital portfolio manager. After he was convicted last year of insider trading for using confidential outcomes of a clinical trial involving an Alzheimer’s drug, Martoma was sentenced to nine years behind bars in 2014. According to prosecutors, Martoma’s trades allowed the hedge fund to make $275M.

Other settlements have already been reached over this matter, including a $1.8B settlement with US authorities as well as a guilty plea by SAC Capital. An SAC Capital unit also settled insider trading claims involving Wyeth and Elan Corp. stock—Elan and Wyeth had been developing the Alzheimer’s drug together—for $602M.


SEC Announces Settlement with Two Chinese Traders Over Insider Trading Case
The U.S. Securities and Exchange Commission says that business associates and cousins Yannan Liu and Zhichen Zhou, who are traders in Hong Kong and China, respectively, have consented to pay over $920,000 to resolve insider trading charges. The two of them will disgorge their entire ill-gotten gains as well as pay penalties.

According to the regulator, Liu and Zhou traded Chindex International and MedAssets Inc. stocks because of nonpublic information they received about their upcoming acquisitions by private equity firms. Liu had been a private equity associate at a company that was connected to both deals.

Continue reading "Insider Trading News: SAC Capital Resolves Shareholder Lawsuit, Chinese Traders Settle SEC Charges, Another Court Turns Down Rajat Gupta’s Conviction Appeal SAC Capital Advisors Settles Insider Trading Case for $10M" »

December 28, 2015

Court Refuses to Overturn Criminal Conviction of Ex-UBS/Citigroup Trader

In the U.K., a panel for the Court of Appeal refused to overturn the criminal conviction of ex-UBS (UBS) and Citigroup (C) trader. Tom Hayes is behind bars for conspiring to rig Libor. However, while his conviction will stand, the panel did lower his criminal sentence from 14 years to 11 years, citing his non-managerial role at the two banks and his diagnosis of mild Asperger’s.

Hayes is considered the main leader, spurring dozens of traders to manipulate the London interbank offered rate. However, his lawyers claim that Hayes did not hide his conduct from others at the bank and never considered his actions dishonest. Hayes said that his behavior was common in his industry.

When he voluntarily testified before prosecutors, Hayes admitted to manipulating rates. He also testified against a number of ex-friends and colleagues. Hayes also is facing criminal charges in the U.S.

Libor helps shape the borrowing costs for trillions of dollars in loans. Banks set rates, including Libor, by turning in rates at which they would be willing to lend each other money in different currencies and at different maturities.

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December 23, 2015

US Continues Its Probe As Deutsche Bank Alleges $10B in Suspect Russia Trades

To date, Deutsche Bank AG (DB) says it has identified $10 billion in suspect trades that may not have been checked for money laundering. In the review, uncovered $6 billion of mirror trades involving its operations in Russia. According to a Russian central bank report, there are clients using rubles to purchase Russian shares and then selling them in London at the same time, usually for dollars. While mirror trades are legal in certain situations, they can be used to circumvent U.S. rules related to reporting money as it moves internationally. The German lender notified international authorities of its investigation a few months back.

According to Bloomberg, prosecutors in the United States have been investigating whether the bank’s dealings with the mirror trades violated U.S. rules regarding money laundering. Already, Russia’s central bank has fined Deutsche Bank after examining the latter's trading in that country. Also, a source reportedly told Bloomberg that Russia’s regulator said that Deutsche Bank was the victim of an illegal scam and has since dealt with its related shortcomings.

The transactions under investigation include those involving trading in an account that was consistently involved in buy orders. In addition to the “mirror trades," the investigation uncovered $4 billion of suspect trades that may have been conducted with another bank.

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December 22, 2015

JPMorgan Chase Resolves “London Whale” Class Action Securities Lawsuit for $150M

JPMorgan Chase & Co. (JPM) will pay $150 million to resolve investor claims accusing the firm of concealing up to $6.2 billion in losses caused by the trader Bruno Iksil, who was given the nickname “London Whale.” Pension funds filed a class action securities case accusing the firm of using its investment office in London as a secret hedge fund. According to the plaintiffs, the bank told them that the office was managing risk when what it was actually doing was making trades for profit. Investors were harmed when huge losses resulting from transactions made through the London office caused the bank’s share price to drop.

The pension funds said that they suffered tens of millions of dollars of losses because fund managers were provided with information that was “false and misleading.” They also believe that the bank knowingly concealed the growing risks that were occurring at the London office.

Plaintiffs of this lawsuit include the Ohio Public Employees Retirement System, which says it lost $2.5 million, the Arkansas Teacher Retirement System, the state of Ohio, funds in Arkansas, Swedish pension fund AP7, and other JP Morgan shareholders that purchased stock between 2/24/10—this is when the company submitted to regulators its 2009 earnings report—and 5/21/12. The latter date is when the firm announced that it was stopping a $15 billion share buyback program until it could get a better handle of the losses sustained.

Continue reading "JPMorgan Chase Resolves “London Whale” Class Action Securities Lawsuit for $150M " »

December 21, 2015

Former RBS Bond Trader Pleads Guilty to Fraud

Adam Siegel, an ex-Royal Bank of Scotland Group Plc (RBS) bond trader, has plead guilty to fraud over his involvement in a multi-million dollar scheme in which he lied to customers so that they would pay higher prices for bonds. Siegel, 37, served as the co-head of RBS’s U.S. Asset-Backed Securities, Mortgage-Backed Securities and Commercial Mortgage-Backed Securities Trading groups. He supervised and traded fixed income investment securities, including collateralized loan obligations (CLOs) and residential mortgage-backed securities (RMBS).

According to prosecutors, Siegel and others lied about the asking price of sellers to buyers, as well as the price that buyers were willing to pay to sellers, while pocketing the difference. He made misrepresentations so that customers would pay higher prices while those selling bonds would end up getting deflated prices, both of which benefitted RBS.

Sometimes, he and co-conspirators would make misrepresentations to buyers by telling them that a fake third-party was selling the bonds. This allowed the firm to charge an unwarranted commission.

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December 19, 2015

Morgan Stanley to Pay $8.8M in Parking Scam

Morgan Stanley Investment Management (MISM) will pay $8.8 million to resolve SEC charges accusing a firm portfolio manager of engaging in a parking scheme that gave preferential treatment to certain client accounts. Also, as part of the settlement, SG Americas, who is accused of helping in the fraud, will pay over $1 million to resolve the charges.

The portfolio manager, Sheila Huang, has consented to an industry bar. According to an SEC probe, while overseeing accounts that had to liquidate certain positions in 2011 and 2012, Huang arranged for the sale of mortgage-backed securities to Yimin Ge, an SG Americas subsidiary, at prices that were predetermined so she could buy back the positions at small markups in other accounts that Morgan Stanley advised.

Huang sold more bonds at prices that were above market so she would not suffer losses for certain accounts. She then bought the positions back at prices that were unfavorable in a fund she oversaw without disclosing this to the client whose fund had been disadvantaged.

Huang is accused of engaging in prearranged transactions for five bond trade sets. As a result of her parking scam, some Morgan Stanley clients benefited more than others. Purchasing clients were generally the ones that profited from the market saving, while buying and selling clients did not.

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December 18, 2015

J.P. Morgan Chase Settles SEC and CFTC Charges Alleging Client Steering for $307M

J.P. Morgan Chase & Co. (JPM) will pay $307M to resolve Securities and Exchange Commission and Commodity Futures Trading Commission charges accusing two of its units of not telling wealthy clients about certain conflicts of interest. The JPM businesses are J.P. Morgan Securities LLC, its wealth management investment advisory business that offers investment products to clients that have a net worth of $250K - $5M, and JPMorgan Chase Bank N.A., its U.S. private bank that deals with clients that have a $5M net worth or greater.

According to the agreement, the investment advisory service did not tell wealth management customers that its Chase Strategic Portfolio, which is a program for wealth management customers, favored mutual funds managed by the firm. For several years, the program put about $10 billion of $32.6 billion in proprietary funds, and until the earlier part of 2012, at least 47% of the assets were in such funds.

The private bank also showed a similar preference toward the bank’s products. It was not until 2011 that it told clients that language in its disclosures noting that it preferred managers affiliated with JPM had been “mistakenly” removed. The language was not put back until last year.

Continue reading "J.P. Morgan Chase Settles SEC and CFTC Charges Alleging Client Steering for $307M " »

December 15, 2015

Securities Cases: Class Action Lawsuit Charges Fidelity with Duty Breach, Billionaire Ira Rennert in Court Over Alleged $70M Pension Fund Fraud, and Dole Sued Over Merger Fraud

Fidelity Investments Unit Faces ERISA Fiduciary Breach Claims
Fidelity Management Trust Co. has been named a defendant in a class action securities case under ERISA law. The plaintiffs claim that the Fidelity Investments unit is in fiduciary breach under ERISA because it included a stable value fund as an investment alternative for 401(k) plan accounts. They believe that low investment returns and high fees made the fund an unwise investment for participants in a 401(k) plan.

William Perry and James Ellis are the lead plaintiffs. At different times through the Barnes & Noble Inc. 401(k) plan, they were invested in the Fidelity Group Employee Benefit Plan Managed Income Portfolio Commingled Pool (MIP) fund. Plaintiffs believe that the high fees and poor results were because of the deliberate omissions and actions of Fidelity Management Trust as MIP’s fiduciary and trustee.

According to the complaint, before 2009 Fidelity executed an investment strategy that proved unsuccessful when it placed mortgage-backed securities, asset-backed securities, and collateralized loan obligations, and others securitize debt in the portfolio. MIP lost value when the financial crisis struck. After that, Fidelity changed up its asset allocation to lower risk to the fund’s wrap providers, including AIG Financial Products, Monumental Life Insurance Company, JP Morgan Chase Bank, State Street Bank and Trust, and Rabobank Netherland. Plaintiffs believe it is this conservative strategy that led to lower returns. They said that excessive fees, which were paid to wrap providers, hurt them.

Plaintiffs represented by the class include everyone involved in ERISA-governed plans that use the fund.


Billionaire In Court Again for Pension Fund Fraud
Ira Rennert, the billionaire industrialist, is once again accused of pension fraud. This time, the allegations involve $70 million and the fund of another family-controlled company. According to the allegations, Rennert was able to avoid responsibility for pension expenses of his RG Steel company when he lied to the Pension Benefit Guaranty Corporation. The independent US government entity, which is the plaintiff in this pension fraud case, said it would have terminated RG Steel’s pension plan if it had known that the company was about to be sold. If that had occurred, Rennert’s Renco Group would have had to take care of pension costs.

The government entity claims that Renco president, Ari Rennert, omitted key information and lied when he told PBCG that he would keep them updated of changes. A week later, about 25% of Renco was bought by Cerberus Capital and the former no longer had a pension liability. Renco denies the allegations.

Continue reading "Securities Cases: Class Action Lawsuit Charges Fidelity with Duty Breach, Billionaire Ira Rennert in Court Over Alleged $70M Pension Fund Fraud, and Dole Sued Over Merger Fraud" »

December 12, 2015

Hedge Fund News: Millennium Global Wants Citigroup to Pay $53M Over Shut Out Trades, Stone Lion Capital Suspends Redemptions Following Withdrawal Requests

Millennium Global Emerging Credit Fund Ltd. is suing Citigroup (C). The hedge fund’s liquidators claim that the bank undervalued assets when it closed out certain trades during the financial crisis in 2008. They believe that Citigroup did this at rates that failed to reflect the true market value. Millennium sustained nearly $1 billion in losses. Now its liquidators want $53 million in damages.

The positions at issue were linked to the debt of Uganda, Sri Lanka, a brewer from the Dominican Republic. and a sugar company in Zambia. Citibank says the positions were illiquid and difficult to value even when the market was good. While the bank has admitted that it improperly valued certain trades, it maintains that the adjustments are not as great as what the hedge fund is claiming.

Millennium Global Emerging Credit Fund maintains that Citigroup did not use procedures that were “commercially reasonable” when it shut down the positions. The bank offered to pay Millennium about $6.8 million after more than fifty open transactions were closed out, but the fund believes that amount is way too low.

Continue reading "Hedge Fund News: Millennium Global Wants Citigroup to Pay $53M Over Shut Out Trades, Stone Lion Capital Suspends Redemptions Following Withdrawal Requests" »

December 2, 2015

Ex-J.P. Morgan Bankers to Settle SEC’s $8.2M Bribery Case Related to Jefferson County, Alabama Bonds

Douglas MacFaddin and Charles LeCroy will pay $326,373 to settle SEC civil charges accusing them of paying friends of Jefferson County, Alabama officials $8.2M in return for $5B in county bond business. Together, the ex-J.P. Morgan Securities (JPM) executives will pay $326,373 once a district court judge approves the proposed settlements—that’s 4% of the $8.2M that was allegedly paid so that their firm could get the business.

Jefferson Count experienced financial woes when it borrowed funds so it could comply with a 1996 court order to stop sewer leaks from getting into area streams. Additional construction costs and bond swaps cost the project to exceed over $3B.

The Commission’s lawsuit had alleged violations of its law and rules. The regulator’s charges against the two men were resolved in mediation.

Continue reading "Ex-J.P. Morgan Bankers to Settle SEC’s $8.2M Bribery Case Related to Jefferson County, Alabama Bonds" »

November 30, 2015

Citigroup Could Pay $872M in Securities Lawsuit by Allied Irish Banks

Twelve years after Allied Irish Banks Plc (AIB) filed a securities lawsuit against Citigroup (C) accusing the bank of helping a rogue trader conceal about $691 million in losses, the case is slated to go to trial next month. AIB reportedly wants $872M from the New York-based bank— $372M in damages and about $500M in pre-judgment interest.

It was in 2003 that AIB sued Citigroup subsidiary Citibank and Bank of America Corp. (BAC). AIB contends that the defendants were linked to a scam that led to significant losses for its former unit, Allfirst Financial. Bank of America has already settled the allegations against it.

In 2002, trader John Rusnak’s losses were discovered and he pleaded guilty to banking fraud. Rusnak admitted to concealing $691M in trading losses while employed at Allfirst. The losses were sustained over five years and came from primarily trading the Japanese yen and for taking even bigger risks as he sought to get back some of these losses.

While Rusnak did not make a direct profit from the losses, he made over $650K in bonuses when he made it appear as if Allfirst was making money. He was released from prison in 2009.

Continue reading "Citigroup Could Pay $872M in Securities Lawsuit by Allied Irish Banks" »

November 24, 2015

RBS May Be Subject to More Criminal Charges Over Alleged Loan Securities Price Inflations

According to the New York Post, sources say that the US Attorney’s office in Connecticut is going after Royal Bank of Scotland (RBS) and at least two traders over complex debt securities that investors bought up through 2013. Ex-RBS banker Matthew Katke, who pled guilty earlier this year to inflating collateralized loan obligation prices, reportedly provided cooperating testimony in the case.

Federal prosecutors are also reportedly pursuing criminal charges against RBS. That investigation is over the alleged sale of flawed mortgage securities related to the 2008 financial crisis.

The Wall Street Journal says that sources have told them that prosecutors are looking at a $2.2B deal that repackaged home mortgages into bonds eight years ago. It was just two years ago that RBS settled a Securities and Exchange Commission case that described the lead banker as attempting to push the deal through even though the diligence department had raised red flags.

The RBS probe mirrors the $150M civil settlement the bank reached in 2013. That case resolved SEC claims accusing it of misleading investors on a $2.2B subprime mortgage offering.

Continue reading "RBS May Be Subject to More Criminal Charges Over Alleged Loan Securities Price Inflations" »

November 21, 2015

FINRA Cases: Deutsche Bank Fined $1.4M for Reg Sho and Short Interest Reporting Violations, Scottrade to Pay $2.6M for Email and Electronic Record Failures, and Cantone Capital Faces Fraud Charges

FINRA Fines Deutsche Bank Securities $1.4M
The Financial Industry Regulatory Authority is fining Deutsche Bank Securities Inc. (DB) $1.4M for Regulation SHO violations, as well as for supervisory failures. According to the self-regulatory organization, for more than 10 years, the firm improperly included securities positions of a broker-dealer affiliate who isn’t from the US in a number of aggregation units. Deutsche Bank purportedly did this when trying to figure out the net position of each unit.

Under Reg SHO, firms can use an aggregation unit to track positions in a security from certain trading operations or trading desks separate from other positions. However, to determine the aggregation unit’s net positions, firms are not allowed to use the securities positions of a non-US brokerage firm affiliate.

Also, FINRA mandates that firms—barring specific exemptions—regularly report total short positions in customer and proprietary firm accounts in equity securities. The positions have to be reported not on a net basis. Instead, they should be based on a gross basis. The SRO said that for more than eight years, Deutsche Bank reported net positions in its financial aggregation accounts, submitting those as its short interest position.

The SRO said that Deutsche Bank’s supervisory system as it relates to short interest reporting and its aggregation unit structure were not designed in a reasonable enough manner to identify and stop these rule violations. By settling, Deutsche Bank is not denying or admitting to the violation charges.


Scottrade Ordered to Pay $2.6M Fine for Electronic Records, Email Retention Failures
Scottrade, Inc. must pay a $2.6M fine to settle FINRA allegations accusing the firm of not keeping a lot of securities-related electronic records in the format mandated, which is known as WORM. Scottrade is also accused of not keeping specific categories in outgoing email and failing to have a supervisory system in place that could fulfill compliance related to certain FINRA and Securities and Exchange Commission rules regarding books and records.

Continue reading "FINRA Cases: Deutsche Bank Fined $1.4M for Reg Sho and Short Interest Reporting Violations, Scottrade to Pay $2.6M for Email and Electronic Record Failures, and Cantone Capital Faces Fraud Charges" »

November 14, 2015

10 Former Barclays and Deutsche Bank Traders Charged with Rigging Euribor

Prosecutors in the United Kingdom have charged 10 former Barclays Plc (BARC) and Deutsche Bank AG (DEB) employees with rigging the Euribor benchmark. The ex-Deutsche Bank traders are Christian Bittar, Achim Kraemer, Joerg Vogt, Andreas Hauschild, Kai-Uwe Kappauf, and Ardalan Gharagozlou. The former Barclays traders are Philippe Moryoussef, Colin Bermingham, Sisse Bohart, and Carlo Palombo. An unidentified 11th trader is also expected to be charged.

Except for Bermingham, the rest of the defendants live outside Great Britain. These are the first charges in the Serious Fraud Office’s probe of Libor rigging involving the Euro interbank offered rate. More individuals are expected to be prosecuted.

Earlier this week, Bittar, who was once among Deutsche Bank’s most successful traders before he was let go in 2011, won a separate ruling. Although his name wasn’t mentioned in the Financial Conduct’s ruling in an interest rate benchmark's manipulation probe into his former employer, Bittar contended that he was clearly identifiable in the details of the settlement. Bittar argued that because of this he was entitled to look at FCAs settlement with Deutsche Bank prior to its disclosure.

Global regulators had fined Deutsche Bank $2.5 billion earlier this year and the FCA published a document detailing the wrongdoing that included the term
“manager B” when referring to one of its managers. Bittar said that term clearly referred to him. A London judge said that Bittar was indeed improperly identified.

Continue reading "10 Former Barclays and Deutsche Bank Traders Charged with Rigging Euribor" »

October 30, 2015

Securities News: J.P. Morgan Face Restrictions on Raising Clients Funds In the Wake of Improper Product Disclosures to Investments, Intel Sued Over Improperly Investing 401K Funds, and Citigroup, Bank of America, Other Big Banks Get New Bailout Rules

SEC Seeks to Limit JP Morgan’s Ability to Raise Client Money
An Over $200K settlement between J.P. Morgan Chase & Co. (JPM) and regulators has stalled because of efforts by federal regulators to limit the firm’s ability to raise money for clients. The move is an attempt to place a wider variety of consequences on financial firms accused of breaking regulations.

J.P. Morgan had settled allegations accusing it of failing to make proper disclosures when marketing its investment products to clients over the products offered by competitors. Now, the SEC wants the firm to say yes to limits on its ability to sell bonds or stocks through private placements for several years. Such a restriction could hamper its private bank’s efforts to raise funds for hedge funds and other clients through a key channel or sell bonds or stocks privately to rich investors and other sophisticated investors.

While banks are allowed to conduct private placement offerings, firms that violate the rules that these securities are under will lose privilege unless they are given a waiver.


Lawsuit Accuses Intel of Investing 401K Monies Improperly
An ex-Intel Corp. employee is suing company officials for breach of fiduciary duty. According to Christopher M. Sulyma, the company invested defined 401K participants’ retirement funds in high risk, costly private equity funds and hedge funds.

Continue reading "Securities News: J.P. Morgan Face Restrictions on Raising Clients Funds In the Wake of Improper Product Disclosures to Investments, Intel Sued Over Improperly Investing 401K Funds, and Citigroup, Bank of America, Other Big Banks Get New Bailout Rules" »

October 28, 2015

Goldman Consents to Three-Year Bar On Certain Advisory Work, Settles Leak Case with NY Fed for $50M

Goldman Sachs Group Inc. (GS) will pay a $50M fine to the New York Federal Reserve as part of a settlement over document leaks. The firm also consented to be barred from some advisory work in the state for three years. It admits that it did not properly supervise an employee.

The leak involves former Fed employee Rohit Bansal who worked for Goldman. According to a statement from the New York Department of Financial Services, while there he was assigned to work with a midsized bank as his client. He’d regulated the same bank while at the Fed—this was a bank that the Fed had specifically told him he couldn’t work with until early this year.

Bansal, however, held about 20 meetings with Jason Gross, a former co-worker at the Fed, who purportedly gave him about 35 documents with confidential regulatory information. Bansal is accused of using those documents to assist the Goldman client.

After Goldman management found out about the way he had gotten the confidential information, they fired him and started their own probe. (Meantime, sources tell Bloomberg, the Fed also let go of Gross.)

Continue reading "Goldman Consents to Three-Year Bar On Certain Advisory Work, Settles Leak Case with NY Fed for $50M" »

October 27, 2015

Edward Jones, AXA Advisors, Stifel Nicolaus, and Others to Pay $13M to Retirement Accounts, Charities for Mutual Fund Overcharges

The Financial Industry Regulatory Authority says that another five firms must pay restitution to specific retirement and charitable accounts for overcharging them for mutual funds. Edward D. Jones will pay $13.5M, Stifel Nicolaus (SF) will pay $2.9M, AXA Advisors will pay $600K, Janney Montgomery Scott will pay $1.2M, and Stephens Inc. will pay $15K.

The announcement comes just a few months after the self-regulatory organization fined five other firms over $30M for similar violations. Those firms were LPL Financial LLC (LPL), Raymond James Financial Services (RJF), Raymond James & Associates, Wells Fargo Advisors Financial Network, LLC (WFC), and Wells Fargo Advisors, LLC. Due to their purported oversight, over 50,000 charitable organizations and retirement accounts ended up paying too much for their mutual fund shares.

Continue reading "Edward Jones, AXA Advisors, Stifel Nicolaus, and Others to Pay $13M to Retirement Accounts, Charities for Mutual Fund Overcharges" »

October 23, 2015

Securities News: Deutsche Bank to Pay $2.5M For Swaps Violations, Fifth Street Finance Sued in Class Action Lawsuit, and Countrywide’s $8.5B MBS Settlement Gets IRS Approval

Deutsche Bank Reaches Swaps Violation Settlement with CFTC
The Commodity Futures Trading Commission and Deutsche Bank AG (DB) have reached a settlement over the regulator’s order accusing the firm of not properly reporting its swaps transactions from 1/13 through 7/15. The regulator also said there were supervisory failures and that the bank failed to modify the reporting errors at issue until after it found out that the CFTC was conducting a probe.

According to the regulator, Deutche Bank did not properly report swap transaction cancellations in all asset classes, resulting in somewhere between tens of thousands and hundreds of thousands of reporting errors, violations, and oppositions in its reporting of swaps. CFTC believes that the bank knew about the problem but did not notify its Swap Data Repository in a timely manner, nor did it properly probe, deal with, and modify the information deficiencies until last year when it became aware of the investigation. As a result of the reporting failures, the wrong information was put out to the public.

The CFTC believes that the bank’s reporting failures were partly because of deficiencies in its swaps supervisory system. A more adequate system could have better supervised Deutsche Bank's activities involving compliance with reporting requirements.

Because the bank is a provisionally registered Swap Dealer, it has to abide by certain recordkeeping, disclosure, and reporting duties related to swap transactions. These requirements are supposed to improve transparency, encourage standardization, and lower systemic risk in swaps trading.


Investors File Class Action Securities Case Against Fifth Street Finance
An investor has filed a class action securities fraud case against Fifth Street Finance Corp. on behalf of shareholders. According to the plaintiff, and for those who bought Fifth Street Finance common shares between 7/7/14 and 2/6/15, the company, Fifth Street Asset Management, Inc., and specific directors and officers violated federal securities laws by allegedly taking part in a fraudulent scam to artificially inflate Fifth Street Finance assets and investment income to raise revenue of Fifth Street Management.

Continue reading "Securities News: Deutsche Bank to Pay $2.5M For Swaps Violations, Fifth Street Finance Sued in Class Action Lawsuit, and Countrywide’s $8.5B MBS Settlement Gets IRS Approval" »

October 20, 2015

Morgan Stanley, JPMorgan, Barclays and Other Banks To Pay $1.86B to Settle Credit Default Swaps Price Fixing Claims

Details of the settlement involving a dozen big banks accused of conspiring to rig prices and restrict competition in the credit default swaps market have been released. According to papers filed in federal court in Manhattan last week, the following firms will collectively pay nearly $1.9 billion:

· JPMorgan Chase & Co. (JPM): $595M

· Morgan Stanley (MS): $230M

· Barclays Plc (BARC): $178M

· Goldman Sachs (GS): $164M

· Credit Suisse (CS): $159M

· Bank of America Corp. (BAC): $90M

· Deutsche Bank (DB): $120M

· BNP Paribas (BNP): $89M

· Citigroup (C): $60M

· Royal Bank of Scotland (RBS): $33M

· HSBC Holdings Plc (HSBC): $25M


Continue reading "Morgan Stanley, JPMorgan, Barclays and Other Banks To Pay $1.86B to Settle Credit Default Swaps Price Fixing Claims" »

October 15, 2015

Ex-Rabobank Traders on Trial for Libor Rigging in the US

In New York City, the first criminal trial in the US involving traders accused of rigging the London interbank offered rate is underway. Anthony Conti and Anthony Allen, both former Rabobank traders, are accused of conspiring to turn in fraudulent rate reports for Libor to help others make money off the trades.

According to prosecutor Carol Sipperly, from ’06 to ’11 the two men gave Rabobank and themselves “unfair advantage” with their actions. Sipperly cited messages, emails, and testimony from three other ex-Rabobank traders who pleaded guilty to similar criminal charges.

Defense attorneys for Allen and Conti contended that the rate submissions were presented in good faith and that it was the traders who already pleaded guilty who had engaged in wrongdoing. Allen’s lawyer argued that his client never got compensation for the profits made by the other traders.

Libor rates are established daily in London based on submissions made by 16 banks. The four lowest and highest rates are eliminated with the remaining eight averaged. The benchmark that results represents the rates that banks can borrow from each other for specific periods. However, numerous banks, including Barclays (BARC), JPMorgan Chase (JPM) Rabobank, and Citigroup (c) have had to pay billions of dollars to regulators to settle charges of Libor rigging.

Continue reading "Ex-Rabobank Traders on Trial for Libor Rigging in the US " »

September 28, 2015

Credit Suisse to Pay $4.25M Over Blue Sheet Trading Data that Was Deficient

The SEC is charging Credit Suisse Securities (USA) LLC (CS) with submitting deficient blue sheet data to the regulator about customer trades. The financial firm is settling the charges by paying a $4.25 million penalty. It has admitted to violating federal securities laws. Credit Suisse acknowledged that it made at least 593 deficient blue sheet submissions to the Commission while leaving out 553,400 reportable trades that represented 1.3 billion shares between 2012 and 2014.

Blue sheet data refers to the color of the forms this type of information used to be placed on before being mailed from a broker-dealer to the SEC. The agency uses the trades when conducting investigations and doing other work. The process by which the regulator now procures this information is electronic but the “blue sheet” name has stuck.

The deficiencies at the firm were related to a probe in which the SEC was looking at blue sheet data and comparing them to data that came from the National Securities Clearing Corp. Credit Suisse has identified the cause of the deficient blue sheet submissions as human and technological errors. The firm has since put into place a number of changes to make sure its blue sheets are accurate from now on.

Continue reading " Credit Suisse to Pay $4.25M Over Blue Sheet Trading Data that Was Deficient " »

September 14, 2015

Credit Suisse To Pay Over $80M to Settle Dark Pool Allegations, Says Source

Bloomberg.com reports that according to someone familiar with the matter, Credit Suisse Group AG (CS) will pay over $80 million to resolve federal and state authorities’ claims that it failed to fully disclose information to clients about how it ran its dark pool. Over $50 million of the payment is expected to take the forms of fines and disgorgement in a settlement with the SEC, while about $30 million would resolve the allegations made by the New York Attorney General.

Credit Suisse’s dark pool, Crossfinder, is the biggest alternative trading system in the country. The source said that the Swiss bank is accused of misrepresenting certain aspects about the way it runs the platform.

In dark pools, demand and supply remain private. Only specifics about executed trades are disclosed. Dark pools comprise one-fifth of trading in the U.S. stock market. Large investors, high frequency traders, and hedge funds are among those that trade on these alternative trading systems. There is concern that some traders are able to exploit and profit, sometimes with the help of dark pool operators. Meantime, ordinary investors may be suffering because of their inability to avail of such benefits.

Continue reading "Credit Suisse To Pay Over $80M to Settle Dark Pool Allegations, Says Source" »

September 12, 2015

Bank of America, Deutsche Bank, Citigroup, & Other Big Banks Settle $1.87B Settlement Over Swaps Price-Fixing Case

$1.87B securities settlement has been reached with 12 major banks. The case resolves investor claims that the financial firms conspired to rig prices to hold back competition in the credit default market. For now, the resolution is an agreement in principal and the parties have two weeks to work out the details before turning the deal over to U.S. District Judge Denise Cote in Manhattan for preliminary approval.

The defendants in this credit default case are:

· Bank of America Corp. (BAC)

· UBS AG (UBS)

· Goldman Sachs Group Inc., (GS)

· Barclays (BARC)

· Royal Bank of Scotland Group Plc (RBS)

· BNP Paribas SA (BNP)

· Morgan Stanley (MS)

· Citigroup (C)

· JPMorgan Chase (JPM)

· Credit Suisse Group AG (CS)

· Deutsche Bank AG (DB)

· HSBC Holdings Plc (HSBC)


Markit Ltd and the International Swaps and Derivatives Association are also defendants.

Continue reading "Bank of America, Deutsche Bank, Citigroup, & Other Big Banks Settle $1.87B Settlement Over Swaps Price-Fixing Case" »

September 9, 2015

CFTC Investigates JP Morgan For Product Steering

According to The Wall Street Journal, sources say that the CFTC is probing into whether J.P. Morgan Chase (JPM) engaged in product steering by inappropriately directing private banking clients to its own hedge funds. Its investigation is also scrutinizing Highbridge Capital Management LLC, which is owned by the bank. The CFTC wants to know why a significant chunk of Highbridge’s assets is from J.P. Morgan’s private banking assets and whether this was beneficial to the alternative investment management firm during the economic crisis.

Although banks can sell in-house investments, advisers are only allowed to recommend these investments if they are in the best interests of clients or, at a minimum,suitable for their portfolios and needs.

J.P. Morgan purchased Highbridge in 2009. The firm’s returns were solid for years until the financial crisis, which is when investors sought to take out billions of dollars from its biggest hedge fund. To keep investors from leaving, Highbridge offered incentives, such as lower fees.

J.P. Morgan’s private banking clients still hold significant investments in Highbridge funds. However, a J.P. Morgan spokesman who spoke to The Wall Street Journal said that 95% of hedge fund investments from the financial institution's private banking clients are in funds that have no connection to Highbridge.

Continue reading "CFTC Investigates JP Morgan For Product Steering " »

September 8, 2015

Three Ex-Nomura Traders Face RMBS Fraud Charges

The U.S. Attorney’s Office for the District of Connecticut and the Securities and Exchange Commission are charging three ex-Nomura Securities International (NMR) traders with mortgage-backed securities fraud. The SEC contends that while at Nomura, Michael Gramins, Ross Shapiro, and Tyler Peters misrepresented the bonds and offers that the firm was provided for the residential mortgage-backed securities, along with the prices at which it bought and sold the securitizations and the spreads earned for intermediating the trades.

The three men are accused of not only lying to customers about the pricing data of the mortgage bonds but also of bilking of them of millions of dollars. The SEC claims that they coached, trained, and instructed junior Nomura traders to also commit this fraud. Their wrongdoing purportedly helped Nomura make millions of dollars in illicit revenue—$5 million from their alleged misconduct and $42 million from the omissions and lies made by those whom they trained.

Meantime, prosecutors have announced criminal charges against the three men. According to the indictment, they oversaw Nomura’s RMBS Desk in New York. Shapiro was a managing director, Gramins was the desk’s executive director, and Peters was a Senior VP whose role was concentrated on bond trading of alt-A loans and prime loans.

The men are accused of conspiracy to defraud Nomura customers by inflating the RMBS bond price that the firm had to pay in order to get customers to pay an even higher price. They also purportedly deflated the price that Nomura could sell an RMBS bond to get customers to sell at lower prices, as well as set up fake third third-party sellers and offers even when Nomura already owned the bonds, which they then pretended they were getting potential buyers.

Continue reading " Three Ex-Nomura Traders Face RMBS Fraud Charges " »

September 5, 2015

FINRA Fines Charles Schwab $2M for Supervisory Failures, Capital Deficiencies

The Financial Industry Regulatory Authority is fining Charles Schwab & Co. (SCHW) $2 million. The self-regulatory organization said that between 5/15/14 and 7/1/14, Schwab was capital deficient by up to $775M because of cash inflows that went beyond what it could invest with existing facilities on three occasions. Because of this, said FINRA, the firm moved $1 billion to its parent company for overnight investment. Under a revolving loan agreement, Schwab’s Treasury group approved the funds as an unsecured loan.

The SRO claims that Schwab lacked the procedures that would have mandated that its Treasury group consult with the company’s regulatory reporting group. It also contends that the firm’s supervisory systems were not designed in a manner reasonable enough to stop the Treasury group from going into unsecured transfers with affiliates that could lead to a net capital deficiency.

Schwab is not denying or admitting to the FINRA alelagtions. A firm representative did issue a statement expressing regret over the failure to note the overnight cash transfers.

Continue reading "FINRA Fines Charles Schwab $2M for Supervisory Failures, Capital Deficiencies " »

August 28, 2015

Shareholders Can Sue Barclays Over Libor Rigging, Rules Judge

A U.S. Judge says that the shareholder lawsuit suing Barclays PLC (BCS) for inflating its stock price by manipulating the London Interbank Offered Rate can proceed. According to lead plaintiffs, the St. Clair Shores Police & Fire Retirement System in Michigan and the Carpenters Pension Trust Fund of St. Louis, Barclays and several of its ex-officers purposely misrepresented and understated how much it costs to borrow funds by submitting false information about LIBOR during the period running from August 2007 to January 2009. The rigging of LIBOR by Barclays was disclosed in a 2012 settlement with global regulators in which the financial institution agreed to pay a $450 million fine.

LIBOR is the benchmark used by financial institutions to establish interest rates for lending purposes on different kinds of financial transactions. It is also used to set interest rates in trillions of dollars of investments and loans. The benchmark is calculated for ten currencies. Member banks turn in a figure according to an estimate of what rate they would be charged for borrowing money from other banks.

The shareholder plaintiffs claim that during a conference call in 2008, ex-Barclays president Robert Diamond made a misguided statement about LIBOR when he said that the bank was not paying rates that were higher in any currency. They also believe that Barclays misrepresented its financial health during the period at issue while artificially inflating its share price.

Continue reading " Shareholders Can Sue Barclays Over Libor Rigging, Rules Judge" »

August 27, 2015

FDIC Sues Bank of NY Mellon, Citigroup, and US Bancorp for soured RMBSs Purchased by Guaranty Bank

The Federal Deposit Insurance Corp. is suing Bank of New York Mellon Corp. (BK), Citigroup (C), and US Bancorp (USB) for residential mortgage-backed securities that were purchased by the former Guaranty Bank.

The Texas-based bank closed shop in 2009 and the FDIC, which is its receiver, arranged for its deposits to be taken on by BBVA Compass, a U.S. unit of Spanish institution Banco Bilbao Vizcaya Argentaria SA (BBVA.MC). The regulator estimated that the shutdown would cost its deposit insurance fund $3 billion.

The 12 mortgage-backed trusts involved in this RMBS lawsuit were issued by Countrywide Home Loans and Bear Stearns Cos' (BSC) EMC Mortgage Corp unit. In 2008, JPMorgan Chase & Co. (JPM.N) purchased Bear Stearns while Bank of America Corp. (BAC) purchased Countrywide.

Continue reading "FDIC Sues Bank of NY Mellon, Citigroup, and US Bancorp for soured RMBSs Purchased by Guaranty Bank " »

August 26, 2015

Former Merrill Lynch Broker Must Pay $1.4M for Insider Trading

Gary Yin, an ex-Bank of America Merrill Lynch (BAC) broker, must pay $1.4M in restitution for helping a client launder money made from insider trading. Yin admitted to helping former Qualcomm Inc. president Jing Wang conceal hundreds of thousands of dollars made in insider trading in that company and another company.

Yin set up brokerage accounts in the British Virgin Islands using a shell company to hide the scam and helped Wang transfer $525,000 to the shell account. He also transported documents to Wang’s brother in China to allegedly help hide the scheme from the FBI.

Now Yin must forfeit $27,000 in profits he made from trades in Qualcomm stock that were set up in a Merrill broker account in his mother-in-law’s name in the British Virgin Islands. He must also pay a $5,000 fine

Continue reading "Former Merrill Lynch Broker Must Pay $1.4M for Insider Trading" »

August 21, 2015

Citigroup Global Markets to Pay $15M Penalty to the SEC for Surveillance and Compliance Failures

The Securities and Exchange Commission said that Citigroup Global Markets (C) will pay a $15M penalty to settle charges that it did not enforce procedures and policies that would stop and identify securities transactions potentially involving the wrongful use of material, nonpublic information. Citigroup agreed to the SEC’s order without denying or admitting to the regulator’s findings.

The firm also has paid $2.5 million to advisory client accounts that were affected. That amount is how much Citigroup made from the principal transactions that resulted because of the purported compliance and surveillance failures.

According to SEC, which conducted a probe, over a period of ten years, Citigroup failed to review thousands of trades that were made by a number of trading desks. Even though firm personnel looked at reports to assess trades daily, technological errors caused several information sources regarding thousands of key trades to be left out.

As the SEC noted in its order, advanced computer systems are often now involved in automated trading. Technology oversight is key to making sure that compliance is in effect.

Continue reading "Citigroup Global Markets to Pay $15M Penalty to the SEC for Surveillance and Compliance Failures" »

August 18, 2015

Citigroup Affiliates to Pay $180M To Resolve Hedge Fund Fraud Charges

Citigroup Global Markets Inc. (CGMI) and Citigroup Alternative Investments LLC (CAI) have consented to pay close to $180M to resolve Securities and Exchange Commission charges accusing them of bilking about 4,000 investors in the Falcon fund and the ASTA/MAT fund. The two hedge funds went on to fail during the financial crisis. The settlement money will go to investors who were hurt in the purported fraud.

According to an SEC probe, the Citigroup (C) affiliates made misleading and false misrepresentations to investors. The two hedge funds, managed by Citigroup Alternative Investments, were highly leveraged and sold only to advisory clients of Smith Barney and Citigroup Private Bank. They were sold by financial advisers associated with Citigroup Global Markets. Together, the hedge funds raised close to $3 billion in capital from investors before they went on to fail.

In its order, the SEC said that the ASTA/MAT fund bought municipal bonds and hedged interest rates by employing a Treasury or LIBOR swap. It described the Falcon fund as multi-strategy, invested in fixed-income strategies (including collateralized loan obligations, collateralized debt obligations, asset-backed securities) as well as in the other hedge fund.

Investors claim that the two affiliates misrepresented the hedge funds as low-risk, safe, and suitable for bond investors looking for traditional investments, when, in fact, the funds were high risk. They contend that even as the funds started failing, CAI accepted close to $110 million in investments.

Continue reading "Citigroup Affiliates to Pay $180M To Resolve Hedge Fund Fraud Charges" »

August 14, 2015

Goldman Sachs to Pay $272M to Pension Funds In Mortgage Securities Case

Goldman Sachs Group (GS) will pay $272 million to more than 400 bond investors, including two electrical pension funds, to settle a lawsuit alleging that it made misleading disclosures in order to sell mortgage securities backed by faulty loans. The lead plaintiff in the case was the NECA-IBEW Health and Welfare Fund, which is an Illinois-based electrical workers pension fund.

When NECA-IBEW filed its lawsuit against Goldman Sachs in 2008, it contended that not only did it make false statements but also it left out key information about the mortgages it sold into 17 trusts the year before. The plaintiff also said that Goldman misled investors about the underwriting of the loans behind the securities, as well as about the quality of appraisals and whether borrowers were capable of paying back their loans. The fund said that the securities’ prices fell during and after the economic crisis while their credit ratings slipped from triple-A to triple C junk grades.

Writing about the complaint in 2008, HousingWire Publisher Paul Jackson said that some of the claims were over the alleged use of inflated appraisals by the originating entities. He noted that many of the loans in the trusts were of the no-doc, reduced-doc, stated-income ilk, which the plaintiff believes are fraudulent.

Continue reading "Goldman Sachs to Pay $272M to Pension Funds In Mortgage Securities Case" »

August 12, 2015

Dad of Ex-JPMorgan Banker Pleads Guilty to Insider Trading

The father of a former JPMorgan (JPM) banker has pleaded guilty to taking part in an insider trading ring with his son. Robert Stewart will forfeit $150,000 and faces five years behind bars.

According to the U.S. Justice Department, Stewart’s son, Sean Stewart, allegedly gave his father tips about upcoming deals, including information about a number of acquisitions and mergers. The older Stewart divulged some of the tips to Richard Cunniffe, who has also pleaded guilty in the conspiracy. Cunniffe is now a cooperating witness.

The DOJ said that in early 2011, Sean, who was a JPMorgan Vice President in the Healthcare Investment Banking Group, began tipping his dad about numerous deals. The first one was about the acquisition of Kendle International Inc.—a deal that he worked on. Robert made nearly $8,000 by buying Kendle stock. The second deal involved the acquisition of Kinetic Concepts Inc. After Sean went to go work at Perella Weinberg, he allegedly continued to provide insider tips to his dad.

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July 28, 2015

FINRA Orders Morgan Stanley to Pay $2.4M Over Ex-Broker’s Trades, Bars Former Merrill Lynch Trader from the Industry

A Financial Industry Regulatory Authority panel arbitration panel says that Morgan Stanley (MS) must pay at least $2.4M to settle the latest client claims accusing its former broker, Steven Mark Wyatt, of mishandling their investments. The brokerage firm fired Wyatt in 2012.

According to a group of doctors and their loved ones, Wyatt, who was their broker, made unauthorized and excessive trades in the stock market that cost them during and after the 2008 financial crisis. Wyatt bought thinly-traded stocks for the investors and placed speculative bets on exchange-traded funds and other securities in their portfolios.

This is the latest batch of claims against Wyatt, Morgan Stanley, and managers at the Mississippi branch where he worked. The claimants believe that Morgan Stanley failed to detect warning signs of Wyatt’s purported wrongdoing. Other employees named in this securities case are adviser Hilary Zimmerman, currently a Morgan Stanley senior vice president, and branch manager Fred Eugene Brister III. The claimants contend that Brister failed to properly supervise Zimmerman and Wyatt. They say that their accounts were mismanaged and suspect trading occurred.

Continue reading "FINRA Orders Morgan Stanley to Pay $2.4M Over Ex-Broker’s Trades, Bars Former Merrill Lynch Trader from the Industry" »

July 25, 2015

Ex-Oppenheimer Employees Resolve SEC Charges Over Unregistered Penny Stock Sales

The Securities and Exchange Commission said that Scott A. Einsler, Arthur W. Lewis, and Robert Okin, three former Oppenheimer & Co. (OPY) employees, have settled charges involving the unregistered sales of billions of shares of penny stocks for a customer. The actions are related to part of an enforcement action that the brokerage firm settled with the regulator, as well as with the U.S. Treasury Department’s Financial Crimes Enforcement Network. Under that agreement, the firm paid $20 million to resolve those claims.

In this latest order instituting administrative proceedings that have been resolved, Eisler, who used to be a registered representative at an Oppenheimer Florida branch, is accused, along with former supervisor and branch manager Lewis, of executing the penny stock shares in illegal unregistered distributions. While securities laws grant exemption liability for brokers who make a reasonable inquiry into the facts involving the proposed sale of a customer, the SEC said that the two men did not make the required inquiry even though there were significant warning signs. Also, according to the regulator, Lewis and Okin, previously the head of the private client division, committed supervisory failures when they did not address the warnings.

To resolve the proceedings against him, Eisler consented to pay $50,000 and he will be barred from the securities industry and penny stock sales for a year. Lewis also will pay a penalty for the same amount and his bar from the industry in a supervisory capacity is also for a year. Okin will pay $125,000 and also serve a yearlong supervisory bar from the industry. All three men agreed to settle without denying or admitting to the SEC’s findings.

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July 22, 2015

Wells Fargo Must Pay Woman Over $8M For Alleged Fraud Involving Childhood Trust

Wells Fargo Bank (WFC) must pay a Dallas woman over $8 million. Texas State Judge Emily Tobolowsky said that the bank defrauded Angela Militello in its role as trustee for a trust that family members set up for her when she became an orphan at the age of seven.

Militello contends that in 1999, a trust officer sent to her by the bank told her to set up a new account and gave her papers for establishing a revocable trust. After Militello filed for divorce in 2006, she asked the trust officer about withdrawing $200,000 from the trust to purchase a home for her and her child.

The trust officer gave her a check for that amount and a form asking for approval of the completed sale of a percentage of the assets in the trust. The remainder of assets was to be sold within a few months. Militello claims that Wells Fargo and a third party conspired to sell the assets in her trust at way below market value and fraudulently charge her tfor the property taxes after a buyer purchased the assets.

Continue reading "Wells Fargo Must Pay Woman Over $8M For Alleged Fraud Involving Childhood Trust" »

July 17, 2015

JPMorgan Settles Class Action Mortgage-Backed Securities Case for $388M

JPMorgan Chase & Co. (JPM) has consented to pay $388 million to resolve a securities lawsuit filed by investors claiming that the bank misled them about the safety of $10 billion of mortgage-backed securities (MBSs). Included among the plaintiffs in the case are the Laborers Pension Trust Fund for Northern California, the Fort Worth Employees’ Retirement Fund, and the Construction Laborers Pension Trust for Southern California.

The funds, and other investors in nine offerings that were made prior to the financial crisis, contend that JPMorgan misled them about the appraisals, underwriting, and credit quality of home loans that were underlying the securities. Following the collapse of Lehman Brothers Holdings Inc. in 2008, the certificates’ value dropped to 62 cents on the dollar.

JPMorgan is settling the case but has denied any wrongdoing. It will be up to a judge to decide on whether to approve the deal.

According to a copy of the securities action filed in 2010, the lawsuit is for entities and persons that acquired the bank’s Mortgage Pass-Through Certificates. The certificates involved were allegedly sold pursuant to or traceable to a misleading Registration Statement from 2007, as well as misleading and false Prospectus Supplements that also were issued that year. According to the Complaint, examples of purportedly false and misleading statements found in offering documents included claims that the loans had received investment grade credit rating, and loans backing the Certificates had specific loan to value ratios.

Continue reading "JPMorgan Settles Class Action Mortgage-Backed Securities Case for $388M" »

July 11, 2015

Ex-Deutsche Bank Employees May Face Libor Rigging Charges

Bloomberg reports that according to sources, the U.S. Department of Justice is getting ready to file securities charges against former employees of Deutsche Bank AG (DB) for manipulating the London interbank offered rate. The government is looking at five ex-traders who may have rigged the U.S. dollar equivalent of the interest-rate benchmark. If the criminal charges do go through these would be the first ones against the German bank’s traders over Libor.

Earlier this year, Deutsche Bank agreed to pay $2.5B to regulators for rigging Libor and other benchmarks: $600M to the New York Department of Financial Services, $775M to the DOJ, $800M to the Commodities Futures Trading Commission, and $340M to the U.K’s Financial Conduct Authority. The latter had doubled its fine because of what it considered the bank’s “slow” and “ineffective response to questions and purportedly “false, inaccurate, or misleading” statement that it made.

The global settlement included a ban against Deutsche Bank’s traders who had engaged in interest rate rigging. The bank’s DB Group Services in the U.K. also pleaded guilty to one count of wire fraud for its involvement in the scam to defraud counterparties to interest rate swaps by manipulating U.S. Dollar LIBOR contributions.

Continue reading "Ex-Deutsche Bank Employees May Face Libor Rigging Charges " »

July 6, 2015

Wells Fargo, LPL Financial, and Raymond James to Pay Investors of Retirement Accounts and Charities Over $30M for Mutual Fund Overcharges

The Financial Industry Regulatory Authority said that LPL Financial, LLC (LPLA), Raymond James & Associates (RJF), Raymond James Financial Services, Wells Fargo Advisors, LLC (WFC), and Wells Fargo Advisors Financial Network, LLC must pay over $30M in restitution plus interest to customers who were impacted when the firms did not waive mutual fund sales charges for certain retirement and charitable accounts. According to the self-regulatory organization, between July 2009 and the end of 2014 the financial firms either improperly overcharged certain investors who had purchased Class A mutual fund shares or sold them Class B or C shares instead. The latter two come with ongoing, high back-end fees.

Mutual funds typically offer different share classes for sale. Each class has its own sales fees and charges. Although Class A shares come with an initial sales charge, they usually have lower annual fees than Class B and C shares. However, mutual funds will usually waive Class A sales charges when selling them to charities and some retirement accounts.

The broker-dealers offered these waivers for the retirement and charitable plan accounts under limited conditions. The waivers also were disclosed in prospectuses. Yet, according to FINRA, at various times since at least July 2009, the firms did not actually waive the sales charges for these customers when they were offered the Class A shares.

Because of this, contends the agency, over 50,000 eligible retirement accounts and charitable organizations either paid sales charges for the Class A shares or bought other share classes that required them to pay higher ongoing fees and other expenses. FINRA said that the firms did not properly supervise the sale of these mutual funds and depended on its brokers to offer the waiver discounts even though they weren't properly trained.

Continue reading "Wells Fargo, LPL Financial, and Raymond James to Pay Investors of Retirement Accounts and Charities Over $30M for Mutual Fund Overcharges " »

June 28, 2015

Goldman Sachs to Pay $7M Over Market Access Rule Violation Allegations

Goldman Sachs (GS) has agreed to pay a $7 million penalty to settle SEC charges accusing the firm of violating the market access rule on August 20, 2013. According to the SEC, on that day, in under an hour, the firm mistakenly executed thousands of options contracts executions resulting in incorrect orders.

The regulator said that Goldman did not have the adequate safeguards in place that could have prevent it from accidentally sending about 16,000 options orders that were wrongly priced to different options exchanges. According to the SEC, the mistaken transactions occurred after Goldman put into place new electronic trading functionality that was supposed to match client orders with internal options orders.

Because of a configuration error in the software, contingent orders were turned into live orders. All of the orders were given a $1 price.

The orders were sent to options exchanges during pre-market trading. Minutes after regular market trading opened, about 1.5 million options contracts were executed. Because of the rules regarding erroneous options trades, many of the executed trades received price adjustments or were cancelled. The losses might have otherwise cost the firm $500 million.

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June 26, 2015

BaFin Report Accuses Deutsche Bank Executives of Negligence in Libor Rigging

According to a report by German financial regulator BaFin, senior management at Deutsche Bank (DB) allegedly behaved “negligently” related to the rigging of Libor rates. The European regulator has been investigating the bank over its possible involvement in the manipulation of the inter-bank rate setting process.

BaFin contends that Deutsche Bank’s outgoing joint leader Anshu Jain may have lied to the European nation’s central bank, the Bundesbank, by purposely making inaccurate statements” about rate rigging during a 2012 interview. The regulator wants Deutsche Bank to be subject to special supervisory measures.

The Financial Times reports that, Jain, who resigned from his position and will officially step down at the end of the month, is accused of telling Bundesbank that he did not know about the rumors about possible rigging even though e-mails about a meeting on this matter were forwarded to him in 2008. Deutsche Bank, however, maintains that Jain did not lie or mislead the German central bank during the interview. The bank said that the BaFin report confirms its own findings that no current or ex-members of its Management Board or Group Executive Committee directed firm employees to rig intra-bank offered rate submissions or knew of any attempted manipulations before June 2011.

Deutsche Bank has paid over $9 billion in fines to resolve claims of Libor rigging. In April, the bank was fined $2.5 billion for manipulating interest-rate benchmarks.

Continue reading "BaFin Report Accuses Deutsche Bank Executives of Negligence in Libor Rigging" »

June 23, 2015

Morgan Stanley and Scottrade to Pay FINRA $950K FINRA for Inadequate Supervision of Third Party, Customer Account Transfers

The Financial Industry Regulatory Authority said that Morgan Stanley Smith Barney, LLC (MS) and Scottrade, Inc. will pay fines of $650K and $300K, respectively. The firms are settling claims accusing them of not putting into place supervisory systems that could reasonably monitor customer funds transmitted to third-party accounts. The self-regulatory organization cited both financial firms for having weak supervisory systems a few years back, but they purportedly did not take the necessary steps to remedy the deficiencies.

The SRO contends that from 10/08 to 6/13, three Morgan Stanley-registered representatives in two of the firm's branch offices converted $494,000 from thirteen customers by setting up fraudulent wire transfer orders and branch checks from the clients’ accounts to third-party accounts. One example of such an instance involves representatives transferring funds from several customer accounts into their own bank accounts.

FINRA said that Morgan Stanley should have put into place systems and procedures that would have allowed it to review and monitor such transmissions. The regulator said that instead, the supervisory failures let the conversions occur without detection.

Continue reading "Morgan Stanley and Scottrade to Pay FINRA $950K FINRA for Inadequate Supervision of Third Party, Customer Account Transfers" »

June 11, 2015

Renowned Money Manager Who Was Fired from Merrill Lynch is Named in Several Investor Fraud Cases

Thomas J. Buck, the money manager who was let go from Merrill Lynch (MER) earlier this year, is the subject of several investor complaints alleging misrepresentation, unauthorized trading, and other wrongdoing. The cases could impact his new position at RBC Wealth Management.

The Financial Industry Regulatory Authority says there have been five complaints against the high-profile broker, who was fired from Merrill Lynch after more than three decades with the broker-dealer. The firm cited “loss of confidence” and a number of compliance lapses as reasons for the termination.

One investor is claiming losses caused by allegedly excessive trading and unsuitable investment recommendations. The investor is asking for $125K in damages. Four other claims are still pending.

Continue reading "Renowned Money Manager Who Was Fired from Merrill Lynch is Named in Several Investor Fraud Cases" »

June 6, 2015

DOJ Prepares Mortgage Fraud Cases Against More Banks

According to the Wall Street Journal, the U.S. Department of Justice and state officials are readying more mortgage fraud cases against up to nine banks, with resolutions against Morgan Stanley (MS) and Goldman Sachs Group (GS) possibly finalized as early as later this month. Most negotiations are reportedly in the earlier stages and could go on for months.

The cases are over residential mortgage-backed securities that fell in value during the economic crisis. Individual securities cases are expected rather than a collective agreement. Other banks that are expected to settle include Credit Suisse Group AG (CS), Barclays PLC (BARC), HSBC Holdings PLC, Deutsche Bank AG (DB), UBS AG (UBS), Royal Bank of Scotland Group PLC (RBS), and Wells Fargo & Co. (WFC).Settlements could range in size from a few hundred million dollars to up to $3 billion depending on the extent of misconduct allegedly involved.

Also likely to be involved least some of the RMBS cases are the attorneys general of Illinois, Massachusetts, New York, and other states that also took part in the earlier rounds of RMBS fraud cases against banks.

In other mortgage fraud news, a jury found Abacus Federal Savings Bank not guilty of charges involving allegedly fraudulent mortgages sales, including mortgage fraud, falsifying records, grand larceny, and conspiracy. Two Abacus executives were found not guilty of 80 counts that had been filed against them. However, eight people from the bank’s loan department pled guilty to the charges filed against them.

The case involved the bank’s sale of hundreds of millions of dollars worth of allegedly bad loans to Fannie Mae between ’05 and ’10. Prosecutors contend that the faulty loans misrepresented the credit employment, income, and other information of applicants.

According to Reuters, Abacus is thought to be the only bank to have gone to criminal trial in this country over mortgage fraud charges related to the 2008 economic crisis. The banks loans, however, did not have a high default rate and are still performing. Borrowers are continuing to issue monthly mortgage payments.

While Abacus claims the wrong bank was tried, a spokesperson from the Manhattan District Attorney's office pointed to the employees' guilty pleas and said that in the wake of the prosecution and enhanced supervision that has resulted, the alleged fraud has definitely concluded.

Abacus bank acquitted of all charges in N.Y. mortgage fraud trial, Reuters, June 4, 2015

SEC Settles With Ex-Freddie Mac Executives Over Allegations They Mislead Investors Over Mortgage Risks, Institutional Investor Securities Fraud, April 15, 2015

Goldman to Buy Back $3.15B in RMBS to Resolve FHFA Claims, Stockbroker Fraud Blog, August 26, 2014

June 2, 2015

Merrill Lynch to Settle Short-Selling Case for $11M, Admits to Wrongdoing

The SEC said that Merrill Lynch (MER) would pay $11 million to resolve allegations of short-selling-related noncompliance. The regulator said that the wirehouse executed short sales in certain securities when the supply for this type of transaction was restricted.

Customers frequently ask brokerage firms to “locate” stock that can be used for short selling. The financial firms generate easy-to-borrow lists made up of the stock they believe is accessible for such locates. However, contends the SEC, from January 2008 through January 2014 Merrill used information that was dated to create these ETB lists.

For example, there were times when certain securities that were placed on the ETB list in the morning were no longer as easily available for borrowing later in the trading day. Yet Merrill’s platforms were set up so that they continued to process short sale orders according to the now-dated list—even as firm personnel appropriately stopped using the list for sourcing locates when certain shares’ availability had become restricted.

Continue reading "Merrill Lynch to Settle Short-Selling Case for $11M, Admits to Wrongdoing" »

May 26, 2015

Deutsche Bank Ordered to Pay $55M for Misstating Financial Reports During the Economic Crisis

The U.S. Securities and Exchange Commission is ordering Deutsche Bank AG (DB) to pay $55M to resolve charges accusing the firm of misstating financial reports during the peak of economic crisis. The regulator believes that the financial institution did not factor the material risk for possible losses of billions of dollars.

According to the regulator, in its order instituting a resolved administrative proceeding, Deutsche Bank overvalued a derivatives portfolio the bank had used to buy protection against losses involving credit default. Due to the to the Leveraged Super Senior trades’ “leveraged” nature the collateral for the positions was minimal compared to the $98 billion in purchased protections.

This generated a “gap risk” that the protection’s market value could potentially go beyond the available collateral. Also, because the sellers that put down the collateral could choose to unwind the trade instead of putting more collateral down in such a situation, this meant that technically the bank was protected only up to its collateral level and not its credit protection’s full market value.

The SEC says that at first, Deutsche Bank factored the gap risk into financial statements by dropping down the LSS positions’ value. However, when the markets began to fail in 2008, the firm modified the way it measured the gap risk. Each change implemented lowered the value given to the risk until the bank stopped making adjustments for it at all. For purposes of financial reporting, this meant that Deutsche Bank was no improperly valuing LSS positions and treating its protection as if it were fully collateralized. Internal calculations, however, determined that the gap risk was anywhere from $1.5 billion to $3.3 billion during this time.

By settling, Deutsche Bank is not denying or agreeing to the SEC’s findings. It maintains that it didn’t update the market value of the transactions because it didn’t think there was a reliable means to measure them when there were illiquid market conditions at the time of the financial crisis. It said that it has since improved its policies, internal controls, and procedures related to illiquid asset valuation.

At the SSEK Partners Group, our institutional investor fraud lawyers are here to help high net worth individual investors and institutional clients recoup their losses. Contact us today.

Read the SEC Order (PDF)


More Blog Posts:

Massachusetts Securities Regulator Sues the SEC Over New Rules Affecting Small Company Stock Offerings, Stockbroker Fraud Blog, May 26, 2015

Deutsche Bank to Pay $2.5B for Rate Rigging, Institutional Investor Securities Blog, April 23, 2015

May 19, 2015

Morgan Stanley to Pay $2M for Violations Involving Short Sales and Short Interest Reporting

The Financial Industry Regulatory Authority is fining Morgan Stanley & Co. LLC (MS) $2M for violations involving short sale and short interest reporting rules. The violations purportedly took place over six years. The financial firm is also accused of not putting into place a supervisory system designed in a reasonable enough manner that it could identify and prevent such violations.

Financial firms are supposed to report to the SRO on a regular basis their total short positions involving equity securities in proprietary firm and customer accounts. However, according to the self-regulatory organization, Morgan Stanley did not accurately and completely report such positions in certain securities that involved billions of shares. FINRA also said that the firm’s supervisory system was deficient.

Meantime, under U.S. Securities and Exchange Commission’s Regulation SHO for regulating short sales, firms are supposed to aggregate their positions in a security to determine whether they are short or long. Through an aggregation unit, Regulation SHO lets firms track positions in a security separate from other positions at the firm and via certain trading desks or operations.

An aggregation unit cannot include the security positions of customers at non-brokerage firm affiliates. FINRA said that Morgan Stanley, however, included the positions of such customers in a number of aggregation units when determining the net position of each unit.

By settling and agreeing to pay the $2 million fine, Morgan Stanley is not denying or admitting to the securities charges. It has, however, agreed to the entry of FINRA’s findings.

Short Sales
Most short sales are legal but there are those that are not when conducted under abusive practices. Short sale transactions are vulnerable to fraud and they may result in losses.

Contact SSEK Partners Group today.

FINRA's Action Against Morgan Stanley (PDF)


More Blog Posts:
Morgan Stanley, DOJ Arrive at $2.6B Mortgage Bond Settlement, Stockbroker Fraud Blog, February 25, 2015

Morgan Stanley Sued by Home Shopping Founder’s Widow for $170M, Institutional Investor Securities Blog, April 27, 2015

LPL Financial to Pay $11.7M Fine for Supervisory Failures, Institutional Investor Securities Blog, May 6, 2015

May 18, 2015

Nomura & Royal Bank of Scotland Must Pay $806M in Mortgage-Backed Securities Case

Nomura Holdings (NMR) and Royal Bank of Scotland group Plc (RBS) must pay $806 million in the mortgage-backed securities lawsuit filed against them by the Federal Housing Finance Agency. $779.4 million will go to mortgage lender Freddie Mac (FMCC) while $26.6 million will go to Fannie Mae (FNMA).

Judge Denise L. Cote of the Federal District Court in Manhattan was the one who found the two banks liable for making false statements when selling the securities to the two lending giants. The banks will also take back the mortgage bonds that are the basis of this lawsuit. As of the end of March, these bonds were worth up to $479 million.

It was Nomura that sponsored $2 billion of the securities purchased by Freddie and Fannie. RBS was the underwriter on four of the deals.

FHFA has filed similar claims against other banks, including JPMorgan Chase & Co. (JPM), Bank of America Corp. (BAC.N), and Deutsche Bank AG (DB). It’s obtained close to $17.9 billion in settlements from the financial institutions. RBS and Nomura opted to go to trial instead of settle.

Judge Cote said that the two banks committed falsities that were “enormous.” The FHFA accused both institutions of cheating Freddie and Fannie by selling them defective mortgage bonds. Meantime, RBS and Nomura had countered that the documents for the bond sales did a good enough job of pointing out the risks and did not mislead investors. They said the financial crisis, rather then their alleged misstatements, were responsible for the two mortgage lenders’ financial losses.

When financial firms and their representatives make mispresentations or ommissions about the securities they are selling, this can lead to huge losses for investors, which can be devastating if their portfolios aren't able to handle the risks. Unfortunately, that is what happened with investors of mortgage-backed securities leading up to the 2008 financial crisis. Even now, there are individual and institutional investors that are trying to get their money back.

At Shepherd Smith Edwards and Kantas, LTD LLP, our mortgage-backed securities lawyers are here to help investors with their claims and lawsuits. We have the experience and resources to go up against large banks, investment advisory firms, and others. Contact us today.

Nomura, RBS ordered to pay $806 million in mortgage bond case, St. Louis Post-Dispatch, May 15, 2015

Nomura, RBS must pay $806 million in mortgage bond case - U.S. judge, Reuters, May 15, 2015

Federal Housing Finance Agency


More Blog Posts:
Nomura Holdings and Royal Bank Scotland Lose FHFA's Mortgage-Backed Securities Case, Institutional Investor Securities Blog, May 11, 2015

Barclays, Citigroup, J.P. Morgan Chase & Royal Bank of Scotland to Settle FX Rigging Allegations, Institutional Investor Securities Blog, May 7, 2015

May 15, 2015

Barclays Also Likely to Be Fined For Libor Settlement Breach

Bloomberg says that according to sources familiar with the matter, in addition to the penalty that Barclays Plc (BCS) is expected to pay to resolve the U.S. Justice Department’s case for interest currency benchmark rigging, the bank will also likely have to pay a fine for violating an earlier settlement reached over interest rate rigging.

These sources say that as of a few weeks ago, the fine was at around $60 million, although negotiations are ongoing. If Barclays is fined it would be the second bank to be subject to penalization for such a violation.

The firm had arrived at a non-prosecution deal with the DOJ over allegations that it rigged the London interbank offered rate, even as it agreed in 2012 to pay $452.3 million to the DOJ, the Commodity Futures Trading Commission, and U.K.’s Financial Services Authority. As part of the non-prosecution agreement, Barclays consented not to commit criminal actions.

As our securiites law firm mentioned in an earlier blog post, Barclays is expected to enter a guilty plea related to currency rigging charges shoot with fines likely to exceed $1 billion to the DOJ, New York’s Department of Financial Services, and U.K.’s Financial Conduct Authority. Also expected to enter guilty pleas: JPMorgan Chase & Co. (JPM), Royal Bank of Scotland Plc (RBS), and Citigroup (C).

UBS Group AG (UBS) is expected to enter its own guilty plea to charges involving its settlement over Libor rigging. The Swiss-based bank has admitted to taking part in manipulating currency benchmarks, which violated an earlier agreement with the U.S. DOJ. In that deal, the firm promised to refrain from committing additional crimes.

Barclays said to face US fine for breaching libor settlement, Business Times, May 15, 2015

Barclays Said to Face US Fine for Breaching Libor Settlement, Bloomberg, May 14, 2015


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

Barclays, Citigroup, J.P. Morgan Chase & Royal Bank of Scotland to Settle FX Rigging Allegations, Institutional Investor Securities Blog, May 7, 2015

May 13, 2015

Goldman Sachs Must Pay National Australia Bank $100M in Mortgage Fraud Case

A Financial Industry Regulatory Authority (“FINRA”) arbitration panel recently ordered Goldman Sachs Inc. (“Goldman”) to pay $80 million in compensatory damages plus millions more in interest to National Australia Bank Ltd. (“NAB”), resulting in an award likely to cost Goldman (GS) more than $100 million. According to the award and NAB’s complaint, Goldman sold NAB several collateralized debt obligations (“CDOs”), including the Hudson Mezzanine Funding 2006-1 Ltd.

In particular, NAB paid $80 million for its stake in Hudson Mezzanine Funding, a Goldman-backed product, shortly before the financial crisis began. The investments failed when the market for CDOs and other asset backed securities fell apart in 2007 and 2008. In 2011, a U.S. senate report disclosed that while pitching Hudson Mezzanine Funding, Goldman did not tell investors such as NAB that it was betting against the assets supporting Hudson and other CDOs. As a result, according to NAB’s attorneys, when the economic crisis ensued, Goldman profited from the Hudson CDO while NAB and other investors lost all of their investment.

In its complaint, NAB contended that the mortgage-related deal posed a substantial conflict of interest between Goldman and its clients, and, therefore, Goldman was required under FINRA rules to disclose the conflict. Goldman argued it had no such disclosure obligation and, in fact, filed a counterclaim against NAB.

The FINRA arbitration panel, in its May 7 ruling, found in favor of NAB and specifically stated “there were knowing and material omissions and misstatements in the marketing materials … that masked a significant conflict of interest with [Goldman’s] clients.” As a result, the panel determined “National Australia Bank Limited is entitled to the return of its $80 million investment.”

This is not the first time Goldman has been forced to pay nine figures for selling institutional investors clearly conflicted products. In 2010, Goldman Sachs consented to pay $550 million to resolve U.S. Securities and Exchange Commission charges accusing the firm of misleading investors by omitting and misstating key facts about the ABACUS 2007-AC1, a synthetic collateralized debt obligation that it promoted. Goldman did not disclose the role of hedge fund Paulson & Co. in making portfolio choices or that Paulson took a short position against the collateralized debt security. It was ultimately found the Goldman marketing materials for the CDO did not have complete information and that Paulson’s economic interest, when making choices for the portfolio, were adverse to investors.

Shepherd, Smith, Edwards & Kantas is a national law firm that represents individual and institutional clients in high stakes securities litigation and arbitration claims. Our attorneys have over 100 collective years of securities industry and legal experience, resulting in our firm being uniquely qualified to help investors in complex securities cases. Please contact our office for a free, no obligation consultation if you have a significant securities loss and suspect there was wrongdoing.

Goldman Sachs Ordered to Pay $80 Million Plus Interest in Mortgage Case, The Wall Street Journal, May 11, 2015

Goldman Must Pay National Australia $80 Million, Panel Says, Bloomberg, May 11, 2015


May 7, 2015

Barclays, Citigroup, J.P. Morgan Chase & Royal Bank of Scotland to Settle FX Rigging Allegations

The Wall Street Journal says that U.S. prosecutors are getting ready to announce settlements reached with Barclays PLC ( BCS), Citigroup Inc. (C), Royal Bank of Scotland Group (RBS), and J.P. Morgan Chase & Co. (JPM) over allegations involving foreign currency exchange rate rigging. All four banks are expected to plead guilty to charges of criminal antitrust related to their traders’ alleged collusion in foreign currency markets. The Department of Justice has been investigating whether traders manipulated exchange rates so that their positions would benefit even if this meant financially hurting customers.

Barclays is expected to settle with a number of agencies in the U.S. and Europe for over $1 billion. Also expected to settle is UBS AG (UBS), which was the first bank to cooperate with federal investigators in this probe. The Swiss bank, however, will reportedly be granted immunity from prosecution.

Guilty pleas by the other firms, however, aren’t going to resolve all of the investigations into forex rigging. Other banks are still under scrutiny and settlements from them may be pending.

Also, NY’s Department of Financial Services is conducting its own probe into whether large banks manipulated FX rates via computer program. The regulator has put in monitors at Deutsche Bank (DB) and Barclays to investigate the issue further. It’s also subpoenaed Goldman Sachs (GS) and a couple of other firms.

The SSEK Partners Group is a securities law firm. We help high net worth individual investors and institutional investor recoup their losses that they sustained from securities fraud.

Banks Expected to Settle FX Probes for Billions, The Wall Street Journal, May 6, 2015

UBS expects forex-rigging settlement with US as profits surge, The Guardian, May 5, 2015


More Blog Posts:
RBC Capital Markets Must Pay $1M Fine and $434K Restitution to Customers Over Unsuitable Reverse Convertible Sales, Stockbroker Fraud Blog, April 30, 2015

FINRA Fines J.P. Turner, LaSalle St. Securities, and H. Beck For Report Supervision Lapses, Institutional Investor Securities Blog, March 30, 2015

More than $600K Whistleblower Award to Be Issued in SEC’s First Retalitation Case
, Institutional Investor Securities Blog, April 30, 2015

May 6, 2015

LPL Financial to Pay $11.7M Fine for Supervisory Failures

The Financial Industry Regulatory Authority Inc. said that LPL Financial (LPLA) must pay $11.7M in fines and restitution for widespread supervisory failures involving complex products sales. The self-regulatory organization said that from 2007 up to last month, the firm did not properly supervise certain exchange-traded funds, nontraded real estate investment trusts, and variable annuities. It also did not properly deliver over 14 million trade confirmations to customers and failed to properly supervise communications, including advertising, as well as the consolidated reports used by brokers.

According to the Letter of Acceptance, Waiver, and Consent, To grow LPL, its wholly-owned brokerage firm subsidiary, LPL Financial Holdings Inc. employed a strategy that included acquiring financial services firms, consolidating them with the broker-dealer, and bringing in more registered representatives. Unfortunately, said the SRO, the firm failed to dedicate enough resources to allow LPL to fulfill its supervisory duties.

As just one example, LPL did not have a system for either monitoring the duration of time customers held securities in accounts or enforcing concentration limits on complex products. Its system for reviewing trading activities in accounts had numerous deficiencies. Also, LPL did not submit trade confirmations in over 67,000 customer accounts.

In certain transactions involving variable annuities, LPL purportedly allowed sales to go through without disclosing surrender fees. With certain mutual fund “switch transactions,” the firm is accused of using an automated surveillance system that left these trades out of supervisory review. When supervising non-traded REITs, LPL did not identify which accounts were eligible to receive volume sales charge reductions. Also, LPL’s surveillance system did not issue alerts for certain activities that were high risk, did not keep track of trading activities that were overdue for supervisory review, failed to report certain trades to FINRA and MSRB, and neglected to give regulators full and accurate data about certain variable annuity transactions.

The penalty includes a fine of $10 million and restitution of $1.7 million to customers who bought certain ETFs. Following a review of procedures and systems, these customers may also receive more compensation. By agreeing to pay the fine, LPL is not denying or admitting to the findings.

With approximately 18,000 brokers in the U.S, LPL is one of the biggest brokerage firms in the country. This fine comes two years after the firm paid a $7 million for similar issues involving the way LPL monitored emails between customers and brokers. That was also the year that The New York Times reported that the brokerage firm had been subject to an unusual number of penalties from regulators for purportedly letting brokers sell complex products to investors who weren’t sophisticated enough for the financial instruments. Complex products tend to bring with them bigger commissions than mutual funds, which are less costly.

Read the FINRA Action (PDF)


More Blog Posts:
LPL Financial Should Pay $3.6M in Fines, Repayments for REIT Sales to Older Investors, Says NH Regulator, Stockbroker Fraud Blog, April 7, 2015

Ex-LPL Financial Adviser, James Bashaw from Texas, Lands at New Brokerage Firm, Stockbroker Fraud Blog, October 30, 2015

LPL Financial Ordered to Pay $7.5M FINRA Fine Over E-Mail Failures, Institutional Investor Securities Blog, May 22, 2013

April 28, 2015

SEC Investigates Bank of America Merrill Lynch

According to The Wall Street Journal, the U.S. Securities and Exchange Commission is investigating Bank of America Corp. (BAC) and its Merrill Lynch unit to find out if the lender broke rules established to protect customers accounts. According to sources in the know, over a three-year period, Merrill Lynch used different kinds of big, complex trades and loans to save on funding expenses and free up billions of dollars in money and securities for trading that it otherwise would have needed to keep off-limits.

Bank of America put a halt to the trades in 2012 in the wake of internal dialogue over possible risks involved. The trades involved strategies that existed when the bank purchased Merrill Lynch in 2009.

Now, the SEC wants to know if the strategies violated the protection rules and if regulators were misled about the bank’s actions. It also is trying to determine if retail brokerage funds were placed at risk for the purpose of making more money.

The SEC probe involves looking at whether Bank of America complied with a rule. Established in 1972, the Securities Exchange Act of 1934’s Rule 15c3-3 is intended to make sure that trading firms and investment banks put aside enough funds and securities that are easy to sell so that if a failure were to arise the financial institution would be able to easily pay back whatever customers are owed.

Financial firms that deal with customer trades must calculate their net liability to clients at least once a week. This figure is how much more banks owe clients, through funds such as deposits. The greater the total net that the bank owes, the more funds a firm would have to put aside in reserve in “lockup” accounts for emergency purposes when paying customers would be warranted. These funds must be kept separate from other accounts.

Sources say that Merrill Lynch executives came up with trades and loans to lower how much money needed to be in lockup. In one strategy, called leveraged conversion, the equities desk would recruit clients to place token amounts in their own funds in return for loans that were close to 100 times greater. Bank of America would then organize big trades, with the same customers taking the other side, doing so in a manner to fulfill some of its other financing needs. This would dramatically up how much these customers owed the bank, which would lower the net amount owed to clients and how much had to be kept in lockup.

SSEK Partners Group is an institutional investor fraud law firm. We also work with high net worth individual investors who sustained losses from securities fraud to help them get back their money.

SEC Investigating Whether Bank of America Broke Customer-Protection Rules, The Wall Street Journal, April 28, 2015

Bank of America Merrill Lynch being investigated by SEC, Investment News, April 28, 2015


More Blog Posts:
Bank of America’s Merrill Lynch to Pay $2.5M to Massachusetts Over Compliance Rule Relapse, Institutional Investor Securities Blog, March 23, 2015
FINRA Orders Merrill Lynch to Pay $2.4M in Fine, Restitution for Hundreds of Securities Transactions That Violated Fair Price Guidelines, Stockbroker Fraud Blog, December 16, 2014

Bank of America Used Subsidiary to Finance Trades, Helped Hedge Funds, Others, Avoid Taxes, Institutional Investor Securities Blog, February 11, 2015

April 27, 2015

Morgan Stanley Sued by Home Shopping Founder’s Widow for $170M

Lynnda L. Speer, the widow of Home Shopping Network co-founder Roy M. Speer, is suing Morgan Stanley Wealth Management (MS), a branch manager, and an adviser for over $170 million. Mrs. Speer contends that the firm and adviser Ami Forte took part in excessive trading, abused their fiduciary duty, and were involved in unauthorized use of discretion.

Now, she is seeking $78 million for Florida Statute violations, up to $66 million in portfolio damages, and up to $44 million for disgorgement and excess commission damages. Also named in the complaint submitted to the Financial Industry Regulatory Authority is Morgan Stanley branch manager Terry McCoy.

Reuters reports that Speer’s case accuses Morgan Stanley of not properly supervising its brokers and failing to act in the best interests of Mr. Speer. When Speer died in 2012 at the age of 80 his estimated worth was approximately $775 million.

The claimants contend that McCoy did not properly supervise their financial adviser. Meantime, Forte is accused of unauthorized and unsuitable trading after the account’s owner experienced diminished capacity. More specifics about the FINRA arbitration case are not yet available.

Even the wealthiest investors can sustain significant losses when subject t the negligent or wrongful actions of a financial representative or a firm. You want to work with a securities law firm that knows how to help you recover your losses and can protect your rights.

Our securities arbitration lawyers represent high net worth investors and institutional investors. Contact The SSEK Partners Group today.

Widow of Home Shopping founder sues Morgan Stanley for $400M, Investment News, April 27, 2015

Widow of Home Shopping Network co-founder seeks $170 million from Morgan Stanley, Tampa Bay Times, April 24, 2015


More Blog Posts:
Morgan Stanley, DOJ Arrive at $2.6B Mortgage Bond Settlement, Stockbroker Fraud Blog, February 25, 2015

US Probing Whether Morgan Stanley Data Breach Was Linked to Fired Financial Adviser, Institutional Investor Securities Blog, February 18, 2015

Morgan Stanley Fires Wealth Management Group Employee For Stealing Client Data, Institutional Investor Securities Blog, January 5, 2015

April 23, 2015

Deutsche Bank to Pay $2.5B for Rate Rigging

Financial firm Deutsche Bank (DB) will pay a $2.5 billion fine to regulators in the United States and Britain for its involvement in rate rigging. The German lender also will fire seven of its employees.

This is the largest penalty to date against a financial institution over allegations of benchmark manipulation. As part of the deal, Deutsche Bank’s subsidiary in London has pleaded guilty to criminal wire fraud charges. Meantime, the parent group has arrived at a deferred prosecution deal to resolve U.S. wire fraud and antitrust charges.

The large fine is reflective of the banks’ big market share for financial instruments tied to interest rates on mortgages, credit cards, student loans, and credit cards that the benchmarks help set.

The regulators criticized Deutsche Bank for what they considered its poor oversight of the employees and traders that played a part in setting the rates, as well as the bank’s failure to address warning signs of misconduct. They accused the bank of misleading investigators in their probe into the rate manipulations.

Authorities believe that Deutsche Bank employees in four countries purposely fixed interest rates from 2005 and 2011 even though they knew it was wrong. Traders from Deutsche Bank and other investment banks colluded with one another to assist their own trading position. Their actions cost borrowers millions of dollars.

As part of the settlement Deutsche Bank will set up an independent monitor who will make sure that the bank abides by New York laws. The bank will have to let go of seven managers believed to have played a part in the rate rigging. Some 29 Deutsche Bank employees are thought to have been involved. The majority of them are no longer at the bank.

The U.S. regulators involved in the settlement include the Justice Department, which will get $775M, the Commodities Futures Trading Commission, to receive $800M, and the office of Benjamin M. Lawsky, who is New York State’s Superintendent of Financial Services, will receive $600 million. Deutsche Bank also settled with Britain’s Financial Conduct Authority, which will receive approximately $340 million.

Deutsche Bank traders are accused of manipulating the London Interbank Offered Rate, also known as Libor, the Euroyen Tokyo Interbank Offered Rate, called Tibor, and the Euro Interbank Offered Rate, called Euribor. The benchmarks are a barometer of the financial system’s health.

The SSEK Partners Group is securities fraud law firm.

Deutsche Bank to Pay $2.5 Billion Fine to Settle Rate-Rigging Case, New York Times, April 23, 2015

Deutsche Bank Pays $2.5 Billion To Settle LIBOR Manipulation Suit, Forbes, April 23, 2015


More Blog Posts:
Former Tullett Prebon Broker, Rabobank Trader Plead Not Guilty To Libor Manipulation Charges, Institutional Investor Securities Blog, April 17, 2015

Texas-Based Broker-Dealer Faces SEC Charges Over Supervisory and Customer Protection Violations, Stockbroker Fraud Blog, March 6, 2015

Jury Says Ex-Envoy Involved in Stanford Ponzi Scam Must Pay $750K, Stockbroker Fraud Blog, February 16, 2015

April 13, 2015

Plaintiffs Appeal Federal Court’s Ruling Dismissing Their 401(K) Lawsuit Against Fidelity

A notice of appeal was submitted with the 1st U.S. Circuit Court of Appeals by plaintiffs seeking to overturn a ruling by a federal district court dismissing their 401(K) case against Fidelity Investments. The case is In Re Fidelity ERISA Float Litigation.

According to the plaintiffs, who are participants in a number of defined contribution plans, as record keeper for several of the plan, the financial firm breached its fiduciary duty when managing the plans’ float income. This is the money made from interest-bearing accounts that 401k) plans use temporarily before plan assets are disbursed and participants move their funds among different investment choices.

The plan participants believe that Fidelity used the float income to cover administrative and record-keeping costs, which was not part of their agreement with the firm in terms of the fees they were supposed to pay it. However, U.S. District Judge Denise Casper dismissed their complaint last month, finding that the plaintiffs did not plausibly allege that “float income is a plan asset.” Casper noted that she did not consider Fidelity an ERISA fiduciary in relation to float. Now, however, the plaintiffs’ lawyers are disagreeing with Casper’s ruling.

The ERISA case consolidated four lawsuits filed against Fidelity by 401(k) plan participants. Bank of America (BAC) is one of the plaintiffs.

The appeal comes just weeks after Ameriprise Financial ag (AMP) consented to pay $27.5M to resolve a 401(k) lawsuit accusing it of breaking its fiduciary duty to 24,000 ex- and current employees who participate in the company’s retirement savings plans.

The plaintiffs accused that firm of failing to make sure the administrative services fees charged were reasonable. They questioned the way Ameriprise used investment options that were managed by a subsidiary. The firm denies the allegations.

However it did consent to place the record-keeping functions of its plan out for bidding and to pay a per-participant or flat fee for these services. It also consented to specific fee disclosures and agreed to find the lowest-priced investment choices moving forward.

Plaintiffs appeal decision in Fidelity case on 401(k) float income, InvestmentNews, April 13, 2015

Fidelity float income lawsuit dismissed, Pensions and Investments, April 6, 2015

Another suit on 401k fees is dismissed
, The Wall Street Journal, March 26, 2015

http://www.gpo.gov/fdsys/pkg/USCOURTS-mad-1_13-cv-10222/pdf/USCOURTS-mad-1_13-cv-10222-0.pdf

More Blog Posts:
FINRA Fines Fidelity $350K for Overcharging More than 20,000 Clients $2.4M, Stockbroker Fraud Blog, January 20, 2015

Investor Files Securities Case Against Fidelity Over Float Income Investments Involving 401(K)s, Institutional Investor Securities Blog, May 6, 2013

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

April 10, 2015

Deutsche Bank Settlement Over Libor Rigging Likely to Exceed $1.5B

According to media reports, Deutsche Bank AG (DB) could settle allegations over Libor manipulation with U.S. and British regulators as early as this month. A source reports that the settlement is likely to be larger than $1.5 billion and unit Deutsche Bank Group Services may even plead guilty.

Regulators expected to be involved in any settlement are the U.S. Department of Justice, the Department of Financial Services in New York, the Commodity Futures Trading Commission, and U.K.’s Financial Conduct Authority. Deutsche Bank is one of several banks probed over accusations of London interbank offered rate manipulation.

Libor is the key interest rate linked to mortgages, credit cards, student loans, and other instruments. The bank is accused of giving false data to a British Banker’s Association daily survey, which impacted Libor’s daily rate in numerous currencies, such as the U.S. dollar, the Euro, and the yen.

Already, UBS Group AG (UBS), Barclays (BARC), Rabobank Groep of the Netherlands, Royal Bank of Scotland Plc (RBS), and Lloyds Banking Group Plc have arrived at settlements over similar allegations. Also, last year, six global banks paid $4.3 billion to resolve civil claims that they manipulated foreign exchange rates. Those cases were settled with the FCA and the CFTC. A number of banks have yet to resolve the DOJ’s criminal probes against them for FX rigging.

A more than $1.5 billion settlement with Deutsche Bank would be the largest one involving a bank over Libor manipulation allegations to date. Already, the German lender was fined $773 million by the European Union for euro interbank offered rate and yen Libor manipulation. The bank is also under scrutiny by Bafin, which is the financial market regulator in Germany.

In other Libor rigging-related news, a federal judge in New York ruled last week that a securities lawsuit against Citigroup (C), Credit Suisse Group AG (CS), Barclays Bank PLC, and dozens of other banks failed due to lack of personal jurisdiction and because the plaintiff, Sheldon Solow brought his claims too late.

The judge said that his court did not have jurisdiction over the foreign banks accused of involvement in the alleged scam that puportedly cost the real estate mogul $100 million.

Solow contended that he would have never paid out that much money if he’d known that the banks were colluding with one another and that this would cost him. He and 7 West 57th Street Realty Co. LLC argued that the foreign banks should have made their jurisdictional arguments in a previous motion to dismiss.

U.S. District Court Judge Paul G. Gardephe, however, said that in light of the U.S. Supreme Court’s ruling last year in Daimler AG v. Bauman, which made tougher the rules regarding bringing American cases against foreign banks that have a New York presence, Solow lost his case.

Deutsche Bank Settlement Over Libor Rigging Likely to Exceed $1.5B, Bloomberg, April 9, 2015

Deutsche Bank comes close to reaching Libor settlement, Financial Times, April 10, 2015

Banks Escape Real Estate Mogul’s $100M Libor-Rigging Suit, Law 360, April 1, 2015

More Blog Posts:
Ex-Rabobank Trader Banned from Financial Services Industry in Britain for Libor Manipulation, Another Pleads Not Guilty in the US, Institutional Investor Securities Blog, March 29, 2015

Libor Manipulation Cases Get the Green Light from U.S. Courts, Libor Manipulation Cases Get the Green Light from U.S. Courts, Institutional Investor Securities Blog, January 30, 2015

Texas-Based Broker-Dealer Faces SEC Charges Over Supervisory and Customer Protection Violations, Stockbroker Fraud Blog, March 6, 2015

April 6, 2015

Barclays Must Pay Former Trader $9M, Ex-Raymond James Broker Gets Back $650K Award

Financial Industry Regulatory Authority arbitrators have awarded Mayank Chamadia $3.7 million in compensation in his case against Barclays Plc. (BARC) Chamadia was placed on leave from the June 2013 to prepare testimony for a possible interest-rate manipulation case. He resigned in October 2013 to go work for another firm.

Although Chamadia wasn’t accused of any violations, he said that the leave time while at Barclays hurt not just his reputation but also is bonus earning power. Now, Barclays must pay Chamadia millions of dollars in deferred pay along with the compensation. The arbitrators found that the firm had “no basis” to reduce or keep payouts that had not yet vested. Chamadia’s lawyer says that this releases some $9 million in back pay that had vested, including interest, to his client.

In another financial representative case against a firm, Robert Fenyk, an ex-Raymond James Financial Services Inc. (RJF) adviser, recently saw his $650,000 award reinstated by the U.S. Court of Appeals for the First Circuit. The ruling comes after a five-year legal battle.

Fenyk was part of the independent adviser network of Raymond James before he was fired in 2009. He took the firm to arbitration two years later alleging employment discrimination and retaliation after a supervisor found out about his sexual orientation and that he was a recovering alcoholic.

An arbitration panel awarded him $650K in back pay and legal costs in 2013. The firm, claiming that the arbitration panel misapplied Florida law and that Fenyk’s claims exceeded the one-year statute of limitations for civil rights cases, appealed in district court. The court vacated the award.

Fenyk appealed and the appellate panel affirmed the original arbitration award. Depending on whether Raymond James appeals this latest ruling, the case could end up before the U.S. Supreme Court.

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

Former Barclays Swaps Trader Wins Millions in Back Pay, The Wall Street Journal, April 3, 2015

Barclays Ordered to Pay Ex-Trader About $9 Million, Lawyer Says, Bloomberg, April 6, 2015

Ex-Raymond James broker wins back $650,000 award, Investment News, March 13, 2015


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CNL Lifestyle Properties REIT Dips in Value, May Sell Ski Resorts, Institutional Investor Securities Blog, March 16, 2015

Broker and Adviser News: Morgan Stanley Sues Ameriprise Broker, Former UBS Broker Alleges Investor Risk Levels Were Mischaracterized, and Ex-Bank of America Merrill Lynch Trainees Seek Overtime, Institutional Investor Securities Blog, March 5, 2015

Financier Lynn Tilton Sues the SEC After She is Charged with Securities Fraud, Institutional Investor Securities Blog, March 31, 2015

March 30, 2015

FINRA Fines J.P. Turner, LaSalle St. Securities, and H. Beck For Report Supervision Lapses

The Financial Industry Regulatory Authority Inc. is fining J.P. Turner & Co., LaSalle St. Securities, and H. Beck Inc. $100K, $175K, and $425K, respectively, for lapses in supervising reports sent to clients. The reports provided asset summaries, and the self-regulatory organization is concerned that they had the potential to hide fraudulent activities.

A consolidated report typically contains information regarding most if not all of a customer’s financial holdings, wherever they are held. FINRA requires that these reports are accurate and clear. Failure to supervise these documents can cause regulatory issues, such as the possibility of inaccurate communication, data that is misleading or confusing, supervisory control lapses, and the use of consolidated reports for unethical or fraudulent reasons. The SRO’s regulatory notice 10-19 states that if a firm cannot properly supervise these reports then it should not distribute them and must make sure that registered representatives abide by this restriction.

During routine exams, FINRA found that representatives from the three firms prepared and issued consolidated reports to customers even if the documents hadn’t been properly reviewed beforehand. LaSalle St Securities, which had written procedures pertaining to consolidated reports, failed to enforce these and did not properly trained representatives on how to use the reports. The disciplinary action against the broke-dealers was related to private placement-involved matters.

J.P. Turner and H. Beck lacked the written procedures tackling consolidated reports and their supervision and use, said FINRA. The action against H. Beck also dealt with violations linked to unit investment trust sales. FIRNA said that all three firms had representatives who used consolidated report systems that let them submit customized values for investments or accounts that were held away from the firm. However, the firms’ procedures lacked the safeguard to confirm their accuracy. By settling, the three firms are not denying or admitting to the self-regulatory organization’s findings.

The SSEK Partners Group is a securities law firm.

FINRA Sanctions Three Firms for Inadequate Supervision of Consolidated Reports, FINRA, March 30, 2015


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

Ex-Rabobank Trader Banned from Financial Services Industry in Britain for Libor Manipulation, Another Pleads Not Guilty in the US, Institutional Investor Securities Blog, March 29, 2015

Ex-Nomura, RBS Trader Enters Guilty Plea to Bond Fraud, Institutional Investor Securities Blog, March 11, 2015

March 26, 2015

Ameriprise Financial Settles 401(k) Fiduciary Breach Case for $27.5M

Ameriprise Financial Inc. (AMP) will pay $27.5 million to settle a fiduciary breach case filed by its retirement plan participants. The plaintiffs contend that the financial firm cost them millions of dollars in excessive fees. The agreement was reached just weeks before the 401k lawsuits were set to go to trial. Even though Ameriprise is settling, the firm is not denying or admitting to the alleged breaches.

The plan participants filed their case in 2011 against the firm and the committes tasked with supervising Ameriprise's employee benefits administration and 401(k) investments. The plaintiffs said that the investments in the 401(k) plan included money from the firm’s RiverSource Investments subsidiary and that both companies were paid fee revenues from the plan dollars of employees.

Under the deal, Ameriprise will not have to modify its plan but it will perform a request-for-proposal bidding process for investment consulting services and recordkeeping services, as well as other modifications. Aside from direct expense reimbursements from the plan, the firm cannot get paid for the administrative services it provides to the plan. Ameriprise also must continue to pay a recordkeeper, offer participants the required plan fee disclosures, and consider using separately managed accounts and collective investment trusts.

Recently, experts at the National Association of Plan Advisors 401(k) Summit gathered to talk about the developing legal risks that are starting to impact advisers and retirement plans. Among the areas ripe for 401(k) cases are the failure to swiftly abide by fee disclosure regulations and deals involving plan providers having discretion over employee stock ownership plans and fund menus. The number of 401K lawsuits has been growing over the last few years.

Aside from the Ameriprise case, Lockheed Martin Corp. recently settled a 401(k) lawsuit for $62 million to resolve employee allegations that it mismanaged its retirement plan. Over 108,000 participants were represented in the case, which alleged excessive fees that were imposed and concealed, hurting investment returns.

Underperformance of its “stable value” fund option was blamed on portfolio managers who were too conservative with their investment choices. The defense contractor, however, maintains that it did nothing wrong.

In 2013, International Paper Co. paid $30 million to settle current and ex-employees claims alleging that its 401(k) plans violated the Employee Retirement Income Security Act. The plaintiffs alleged that International Paper kept up its own publicly traded stock as an investment choice, paid excessive investment management and recordkeeping fees, and fraudulently reported performance histories for the funds of the plans. It too denied the allegations.

And there are other cases, including Tibble v. Edison. That class action case has participants in the Edison International-sponsored plan contending that they also were charged excessive fees.

While the lower courts sided with the plaintiffs, finding that the company failed to act in participants’ best interests when selecting mutual fund retail-class shares (rather than the less expensive institutional class ones), a district court and an appeals court sided with the defendant.

Edison said that because of the statute of limitations under ERISA, participants are only allowed to sue based on funds that had been in the plan for six years or less. Because of this, argued the company, it isn’t possible to hold it liable for all of the funds under dispute. Now, it’s up the U.S. Supreme Court to issue a ruling.

Ameriprise to pay $27.5 million settlement in 401(k) fiduciary breach suit, Investment News, March 26, 2015

Lockheed Martin to pay $62 mln to settle 401(k) lawsuit, Reuters, February 20, 2015

International Paper Pays $30 Million Over 401(k) Claims
, The Wall Street Journal, October 1, 2013

Tibble V. Edison


More Blog Posts:
Ex-Ameriprise Adviser Pleads Guilty To Nearly $1M Fraud, Stockbroker Fraud Blog, October 16, 2014

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

Investor Files Securities Case Against Fidelity Over Float Income Investments Involving 401(K)s, Institutional Investor Securities Blog, May 6, 2013

March 23, 2015

Bank of America’s Merrill Lynch to Pay $2.5M to Massachusetts Over Compliance Rule Relapse

Merrill, Lynch, Pierce, Fenner & Smith, a Bank of America unit (BAC), will pay the state of Massachusetts $2.5 million to resolve charges that it did not abide by its own compliance rules. According to Secretary of the Commonwealth William Galvin, the firm did not properly supervise employees in January 2013 over two presentations that were made to financial advisers in Boston.

The presentations, which allegedly were not properly vetted by compliance staff, were geared toward helping advisers grow their business and oversee the services that they offer clients. Part of the presentations provided training on how to double production via the transfer of customer assets from brokerage accounts that were commission-based to ones with fiduciary fee-based options. Disclaimers about client suitability or advisers’ fiduciary duties were not provided.

According to Merrill Lynch’s own procedures and policies, its compliance team must approve these types of presentations beforehand. A Bank of America spokesperson, however, maintains that no clients were harmed. The firm has since reemphasized to its employees the importance of making sure that internal presentations are properly approved first.

Getting bilked is just one of the reasons why an investor might want to pursue a securities claim to recover losses. Broker misconduct can also include making unsuitable investments to a client, misrepresenting or omitting material facts to an investor about an investment, failure to diversify a client’s portfolio—also known as overconcentration—excessive trading in a client’s account—known as churning—failure to make orders, inadequate supervision or training of a broker, breach of contract, margin account abuse, unauthorized trading, registration violations, and other wrongdoing.

Contact our to discuss your securities case today. Your first consultation with us is free.

Read the Consent Order (PDF)


More Blog Posts:
FINRA Orders Merrill Lynch to Pay $2.4M in Fine, Restitution for Hundreds of Securities Transactions That Violated Fair Price Guidelines, Stockbroker Fraud Blog, December 16, 2014

Citigroup, Credit Suisse, Deutsche Bank, Merrill Lynch, & Other Firms Ordered by FINRA to Pay $43.5M Over Activities Related to Toys “R” Us IPO, Institutional Investor Securities Blog, December 11, 2014

Bank of America Used Subsidiary to Finance Trades, Helped Hedge Funds, Others, Avoid Taxes, Institutional Investor Securities Blog, February 11, 2015

March 19, 2015

Bank of New York Mellon Corp. Settles Currency Fraud Lawsuits Involving Pension Funds for $714M

Bank of New York Mellon Corp. (BK) has agreed to pay $714 million to settle claims that it bilked pension funds and others by overcharging for currency transactions. The settlements resolve cases by New York Attorney General Eric Schneiderman and Manhattan U.S. Attorney Preet Bharara, as well as both private cases and probes by the U.S. Department of Labor and the U.S. Securities and Exchange Commission.

The lawsuits involve the bank’s “standing instruction” for its foreign exchange program: Clients are supposed to let the bank unilaterally deal with foreign-exchange transactions.

The bank admitted that it notified certain clients that it was determined to obtain them the best rates possible even as the firm gave them the ones that were among the worst interbank rates. The bank had previously denied the claims because the lawsuits were submitted in 2011, not agreeing until the following year to modify pricing disclosures. In February, Bank of New York Mellon said it would modify 4tth quarter results to make room for a $598 million litigation cost as it was getting ready to resolve certain claims, including those involving foreign exchange.

As part of the resolutions, the bank said it would let go of certain employees, including products management head and managing director David Nichols. He has admitted to knowing that the bank failed to notify customers of its pricing methodology.

It was former bank employee Grant Wilson who acted as whistleblower to help the investigators in their case against the bank. Wilson is expected to collect awards from the settlements.

Of the settlements, $335 million will be divided between the state of New York and the DOJ. Schneiderman’s office said its share would primarily go toward compensating customers that were bilked, including the State University of New York and the New York State Deferred Compensation Plan. His office’s case was among the first to use the 1989 Financial Institutions Reform, Recovery and Enforcement Act, which lets the government pursue fraud impacting financial institutions that are federally insured. Schneiderman claimed that the bank made $2 billion in a more than ten-year period from its alleged deception. The U.S., with its case, said that between 2000 and 2011 the bank bilked clients of hundreds of million dollars.

$335 million will go toward settling private class action securities cases. $14 million will settle U.S. Department of Labor claims. $30 million will resolve SEC claims.

These probes are separate from a wider DOJ probe into claims that traders at leading banks colluded to rig foreign exchange rates.

Meantime, Bank of New York Mellon is undergoing an attack by one active investor. Shareholder Marcato Capital Management LP demanded that Gerald Hassel, the chief executive and chairman of the bank, be ousted. It also wants costs cut.

BNY Mellon to pay $714 million to settle foreign exchange cases, Reuters, March 19, 2015

BNY Mellon CEO Faces Shareholder Criticism, The Wall Street Journal, March 10, 2015


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Resource Horizons Group’s Future Hangs in Balance Following $4M FINRA Arbitration Award, Stockbroker Fraud Blog, September 25, 2014

March 9, 2015

Appellate Court Says Charles Schwab & Co. Must Face Financial Advisory Firm’s Lawsuit Over Mortgage Debt Involving Bond Funds

A panel of U.S. Judges says that Charles Schwab & Co. (SCHW) must face a lawsuit brought by Northstar Financial Advisors Inc. The investment advisory firm claims that Schwab invested the assets of a bond-index fund in high-risk mortgage debt prior to the financial crisis. The plaintiff is proposing that this case be a class action securities claim, which could include investors who have owned the fund since 2007. In particular, notes Northstar Financial Advisors Inc., the Schwab Total Bond Market Fund (SWLBX) placed lots of risky debt into the fund, resulting in losses of tens of millions of dollars, as well as underperformance against its benchmark.

Reuters reports that the plaintiffs claim that because Schwab invested over 25% of assets in non-agency mortgage securities and collateralized mortgage obligations, the firm’s portfolio managers disregarded the fundamental investment objectives of the fund to track the Lehman Brothers U.S. Aggregate Bond Index and stay away from industry bets. Because of this, they argued, the fund lagged its benchmark from 9/1/07 to 2/27/09, suffering a 4.80% loss while the index posted a 7.85% positive total return.

Northstar Financial Advisors Inc. filed its securities case in 2008 but the complaint was mired in procedural matters until now. This latest appeal was argued in 2013 in front of three federal judges of the 9th U.S. Circuit Court of Appeals in San Francisco. Their decision, finally—albeit nearly two years later—reinstates the breach of fiduciary duty, breach of contract, and other claims.

Writing for the court, Judge Edward Korman said that Schwab fund’s fundamental policies were enough to create a contract between the fund and shareholders. One of the judges, Circuit Judge Carlos Bea, who was the single dissent, said that Northstar did not have standing to sue since it did not own Schwab fund shares. (Northstar sued after it was assigned the rights of an investor who did have claims against Schwab.)

The 9th circuit is now sending the case back to district court to Judge Lucy Koh. She is the one who dismissed the plaintiff’s case in 2011.

While the North Caldwell, N.J.-based advisory firm’s legal team expressed approval of the latest ruling, Schwab said it plans to keep mounting its defense. A spokesperson for the firm said that it would prove that the drop in the fund’s net asset value was because of the financial crisis and that the shareholders who held the fund during that time sustained few if any losses. After the peak of the economic crisis, mortgage-backed securities saw their value decline when a number of homeowners were unable to meet their loan obligations.

Schwab is one of a number of companies dealing with litigation over allegedly unexpected losses in fixed-income mutual funds during the financial and housing crises. Morgan Keegan and Fidelity Investments also have been sued.

Northstar Financial Advisors Inc v. Schwab Investments et al, 9th Circuit (Opinion) PDF

Charles Schwab must face U.S. lawsuit over bond index fund, Reuters, March 9, 2015

Schwab must face adviser's lawsuit after all: appellate court, Investment News, March 9, 2015


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Wealthfront CEO Claims Schwab is Fooling Investors Over “Free” Automated Investment Platform, Stockbroker Fraud blog, March 9, 2015

District Court Imposes $26M Commodity Pool Fraud Penalty, Stockbroker Fraud Blog, March 7, 2015

Citigroup, Wells Fargo, JPMorgan Chase, And 27 Other Big Banks Pass Fed Stress Tests’ Phase One, Institutional Investor Securities Blog, March 6, 2015

March 6, 2015

Citigroup, Wells Fargo, JPMorgan Chase, And 27 Other Big Banks Pass Fed Stress Tests’ Phase One

The 31 biggest banks in the U.S. all passed the first phase of the Federal Reserve’s stress test. This is the first time since the tests have been conducted on banks with over $50 billion in assets that all of them stayed above capital requirements.

Banks have been building their capital reserves, based on tougher Fed requirements, to protect against any losses. Included among the firms that did well are Wells Fargo (WFC), Citigroup (C), JPMorgan Chase (JPM), and Goldman Sachs (GS).

Based on the results thus far, the Federal Reserve said the big U.S. banks are healthy enough to keep lending if there were to be a serious recession, even if corporate debt markets failed, housing and stock prices dropped, and unemployment were to reach 10%.

Up next is phase two of the stress tests, which will assess which lenders can give capital back to investors. The banks will have to demonstrate that they can keep up the minimum capital levels even after stock buybacks or dividend payments were issued. The Fed is also expected to announce whether any of the banks will have to curb capital spending plans. They have, however, been told in private about whether their capital plans would place them under the Fed’s minimum threshold in the next phase of tests.

Santander and Deutsche Bank AG (DB), which is a first time-test taker, are likely to fail the next phase because of “qualitative” factors, sources tell The Wall Street Journal, which pointed out that strong capital levels by themselves are not enough to guarantee that banks will get payout approval. The Fed is also now looking at the banks’ governance, culture, and ability to determine risks.

Fed Stress Tests Find Banks Adequately Capitalized, The Wall Street Journal, March 5, 2015

All 31 top banks clear 1st phase of stress tests, USA Today, March 6, 2015


More Blog Posts:
Texas-Based Broker-Dealer Faces SEC Charges Over Supervisory and Customer Protection Violations, Stockbroker Fraud Blog, March 6, 2015

Judge Temporarily Blocks Meredith Whitney Fund From Making Investor Payouts in the Wake of BlueCrest Capital Opportunities Lawsuit, Institutional Investor Securities Blog, February 27, 2015

Nontraded REIT Inland American Reduces Its NAV After Asset Sale, Institutional Investor Securities Blog, February 26, 2015

March 5, 2015

Broker and Adviser News: Morgan Stanley Sues Ameriprise Broker, Former UBS Broker Alleges Investor Risk Levels Were Mischaracterized, and Ex-Bank of America Merrill Lynch Trainees Seek Overtime

Morgan Stanley Accuses Ex-Broker, Now With Ameriprise, of Trying to Take Clients
Morgan Stanley Wealth Management is suing one of its ex-brokers, John McCallion, who is now with Ameriprise Financial Services (AMP). The wirehouse claims that McCallion went into Morgan Stanley’s (MS) computer system before leaving the firm and changed his clients’ phone numbers so he could take their business with him.

The firm contends that while McCallion gave it a list of his clients’ information, he put the data on a USB drive that could not be opened on Morgan Stanley’s computers because of security issues. The Ameriprise broker has consented to a temporary restraining order that blocks him from pursuing the firm’s clients. He also is facing a FINRA arbitration claim over the matter. McCallion had at first tired to argue against the temporary order and he denied taking the confidential list or trade secrets.

Ex-UBS Broker Accuses Firm of Hostile Work Environment, Misrepresenting Investor Risk Levels
Meantime, in another FINRA arbitration case, an ex UBS Wealth Management Americas (UBS) broker wants a federal court judge to overturn the award ordering him to pay back over $300,000 in bonus money. Michael Hadden claims that UBS made it “impossible “for him to keep working there because of the way the firm marketed and sold structured products to investors that were supposedly conservative, even though it was mislabeling them “moderate” in terms of risk tolerance to avoid penalties and restitution.

Hadden also contends that UBS used negative consent letters that charged high investment management fees. He says that UBS’s “inhospitable work environment,” via its practices as they related to employees, customers, and regulators, gave him good reason to leave the firm without paying back promissory notes.

It was last year that FINRA rejected his counterclaim for $1.3 million in damages, siding with UBS to claw back his bonus. Hadden, however, said that he wasn’t given enough time to demonstrate his claims of an inhospitable work environment during the arbitration process.

Former Trainees for Bank of America’s Merrill Lynch Sue for Overtime
Two former financial-adviser trainees of Bank of America Corp’s (BAC) Merrill Lynch unit are suing the firm for overtime. They are accusing the companies of Fair Labor Standards Act violations for not paying overtime for work that they did on the weekends and during long nights, as well as for 10-hour days. They want to represent over 100 trainees that have worked in the firms’ Practice Management Development program since 8/5/2011. Damages could exceed $5 million.

According to Zaq Harrison and Andrew Blum, Bank of America and Merrill did not properly compensate trainees during the program's development stages even though they were expected to generate leads on possible bank clients. They also claim that the two companies violated the wage-and-hour law in Maryland.

Bank of America, Merrill Trainees Sue Seeking Overtime, March 5, 2015

Morgan Stanley sues former broker, now at Ameriprise, over recruiting hijinks
, Investment News, March 5, 2015

Hadden v. UBS Financial Services Inc., Justia, February 18, 2015


More Blog Posts:
Morgan Stanley, DOJ Arrive at $2.6B Mortgage Bond Settlement, Stockbroker Fraud Blog, February 25, 2015

Bank of America Used Subsidiary to Finance Trades, Helped Hedge Funds, Others, Avoid Taxes, Institutional Investor Securities Blog, February 11, 2015

DOJ Investigating UBS Over Losses Related To Firm’s V10 Enhanced FX Carry Strategy, Stockbroker Fraud Blog, February 17, 2015

February 16, 2015

New Details Accusing HSBC of Aiding Tax Evaders Emerge

New information regarding HSBC Holdings PLC’s (HSBC) history of aiding tax evaders has been released by ex-employee Hervé Falciani to a number of media outlet, as well as the International Consortium of Investigative Journalists. The data alleges that the bank kept secret accounts for a number of wealthy, celebrity, and/or unsavory individuals, including “dictators and arms dealers,” as well as clients that are on U.S. sanctions lists. HSBC also purportedly would advise clients on how to get around paying taxes in their home countries.

Falciani, an HSBC computer analyst who calls himself a whistleblower, has provided what the BBC is calling the largest data leak in the history of banking. He started sending information out in 2008, copying files onto personal storage devices. The information was sent to French Finance Minister Christine Lagarde, who now runs the International Monetary Fund. She notified other governments.

Falciani claims that in 2006,he notified his superiors at HSBC that there were flaws in data storage that could hurt client confidentiality. He said that no one paid attention. Bank officials, however, counter that Falciani issued no such warnings.

While critics claim that he stole the HSBC data while working at the bank, as well as originally tried to sell the information first, Falciani denies those allegations. Now, he is warning that more revelations will be coming. Meantime, HSBC issued a statement last week noting that since 2008 the bank has worked hard to stop its services from being used for money laundering and tax evasion.

In 2011, the bank agreed to pay $1.92 billion to Ustpstoc.S. authorities to resolve money laundering claims—That’s $655 million in civil penalties and $1.25 billion in forfeiture.

HSBC is one of about a dozen Swiss lenders that the DOJ is looking into for allegedly helping Americans avoid paying taxes through undeclared accounts. In 2014, Credit Suisse Group (CS) paid $2.6 billion and pleaded guilty to a criminal charge of conspiring to aid tax evasion. In 2009, UBS AG (UBS) managed to avoid prosecution by consenting to pay $780M and giving the names of U.S. account holders to the American government.

HSBC Hit by Fresh Details of Tax Evasion Claims, The Wall Street Journal, February 9, 2015

HSBC to pay $1.92 billion in US money laundering case, France24, December 11, 2012


More Blog Posts:

HSBC to Pay $12.5M Settlement to SEC Over Charges That It Violated Securities Laws, Institutional Investor Securities Blog, November 25, 2014

HSBC Securities to Pay $375K to Settle FINRA Allegations that It Recommended Unsuitable Collateralized Mortgage Obligations to Retail Clients, Stockbroker Fraud Blog, August 25, 2010

UBS Under Scrutiny in New Tax Evasion Probe, Institutional Investor Securities Blog, February 4, 2015

February 12, 2015

SEC Commissioners Oppose Regulator’s Leniency Toward Oppenheimer, Despite Violations

SEC Commissioners Luis Aguilar and Kara Stein, both Democrats, say that they were among those that voted to grant Oppenheimer & Co. (OPY) special benefits even after the brokerage firm committed rules violations. It was just last month that the broker-dealer consented to pay a $20 million penalty while admitting to failures and resolving charges related to its failure to detect money laundering.

In that case, also settle with the Financial Crimes Enforcement Network, the firm did not properly identify and report suspicious penny stock trades, even though numerous Oppenheimer customers reportedly were involved in such activities. The broker-dealer admitted that it failed to establish a suitable anti-money laundering program and did not perform proper due diligence on a foreign correspondent account.

Yet, the regulator overturned the automatic disqualification that should have come with the violation. That happened when SEC Chairman Mary Jo White and the other two members (both Republicans) outvoted the Democratic member. Now, Oppenheimer is allowed to continue selling hedge funds to rich individuals. As part of the condition for the leniency, the broker-dealer will retain a law firm and consultant to make sure that its procedures and policies fall in compliance.

Aguilar and Stein said they were in opposition because they believe that Oppenheimer’s compliance culture is a ‘failed” one and that such a waiver was not deserved. They said that the SEC was disregarding the brokerage firm’s repeated securities law violations that have occurred over the years and exhibited too much leniency. They pointed out that even with the hiring of consultants in the past to report on remediation efforts, not much progress appears to have been made.

Typically, the Commission will grant waivers allowing firms to keep doing normal business, if this is considered in the best interests at the public. The Wall Street Journal points out that had the firm been deemed a “bad actor” this would have limited its ability to sell private fund investments for five years. Sans waiver, firms that violate specific securities laws are instantly restricted from taking part in private offerings.

Oppenheimer, however, pleaded its case. According to Law360, the broker-dealer sent a letter to the SEC’s Division of Corporation Finance, arguing that a bad actor ban was not warranted. The firm argued that the latest enforcement actions are unrelated to its previous securities transactions and a bar would hurt the brokerage firm and clients. Following Stein and Aguilar's published dissent, the brokerage firm promised that to retain a law firm that was “fully independent” to perform the Rule 506 compliance checks.

An Oppenheimer spokesperson said that moving forward, the firm is committed to put into place a robust compliance infrastructure.

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

SEC Commissioners Blast Decision Not To DQ Oppenheimer, Law 360, February 4, 2015

SEC Turned ‘Blind Eye’ to Oppenheimer’s Failures, Democrats Say, The Wall Street Journal, February 4, 2015


More Blog Posts:
Oppenheimer to Pay $20M Settlement to the SEC and FinCEN Over Penny Stock Violations, Stockbroker Fraud Blog, January 28, 2015

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

Ex-Oppenheimer Fund Manager to Pay $100K To Settle Private Equity Fund Fraud Charges, Institutional Investor Securities Blog, January 25, 2014

February 11, 2015

Bank of America Used Subsidiary to Finance Trades, Helped Hedge Funds, Others, Avoid Taxes

According to The Wall Street Journal, internal documents show that Bank of America Corp. (BAC) used its Bank of America National Association, a subsidiary backed by the U.S. government, to finance controversial trades that allowed certain clients to get around paying taxes. A bank spokesperson said that the practice, which involved transactions by its investment banking arm in Europe, was phased out last year.

However, as far back as at least 2011 senior Bank of America investment bank officials in England purportedly began pressing at staff to avail of the lower funding costs of the U.S. unit, which doesn’t pay as much as business units for borrowing money. The purpose was to bring in more hedge fund clients, including those involved in dividend arbitrage tax trades. With that strategy, sophisticated investors are able to avoid or lower their withholding taxes on stock dividends.

There have been questions as to whether using an entity that holds federally insured deposits to pay for high-risk investment banking trades is appropriate. One employee even filed a whistleblower submission to the SEC about the banking subsidiary’s involvement.

Also, trades linked to U.S. Stock dividends were banned following government probes, as well changes to tax rules. In 2011, Bank of America settled for $63 million over previous U.S. dividend arbitrage trading.

The issue of whether certain banks are placing federally insured funds in peril has been a matter of interest ever since J.P. Morgan Chase & Co. (JPM) lost over $6 billion on bad trades involving a trader dubbed the “London Whale.” The firm paid $1 billion for violating securities laws.

Bank of America’s U.S. Deposit-Taking Unit Financed Tax Trades, The Wall Street Journal, February 11, 2015

Bank of America Reportedly Helped Fund Avoid Taxes, Investors.com, February 11, 2015


More Blog Posts:
John Carris Investments Expelled by FINRA, Stockbroker Fraud Blog, February 9, 2015

U.S. Department of Justice Wants Citigroup, Barclays, JPMorgan Chase, and Royal Bank of Scotland to Plead Guilty to Criminal Charges In Currency Antitrust Investigation, Institutional Investor Securities Blog, February 10, 2015

UBS Under Scrutiny in New Tax Evasion Probe, Institutional Investor Securities Blog, February 4, 2015

February 10, 2015

U.S. Department of Justice Wants Citigroup, Barclays, JPMorgan Chase, and Royal Bank of Scotland to Plead Guilty to Criminal Charges In Currency Antitrust Investigation

According to The Wall Street Journal, the Justice Department is going to try to make four big banks plead guilty to criminal anti-trust charges related to its traders’ alleged collusion in foreign-currency markets. The financial institutions are Citigroup Inc. (C), Barclays PLC (BARC), Royal Bank of Scotland (RBS), and J.P. Morgan Chase & CO. (JPM). Meantime, separate criminal fraud cases are being pursued against the individuals whose involvements are suspected.

The DOJ’s probe is examining whether bank employees manipulated foreign-currency exchange rates to their benefit, and in certain cases, hurting customers. In a separate investigation, New York’s Department of Financial Services is looking at whether some of the biggest banks used computer programs to manipulate foreign exchange rates. The department installed monitors at Deutsche Bank AG (DB) and Barclays in 2014 and has sent subpoenas to Goldman Sachs (GS), Société Générale, and BNP Paribas about the way they use these types of programs. The subpoenas were sent not because there was necessarily evidence of wrongdoing but because the banks are actively involved in these markets.

As we mentioned in a recent blog post, JPMorgan has just agreed to pay $99.5 million to settle its portion of a currency rigging case. In that litigation, institutional investors are accusing 12 banks of rigging prices in the foreign exchange market. By settling the financial instruction is not denying or admitting to wrongdoing.

JPMorgan to pay $99.5 million to resolve currency rigging lawsuit, Reuters, January 31, 2015

U.S. Seeks Guilty Pleas From 4 Banks in Currency Antitrust Probe, The Wall Street Journal, February 10, 2015


More Blog Posts:
SEC Headlines: Regulator Probes Oppenheimer Executive, Prepares Insider Trading Case Against Policy Research Firm, & Wants to Suspend Standard & Poor’s From Rating CMBSs, Stockbroker Fraud Blog, December 10, 2014

UBS Under Scrutiny in New Tax Evasion Probe, Institutional Investor Securities Blog, February 4, 2015

SEC Claims Investment Adviser Paid for Fraud Settlement With Client Monies, Stockbroker Fraud Blog, February 5, 2015

February 7, 2015

J.P. Morgan Under Scrutiny Over China Hirings

According to The Wall Street Journal, U.S. prosecutors and regulators are probing the Asian hiring practices of J.P. Morgan (JPM) and a number of other banks. The probe focuses on the Foreign Corrupt Practices Act, which is a U.S. law that prohibits giving anything of value to foreign government officials in order to gain a business edge.

Hiring employees in order to garner something in return is one area of scrutiny. The WSJ cited the hiring of the son of Chinese commerce minister Gao Hucheng even though he didn’t do well on job interviews, accidentally sent a sexually explicit email to a human resources employee, and exhibited other traits that purportedly made him a liability. Yet, during job cuts, the bank didn’t let him go and would have given him another position. Hucheng reportedly said that he would “go extra miles” for J.P. Morgan if his son wasn’t laid off.

Although China’s commerce ministry isn’t a client of the firm it has influence over business and is entitled to rule on mergers among multinationals that engage in business in that country. However, both father and son have not been accused of wrongdoing.

Sources told the WSJ that the financial firm is expected to settle with both the Securities and Exchange Commission and the Department of Justice over allegations related to the U.S.’s antibribery law. A fine and a mandated overhaul of hiring practices would be likely.

Meantime, the Chinese affiliates of PricewaterhouseCoopers, KPMG, Deloite Touch Tohmatsu, and Ernst & Young have each agreed to pay $500,000 to settle with the SEC because of their reluctance to hand over documents about Chinese companies that the regulator is investigating. The deal gives the firms an opportunity to avoid temporary suspension of their right to audit firms that are U.S.-traded. All four consented to abide by procedures that would make sure that the Commission could get audited documents from them in the future.

It was last year that a judge ruled that the accounting firms violated federal law when they wouldn’t give the audit-work papers regarding certain Chinese clients to the agency. The companies contended that although the clients’ securities traded in this country the accounting firms were barred from sharing the documents because of Chinese laws that treated these papers as if they were state secrets.

The work papers were eventually handed over to the Commission through regulators in China. The SEC believes it is important than they be given access to audit documents to protect investors from fraud. Already the SEC has filed over two-dozen enforcement cases against Chinese firms and their executives.

As pat of the settlement, the accounting firms must follow specific procedures that will allow them to hand over the audit documents to the SEC through the China Securities Regulatory Commission. However, they are not denying or admitting to wrongdoing.

J.P. Morgan Emails Illuminate Hiring of China Official’s Son, The Wall Street Journal, February 6, 2015


More Blog Posts:
SEC Sanctions UBS, Charles Swab, Oppenheimer, & 10 Other Firms For Improper Sales of Puerto Rico Junk Bonds, Stockbroker Fraud Blog, November 3, 2015

JPMorgan Suspends Forex Trader for Alleged Disclosures Involving Royal Bank of Scotland-Related Activities, Institutional Investor Securities Blog, January 14, 2015

U.S. Department of Labor’s Fiduciary Rule for Retirement Advisers Hits Another Snag, Stockbroker Fraud Blog, February 6, 2015

February 6, 2015

JPMorgan Sued by Indiana Church

The Christ Church Cathedral of Indianapolis is suing JPMorgan (JPM) for securities fraud. The church contends that the financial firm purposely mismanaged its money over the last ten years, causing $13 million in losses. Eli Lilly, the founder of pharmaceutical giant of the same name, gifted a large trust fund to the Episcopal congregation. Mr. Lilly appointed three local banks as trustees but JPMorgan became involved after it acquired two of the banks in 2004.

Court filings claim that once JPMorgan came on board the church’s portfolio of stocks and bonds were replaced by the firm’s own funds, including alternative investments, which involve higher fees paid to the firm. Over eight years the firm’s management fees went up from $35K to $177K, while it reaped in additional fees for selling proprietary products. By the close of 2009, the church was invested in over 50 investment funds— 75% of those were in the firm’s own products.

In 2004, when the firm took over the church’s trust fund, the congregation had $34.6 million. By the end of 2013 it had $31.6 million. Because of this, the congregation has been unable to do all of its charitable works. The church believes that its investment strategy should have let it take money from its endowment to fund its aid work without losing any money. The Christ Church Cathedral of Indianapolis wants JPMorgan to pay back the $13 million losses, which includes lost profits.

The Christ Church Cathedral does not appear to be an isolated situation of alleged church endowment mismanagement at JP Morgan. For example, last year the Episcopal Diocese of West Virginia and Sandscrest Foundation sued J.P. Morgan Chase, the Helen T. Sands Testamentary Trust, and its trustee. The church claimed breach of duty of prudence, breach of duty of loyalty, and breach of the duty to give information to beneficiaries.

According to filings in that case, following the final wills and testaments of Helen and Harry Sands, about 250 acres of land in Ohio were moved to Sandscrest Foundation Inc. While J.P. Morgan Chase used the net income for different charitable organizations, as the will instructed, it purportedly did not provide enough funding to the foundation to maintain the original property.

Just like individual investors, Institutions may also fall victim to securities fraud and mismanagement by financial professionals. If you believe you were the victim of institutional investor fraud, contact The SSEK Partners Group today.

Indiana church sues JPMorgan for millions, CNN, January 24, 2015

Groups say bank mismanagement trust funds, The West Virginia Record, April 16, 2014


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

U.S. Department of Justice Wants Citigroup, Barclays, JPMorgan Chase, and Royal Bank of Scotland to Plead Guilty to Criminal Charges In Currency Antitrust Investigation, Institutional Investor Securities Blog, February 10, 2015

JP Morgan Sued by Dexia in $1.7B MBS Lawsuit, Institutional Investor Securities Blog, February 11, 2013

February 4, 2015

UBS Under Scrutiny in New Tax Evasion Probe

U.S. prosecutors have opened a new investigation into whether UBS AG (UBS) helped Americans avoid paying taxes via investments that were banned in the country. The government is looking at whether the Swiss bank used bearer securities, which may be used as if they were cash. These securities were phased out of the financial system in the U.S. more than thirty years ago because they can be used in money laundering and tax evasion.

According to the Wall Street Journal, not only are prosecutors in the U.S. attorney’s office in Brooklyn looking at evidence of whether bank employees played a role in allowing securities fraud and tax evasion to happen, but also they are seeking proof that there may have been a criminal cover up internally. A whistleblower is involved in this latest probe.

In 2009, UBS paid $780 million to resolve a tax evasion investigation by the Department of Justice. The Swiss bank admitted that it encouraged this type of conduct. As part of the settlement it disclosed the identities of 250 American banking clients. It settled another U.S. lawsuit in which it revealed the names of 4,450 U.S clients with UBS accounts.

Providing Swiss accounts to American clients has proven profitable for UBS and other internationally-based banks. At one point this part of the business made UBS up to $200 million yearly.

Last year, Credit Suisse (S) paid $2.6 billion to the Justice Department, the Federal Reserve, and the New York State Department of Financial Services to settle allegations over its role in helping Americans evade paying taxes. It also pleaded guilty to criminal charges. The Swiss bank settled related claims by the Securities and Exchange Commission for $196 million.

UBS Said to Be Under New Tax-Evasion Probe in U.S., Bloomberg, February 4, 2015

Credit Suisse pleads guilty in tax evasion case, CNN, May 19, 2014


More Blog Posts:
UBS Settles SEC Dark Pool Case for $14M, Stockbroker Fraud Blog, January 16, 2015

Beneficiaries of Puerto Rico Trust File Securities Fraud Lawsuit Seeking Over $4.5M From UBS Financial Services, Stockbroker Fraud Blog, January 5, 2015

European Commission Takes Action Against JPMorgan, UBS, RBS & Credit Swiss for Cartel Conduct
, Institutional Investor Securities Blog, October 27, 2014

January 14, 2015

JPMorgan Suspends Forex Trader for Alleged Disclosures Involving Royal Bank of Scotland-Related Activities

Bloomberg is reporting that according to a source, JPMorgan Chase & Co. (JPM) has suspended currency dealer Gordon Andrew for alleged wrongdoing involving his work at Royal Bank of Scotland Group Plc. (RBS). According to The Wall Street Journal, people familiar with the matter say that the firm discovered evidence that Andrew disclosed trading data to employees of other banks. The forex trader does a lot of work converting huge amounts of euros into pounds at benchmark rates related to subsidies that the EU pays to British farmers every year.

Andrew began working for JPMorgan in October 2012 after Richard Usher, an RBS colleague, also switched to the firm. Usher was JPMorgan’s chief currency dealer in London until 2013 when he was put on leave during a global probe into foreign exchange market manipulation. He left the firm the following year. Regulators in the U.K. and the U.S. have since fined JPMorgan $1 billion related to the rigging probe. RBS was ordered to pay a $634 million fine.

Today, the WSJ reported that the probes into currency market manipulation have led to new signs of possible wrongdoing. Sources tell the newspaper that JPMorgan has even put aside another $900 million to cover investigation-related costs as well as legal bills. Meantime, broker-dealer Tullett Prebon PLC (TLPR) has started an internal review into its currency market practices. One of its brokers was allegedly referred to as a trade conduit in one chat room. That broker still works for the firm. In 2014, British fraud prosecutors charged an ex-Tullet broker with assisting other bank traders in manipulating trades.

Citigroup (C) has also suspended or let go of a number of sales members and foreign-exchange traders in the wake of the probe. UBS (UBS) is also under investigation, as is HSBC (HSBC).

The U.S. Justice Department is trying to determine whether the latter’s sales team sent out market-moving data to Moore Capital Management LLC, which is a hedge fund, about an upcoming trade related to a big corporate acquisition. The government has been looking at whether hedge fund clients were tipped by bank employees about big foreign-exchange trades that the firms were planning, as well as “spoofing,” which involves brokers and traders turning in bogus trading information to shift the market or cause confusion.

The probes by the US and British governments are looking into possible improprieties in the forex-market. Already, banks have admitted to having employees that tried to manipulate certain areas of the currency market, with six banks settling the allegations for $4.3 billion. Aside from JPMorgan and RBS, firms that have also settled include UBS, HSBC, Citigroup, and Bank of America (BAC).

If you believe that your investment losses are because of securities fraud, contact The SSEK Partners Group today.

JPMorgan Currency Trader Said to Be Suspended for Actions at RBS, Bloomberg, January 14, 2014

Forex Probe Finds New Signs of Potential Wrongdoing, The Wall Street Journal, January 14, 2015


More Blog Posts:
Investment Adviser News: Barred Representative is Now a Finance Coach, Bellingham Man Gets Prison Term for Bilking Seniors, Stockbroker Fraud Blog, January 13, 2015

BATS Global Market Settles Stock Exchange-Related Claims Involving High-Frequency Traders for $14M, Institutional Investor Securities Blog, January 13, 2015

Beneficiaries of Puerto Rico Trust File Securities Fraud Lawsuit Seeking Over $4.5M From UBS Financial Services
, Stockbroker Fraud Blog, January 5, 2015

January 12, 2015

Investment Adviser, Ameriprise Financial Services Sued by Hanson McClain Over Client Information

Registered investment adviser Hanson McClain is suing Ameriprise Financial Services Inc. (AMP) and Thomas Chandler for purportedly taking confidential client data and soliciting its customers. The investment adviser says that not only is this a contract breach but also it violates California law. Chandler was formerly an investment adviser for Hanson McClain, which has about $1.6 billion in assets under management.

Hanson McClain submitted its complaint in September, just days after Chandler departed. In November, the court allowed a preliminary injunction barring Ameriprise and Chandler from getting in touch with the clients under dispute and ordering them to give back certain documents until the case is resolved. In December, the RIA submitted an amended complaint requesting a permanent injunction barring Chandler from soliciting clients. Hanson McClain wants compensatory damages as well as the return of its clients’ information.

The firm says that Chandler took the data from its servers, moving the information to a personal email account. The data allegedly includes account numbers, names, net worth, and other pertinent information for clients whose total net worth is around $540,000. Hanson McClain also claims that Chandler asked for the emails of its “platinum” clients and then connected with them via LinkedIn. The RIA contends that Ameriprise and one of its branch managers worked with Chandler to take the information.

As for Chandler he has said that he is allowed to let his clients know if he has moved. He maintains that he did not solicit business from these clients or request that they move their accounts to follow him.

Under the Broker Protocol advisers are allowed to take some client contact data when they change firms. However, while Ameriprise agreed to the protocol, Hanson McClain has not.

If you suspect securities fraud, contact our investment adviser fraud law firm today.

Hanson McClain sues former adviser and Ameriprise, InvestmentNews, January 12, 2015


More Blog Posts:
Beneficiaries of Puerto Rico Trust File Securities Fraud Lawsuit Seeking Over $4.5M From UBS Financial Services, Stockbroker Fraud Blog, January 5, 2015

JPMorgan to Pay $500M to Resolve Mortgage Settlement Involving Bear Stearns, Says Source, Institutional Investor Securities Blog, January 10, 2015


Credit Suisse Ordered to Face $10B Mortgage-Backed Securities Fraud Lawsuit by NY AG
, Institutional Investor Securities Blog, December 26, 2014

January 10, 2015

JPMorgan to Pay $500M to Resolve Mortgage Settlement Involving Bear Stearns, Says Source

Reuters and Bloomberg are reporting that according to person familiar with the case, JPMorgan Chase (JPM) has consented in principal to resolve a class action case related to Bear Stearns’ sale of $17.58B of faulty mortgage securities for $500 million. JPMorgan purchased Bear Stearns in 2008.

The agreement settles claims that Bear Stearns violated federal securities laws when, from May 2006 to April 2007. it sold certificates backed by over 47,000 primarily subprime and low documentation “Alt-A” mortgages in over a dozen offerings. Almost all certificates were eventually reduced to “junk” status even though 92% of them had been given “trip-A” ratings previously.

The plaintiffs, led by the New Jersey Carpenters Health Fund and, the Public Employees’ Retirement System of Mississippi, claim that offering documents included misleading and false statements about underwriting guidelines that Bear’s EMC Mortgage unit and other lenders used, as well as inaccuracies related to associated property appraisals. According to the lawsuit, because of the omissions and false statements, the class bought certificates that were a lot risker than what they were represented as and unequal in quality to other investments that received the same credit rating.

Even though the plaintiffs have not accused Bear Sterns of fraud, but they want to hold the firm negligent and liable for the losses that they sustained. Both parties intend to seek preliminary approval of the settlement by early next month.

JPMorgan helped rescue the beleaguered Bear Stearns during the financial crisis after the Federal Reserve consented to take charge of a $30 billion portfolio that contained mortgage-linked Bear Stearns assets. In 2012, NY Attorney General Eric Schneiderman filed a securities lawsuit against JPMorgan accusing Bear Stearns businesses of fooling investors about the faulty loans backing securities, resulting in significant losses.

Last year, JPMorgan settled the case for $13 billion, which resolved claims on a federal and state level. $713 million went to New York.

In September, in another class action securities case, a federal judge said that JPMorgan would have to face the complaint by investors accusing the bank of misleading them about the safety of $10 billion of mortgage-backed securities that it sold prior to the economic crisis. U.S. District Judge Paul Oetken in Manhattan certified a class action regarding the firm’s liability but not regarding damages.

The lead plaintiffs in that case are Institutional investors Construction Laborers Pension Trust for Southern California and Laborers Pension Trust Fund for Northern California. The class is made of investors prior to 3/23/09 who put money into certificates issued from nine JPMorgan-crated trusts for an April 2007 offering. The plaintiffs also are accusing JPMorgan of misleading investors about the loans underlying the certificates.

In other JPMorgan news, the financial firm was recently reprimanded by the Monetary Authority of Singapore because its branch there allowed to representatives to give advice on structured deposits without getting the required authorization. Such recommendations reportedly were given multiple times between November 2010 and January 2013.

JPMorgan Chase to settle class action suit, pay $500 million, The Washington Post, January 9, 2014

JPMorgan Said to Pay $500 Million to End Mortgage-Bond Suit, Bloomberg, January 9, 2015

JPMorgan ‘Reprimanded’ by Singapore Regulator for Violating Rule, Bloomberg, January 9, 2015


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

$13B JPMorgan Chase Mortgage Settlement Was Not Sufficient, Says Whistleblower, Institutional Investor Securities Blog, November 15, 2014

Credit Suisse Ordered to Face $10B Mortgage-Backed Securities Fraud Lawsuit by NY AG, Institutional Investor Securities Blog, December 26, 2014

January 7, 2015

Ambac Files Mortgage Bond Lawsuit Against Bank of America

Ambac Assurance filed a mortgage bond lawsuit against Bank of America (BAC) for what it claims were losses of hundreds of millions of dollars from insuring over $1.6B of securities. The holding company says that the loans were at least partially backed by high-risk mortgages from the bank’s Countrywide Home Loans unit.

According to the mortgage bond lawsuit, Ambac contends that Countrywide lied about the quality of its underwriting of loans that were backing the securities, which were issued in several transactions over a two-year period prior to the acquisition of the unit by Bank of America in 2008. The holding company said that it could be facing potential claims greater than $600 million. It claims that the loan pools backing the certificates it insured have lost billions of dollars. Ambac said that if it had known Countrywide lied it would have never guaranteed payments.

This is not the first time that Ambac has sued Bank of America Corp. In 2010, the company filed a $16.7 billion mortgage-backed securities case against the bank. In that securities case, Ambac claimed that Countrywide fraudulently persuaded Ambac to insure bonds with loans that were not properly made.

According to Ambac, 97% of 6,533 loans it looked at across 12 Countrywide-sponsored securitizations failed to conform with the underwriting guidelines of the lender and a lot of loans were issued to borrowers who were unlikely to be able to satisfy their payment duties. The Countrywide-sponsored home loan pools were made between 2004 to 2006.

If you suspect that you were the victim of fraud, contact our securities attorneys at The SSEK Partners Group today.

Ambac sues Bank of America over Countrywide mortgage bonds, Reuters, December 31, 2014

Ambac Sues Bank of America Over Countrywide Bonds, Bloomberg, September 29, 2010


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

January 5, 2015

Morgan Stanley Fires Wealth Management Group Employee For Stealing Client Data

Morgan Stanley (MS) has let go of Galen Marsh, a 30-year-old financial adviser in its wealth management group, for stealing client information and allegedly making some of the data that he took available online. Some 350,000 of the brokerage firm’s 3.5 million wirehouse clients were affected. About 900 clients’ account names and numbers were briefly posted on the Internet.

Morgan Stanley discovered that Marsh had downloaded the client data, including account numbers, names, states of residence, and asset values. In a statement, the firm said that there is no proof of any financial loss sustained by the clients whose information was stolen. (Social security numbers and account passwords were not taken.)

The firm says it is notifying the clients who were affected. It has also reached out to regulators and law enforcement.

Meantime, Marsh’s attorney has said that the financial adviser is sorry for his behavior and never intended to sell the information that he took. The lawyer also said that Marsh was not the one who published the information online nor did he share the data with anyone or make a profit.

Marsh became a Morgan Stanley employee in 2008. Prior to joining the firm, he worked at Bear Stearns Cos. (BSC).

Even if no money has been lost to date related to Marsh’s actions, a breach of data still occurred. Morgan Stanley is giving account holders who were affected new account number and has put into place measures to monitor fraud and enhance security on the accounts.

The SEC Partners Group represents institutional clients and high net worth investors in recouping their securities fraud losses.


Morgan Stanley Fires Employee Over Client-Data Leak, The Wall Street Journal, January 5, 2015

Fired Morgan Stanley Adviser Didn’t Sell Data, Lawyer Says, Bloomberg, January 5, 2015


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

Morgan Stanley Must Pay Connecticut Regulators $5M for Supervisory Violations, Stockbroker Fraud Blog, June 18, 2014

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

December 26, 2014

Credit Suisse Ordered to Face $10B Mortgage-Backed Securities Fraud Lawsuit by NY AG

A New York State Supreme Court justice says that Credit Suisse Group AG (CSGN) must face a $10 billion securities lawsuit accusing the bank of mortgage-backed securities fraud. Justice Marcy Friedman refused to dismiss the case, saying that a trial will take place. She said that the state has shown that the Swiss financial institution may have engaged in misconduct.

New York sued Credit Suisse in 2012, accusing it of misrepresenting the risks involved in investing in mortgage-backed securities. The bank tried to claim that the state missed the three-year deadline it had for filing such a claim. NY, however, countered that it had six years to pursue its claim.

The state’s Attorney General, Eric Schneiderman, has been going after banks while helping beleaguered homeowners and trying to keep the number of foreclosures from going up. His office has used the Martin Act, which is the NY’s anti-fraud statute to make its cases. Under that law, it is illegal for sellers to make false promises about the securities they are selling. Schneiderman contends that Credit Suisse told investors that the mortgage securities were safe even though the bank knew that the residential loans backing them had “”pervasive flaws.”

In a similar case filed by the NY AG, JPMorgan Chase & Co. (JPM) agreed to a $13B MBS fraud settlement in 2013. $613M of that went to the state. Earlier this year, Citigroup (C) consented to pay $7 billion to resolve similar claims made by NY, other states, and the federal government. Not long after Bank of America (BAC) reached a $17 billion civil settlement, also with a number of state regulators, including Schneiderman’s office, and federal prosecutors.

New York's Top Cop Scores as Credit Suisse Faces $10 Billion Mortgage Fraud Suit
, Bloomberg, December 26, 2014

New York General Business Law article 23-A

JPMorgan agrees $13 billion settlement with U.S. over bad mortgages, Reuters, November 19, 2014

Citigroup to Pay $7 Billion in Mortgage Probe, The Wall Street Journal, July 14, 2014

Bank of America to Pay $16.65 Billion in Historic Justice Department Settlement for Financial Fraud Leading up to and During the Financial Crisis, Justice.gov, August 21, 2014


More Blog Posts:
Whistleblower Earns $57M Payout in Second Lawsuit Against Bank of America, Institutional Investor Securities Blog, December 17, 2014

Ex-California Insurer Charged with Running $11M Ponzi Scam, Stockbroker Fraud Blog, December 8, 2014

Morgan Stanley Fined $4M by the SEC for Market Access Rule Violation, Institutional Investor Securities Blog, December 11, 2014

December 22, 2014

WGF Investments, Deutsche Bank Securities, Royal Bank of Canada Subject to Fines for Securities Violations and Misconduct

FINRA Fines WGF Investments $700,000 for Supervisory Failures
The Financial Industry Regulatory Authority is fining WGF Investments $700,000 for failing to commit the attention, time, and resources to certain duties related to supervising registered representatives. WGF is a midsize independent brokerage firm.

According to the self-regulatory organization, from 3/07-1/14, WGF did not supervise private securities transactions of one representative and failed to keep up an adequate supervisory system to make sure that the customer transactions taking place were suitable. The broker-dealer also is accused of not properly supervising one representative’s alternative investment sales.

And, for over a year, WGF purportedly gave a rep a blanket waiver from having to comply with written supervisory procedures related to the sale of private equity, real estate investment trusts, and other alternative investments. A number of the rep’s clients invested over 25% of their liquid net worth in alternative investments, with certain clients putting in over 90%. Meantime, this rep, who is no longer with WGF, routinely spoke on the radio, making misleading and exaggerated statements abut both conventional and alternative investments while favoring the latter. WGF was cited for not properly supervising the radio broadcasts.

The firm is settling without denying or admitting to the FINRA charges.


Deutsche Bank Securities Ordered by CFTC to Pay $3M for Improper Investments and Supervisory, Reporting, and Recordkeeping Violations

Deutsche Bank Securities Inc. (DBSI) has agreed to settle U.S. Commodity Futures Trading Commission charges by paying a $3 million fine. The regulator says the firm did not properly invest customer aggregated funds, failed to put together and file financial reports that were accurate, neglected to keep up the necessary books and records, and committed supervisory failures. Fortunately no investors sustained losses.

According to the CFTC’s order, from 6/18/12 to 8/15/12 Deutsche Bank did not file accurate financial statements with the agency in a timely fashion. The firm purportedly lacked the automated processes to make sure that the financial reporting, some of which had errors, was accurate. Also, says the agency, from 6/18/12 through 8/15/12 Deutsche Bank did not accurately calculate how much there were in customer funds on deposit. Because of certain miscalculations, the firm invested customer funds in specific money market mutual funds during that time. The amounts exceeded the 50% asset-based concentration limit.

Royal Bank of Canada Must Pay $35M for Bogus Sales, Illegal Wash Sales, and Noncompetitive Transactions
A U.S. federal judge is ordering Royal Bank of Canada (RY) to pay a $35 million penalty for its involvement in over 1,000 illegal wash sales, fake sales, and noncompetitive transactions. The ruling comes out of a CFTC complaint in 2012 accusing the bank of wash sales and fictitious sales.

The agency accused senior Royal Bank of Canada personnel of designing a trading strategy that was partially created to generate tax benefits. The sales were noncompetitive transactions, which are prohibited under CFTC regulations.

Finra fines WFG Investments $700,000, Investment News, December 22, 2014

CFTC Orders Deutsche Bank Securities Inc. to Pay $3 Million to Settle Charges of Improper Investment of Customer Segregated Funds, Reporting and Recordkeeping Violations, and Supervision Failures, CFTC, December 22, 2014

Federal Court Orders Royal Bank of Canada to Pay $35 Million Penalty for Illegal Wash Sales, Fictitious Sales, and Noncompetitive Transactions
, CFTC, December 18, 2014


More Blog Posts:
Ex-Edward Jones is Criminally Charged with Bilking Disabled Woman of Over $160K, Stockbroker Fraud Blog, December 22, 2014

Credit Suisse Ordered to Pay $40M Verdict to Highland Capital, Institutional Investor Securities Blog, December 19, 2014

Moody’s Reduces American Realty Capital Properties Credit Rating to Junk Status, REIT’s Founder Nicholas Schorsch Steps Down, Institutional Investor Securities Blog, December 18, 2014

December 19, 2014

Credit Suisse Ordered to Pay $40M Verdict to Highland Capital

A jury is ordering Credit Suisse (CS) to pay a $40 million verdict to Highland Capital Management LP. The hedge fund firm, based in Texas, accused the bank of duping it into refinancing a real-estate development that wasn’t solid. According to the ruling, issued in state court in Dallas, Credit Suisse is 65% at fault.

Highland’s Claymore Holdings LLC claimed that the bank knew it was employing a flawed appraisal to garner investments in Lake Las Vegas, which was a massive residential and resort community of over 3,500 acres that filed for bankruptcy six years ago. Credit Suisse said the investment did not go well not because it misled Highland but because of the recession.

The hedge fund company, however, contends that the flawed appraisal used by Credit Suisse inflated the value of collateral behind $540 million in loans to refinance the community in 2007. Highland says that the motivation was the fees made by Credit Suisse to underwrite the transaction.

Meantime, Credit Suisse claims that Highland knew what it was getting involved in. A lawyer for the bank maintains that the losses occurred because Highland Capital made a bet before the economic crisis, going ahead with an investment even though sales at Lake Las Vegas had stalled, to obtain a controlling position on the loan.

According to the Wall Street Journal, Highland’s Claymore Holdings LLC is looking to get another $300 million from the Swiss bank over the finding that the bank committed fraud.

This is not the first institutional investor fraud case filed by Highland against Credit Suisse. Two other Highland entities sued the bank in New York, accusing it of using bogus appraisals when it marketed the loans for a number of developments, including the Yellowstone Club in Montana. The securities case, seeking over $350,000, was thrown out by a court.

Highland funds sustained millions of dollars of losses after it invested loans arranged by Credit Suisse for Lake Las Vegas, Yellowstone Club, the Promontory Club in Utah, and Tamarack Resort in Idaho prior to the implosion of the real estate bubble. The bank marketed the loans to the owners of the projects, organizing financing for the loans from hedge funds, debt-fund manager, and private equity firms. Lenders would then gain exposure to the high-end real estate market. Meantime, the bank made millions of dollars in transaction fees.

All 12 properties that were valued under a specific appraisal method ended up having to restructure or going into bankruptcy. Meantime, investors lost hundreds of millions of dollars. Credit Suisse had to buy a lot of the properties that later failed at a discount.

In a separate but related case, Tim Blixseth, the former owner of Yellowstone, has been jailed for contempt of court after he failed to give an accounting of $13.8 million in proceeds from the sale of a resort in Mexico. Blixseth was ordered to pay over $200 million by a judge for diverting most of a Credit Swiss loan for his own use.

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

Highland Wins $40 Million Verdict in Credit Suisse Case, Bloomberg, December 19, 2014

Former Billionaire Tim Blixseth Jailed Over Missing Funds, Forbes, December 18, 2014

Jury Awards Highland Capital $40 Million in Suit Against Credit Suisse, The Wall Street Journal, December 19, 2014


More Blog Posts:
Moody’s Reduces American Realty Capital Properties Credit Rating to Junk Status, REIT’s Founder Nicholas Schorsch Steps Down, Institutional Investor Securities Blog, December 18, 2014

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

Stifel, Nicolaus & Century Securities Must Pay More than $1M Over Inverse and Leveraged ETF Sales, Stockbroker Fraud Blog, January 14, 2014

December 17, 2014

Whistleblower Earns $57M Payout in Second Lawsuit Against Bank of America

Edward O'Donnell, an ex-Countrywide Financial executive, will receive $57 million for a second whistleblower lawsuit accusing parent company Bank of America Corp. (BAC) of fraud. In this case, O’Donnell accused a Countrywide unit of bilking Freddie Mac (FMCC) and Fannie Mae (FNMA) through the sale of home loans. Bank of America consented to settle the case for $350 million as part of a wider $17 billion deal to settle mortgage fraud claims.

For filing his whistleblower lawsuit, O'Donnell’s share is 16% of the recovery plus another $1.6 million. His award comes from the part of the settlement that the bank reached with federal prosecutors and the states of Illinois, New York, California, Maryland, Delaware, and Kentucky.

He has yet to collect money from the other case, in which a jury found Bank of America liable for shoddy mortgage sales. That lawsuit revolved around the “hustle,” which was a program that rewarded employees for producing loans even if their quality was poor.

Derived from the initials HSSL, which stands for high-speed swim lane, the program tied bonuses to the speed in which bankers were able to originate loans. The borrower’s credit quality became a lower priority. When mortgage giants such as Freddie Mac and Fannie Mae sold the loans, the instruments failed, leading to over $1 billion in losses.

In July, a judge ordered the bank to pay a penalty of $1.27 billion. Rebecca Mairone, an ex-Countrywide executive facing a civil action related to the case, was ordered to pay $1 million for directing the hustle program.

O’Donnell’s role whistleblower and his reward amount in that matter have yet to be determined. According to the United States settlement, there were three other false claims lawsuits filed, which means other whistleblowers may be entitled to awards.

Under the False Claims Act, whistleblowers may be able to collect 15-25% of what is recovered.

Contact our securities law firm today.

Whistle-Blower on Countrywide Mortgage Misdeeds to Get $57 Million, The New York Times, December 17, 2014

BofA Whistleblower to Get Nearly $58 Million--Filing, The Wall Street Journal, December 17, 2014

False Claims Act

More Blog Posts:
SEC News: Regulator Grants $30M Whistleblower Award and Charges Washington Investment Advisory Firm $600K for Undisclosed Principal Transaction, False Advertising, Stockbroker Fraud Blog, September 23, 2013

SEC Issues 2014 Whistleblower Program Report
, Institutional Investor Securities Blog, November 22, 2014

$13B JPMorgan Chase Mortgage Settlement Was Not Sufficient, Says Whistleblower, Institutional Investor Securities Blog, November 15, 2014

December 12, 2014

Morgan Stanley Fined $4M by the SEC for Market Access Rule Violation

The Securities and Exchange Commission is ordering Morgan Stanley (MS) to pay $4 million for violating the market access rule. The rule mandates that brokerage firms implement adequate risk controls before giving customers market access. An SEC probe, however, found that Morgan Stanley, which gives institutional customers direct market access via an electronic trading desk, did not have the necessary controls in place to stop a rogue trader from putting in orders that went over pre-set trading thresholds.

David Miller, who was an institutional sales trader, than purportedly exploited access to the market. Without Morgan Stanley’s knowledge he committed financial fraud that would later result in the closure of Rochdale Securities, which was the financial firm where he worked. Miller, who has since partially settled the SEC’s case, pleaded guilty to parallel criminal charges. He was sentenced to 30 months behind bars.

Miller misrepresented to Rochdale Securities that a customer had given authorization to buy Apple stock. While the customer order was for the purchase of 1,625 Apple shares, Miller instead put in numerous orders, buying 1.625 million shares. He intended to share in the profit if the stock made money but if it didn’t he planned to say he made a mistake about the order’s size.

However, the stock went down on the day of the purchases and Rochdale went under its net capital net requirements to trade securities. The firm forced to shut its operations to cover the $5.3 million losses.

In its order to settle the administrative proceedings, the SEC said that the Apple stock orders that Miller routed through Morgan Stanley’s trading desk on October 25, 2012 eventually totaled approximately $525 million. This went way beyond Rochdale’s $200 million pre-set aggregate daily trading limit.

To execute the orders Morgan Stanley’s electronic desk at first upped Rochdale’s limit to $500 million and then $750 million. However, Morgan Stanley staff did not perform the necessary due diligence to make sure the credit raises were warranted. One reason for this, says the regulator, is that Morgan Stanley’s written supervisory procedures did not give reasonable guidance for personnel who were responsible for deciding whether to raise customer trading thresholds.

The SEC said that Morgan Stanley violated the Securities Exchange Act of 1934.’s Rule 15c3. The firm settled the case without denying or admitting to the findings In addition to paying the $4 million, the broker-dealer agreed to cease and desist from causing or committing market access rule violations in the future.

If you believe your financial losses are a result of securities fraud, please contact our securities firm today. The SSEK Partners has helped thousands of investors get their money back. Please call us today to request you free case consultation.

Read the SEC Order (PDF)


More Blog Posts:
Goldman Sachs Must Pay $7.6M to Two Brokers for Wrongful Termination, Institutional Investor Securities Blog, December 8, 2014

Madoff Ponzi Scam Victims Recover Over $10 Billion, Institutional Investor Securities Blog, December 5, 2014

SEC Claims Fraud Involving a REIT and Bogus Senior Resident Occupants, Institutional Investor Securities Blog, December

December 11, 2014

Citigroup, Credit Suisse, Deutsche Bank, Merrill Lynch, & Other Firms Ordered by FINRA to Pay $43.5M Over Activities Related to Toys “R” Us IPO

The Financial Industry Regulatory Authority is fining 10 firms $43.5 million in total for letting their equity research analysts solicit investment business and offering favorable research coverage related to the the planned Toys “R” Us initial public offering. The firms were fined: $2.5 million for Needham & Co. LLC; $4 million for Wells Fargo Securities, LLC (WFC), Deutsche Bank Securities Inc. (DB), Morgan Stanley & Co., LLC (MS), and Merrill Lynch, Pierce, Fenner & Smith Inc. respectively; and $5 million each for JP Morgan Securities LLC (JPM), Barclays Capital Inc. (BARC), Goldman Sachs & Co. (GS), Citigroup Global Markets Inc. (C), and Credit Suisse Securities USA LLC (CS). FINRA rules state that firms are not allowed to use research analysts or promise favorable research to garner investment banking business.

In 2010, Toys “R” Us and its private equity owners asked the ten firms to compete for involvement in an initial public offering. The self-regulatory organization said that all of the institutions used equity research analysts when soliciting for this role.

The company asked the analysts to create presentations to determine what their views were on certain issues and if they matched up with the perspectives of the firms’ investment bankers. The firms knew that how well their analysts did with this would impact whether or not they would be given the underwriting role in the IPO.

In the presentations, the firms explicitly or implicitly made known that they would provide reasonable research coverage in exchange for involvement in the IPO. While Toys “R” Us offered each firm a part in the IPO, ultimately the actual offering never went through. FINRA also said that Needham, Barclays, JP Morgan, Citigroup, Goldman Sachs, and Credit Suisse lacked the adequate supervisory procedures for research analyst involvement in investment banking pitches.

By settling, the firms are not denying or admitting to the charges. They are, however, consenting to an entry of the SRO’s findings.

FINRA also just fined Citigroup $3 million for its failure to deliver exchange-traded fund paperwork on over 250,000 customer purchases. The bank failed to send prospectuses on 160 ETFs that clients purchased in 2010 and on more than 1.5 million exchange-traded funds that were bought between 2009 and 2011. Over 250,000 brokerage clients were affected.

The self-regulatory organization said that Citigroup lacked the correct procedures to oversee this process. Instead, the bank depended on a manual system that was missing a definite chain of supervision to verify whether prospectuses had been sent. The firm discovered the issue in 2011, self-reporting to FINRA. Citi paid a $2.3 million for similar issues in 2007.

FINRA Fines 10 Firms a Total of $43.5 Million for Allowing Equity Research Analysts to Solicit Investment Banking Business and for Offering Favorable Research Coverage in Connection With Toys"R"Us IPO, FINRA, December 11, 2014

Citigroup Fined by Finra for Failing to Deliver ETF Prospectuses
, Bloomberg, December 12, 2014


More Blog Posts:
Ex-California Insurer Charged with Running $11M Ponzi Scam, Stockbroker Fraud Blog, December 8, 2014

Ex-Ameriprise Manager Who Helped with SAC Capital Insider Trading Case Settles Charges Against Her, Institutional Investor Securities Blog, December 9, 2014

CFTC, FINRA, and SEC Fight Investor Fraud Together, Stockbroker Fraud Blog, December 5, 2014

December 8, 2014

Goldman Sachs Must Pay $7.6M to Two Brokers for Wrongful Termination

A Financial Industry Regulatory Authority (FINRA) arbitration panel says that Goldman Sachs Group Inc. (GS) has to pay two brokers $7.6 million because they were wrongfully terminated. Luis Sampedro and Christopher Barra, who are now with UBS (UBS), claim that the Goldman made them forfeit deferred commissions after letting them go.

The two of them were a team at the financial firm until 2007. They filed their arbitration claim in 2010.

The withholding happened after the financial firm modified its compensation plan, requiring that a percentage of the brokers’ commission be retained as restricted stock units to vest. Goldman, however, fired the two men before their stock vested.

According to the brokers, the forfeiture requirement violates California state law. They also contended that the firm violated a federal law that protects military employees from retaliation and harassment in the workplace.

Barra, who was an Army Reserves lieutenant colonel and graduated from West Point, said that a firm manager chastised him and then took retaliatory action because Barra went on reserve duty in 2006 and had to be away from work. Months later, he and Sampedro were fired.

The FINRA panel found that Goldman was liable under the law and ordered the firm to pay Barra $100,000 for the violation, which is part of the $7.6 million reward. The two brokers had sought $7 million. The award ordered includes $2 million in punitive damages.

SSEK Partners Group is a securities fraud law firm.

Goldman must pay two brokers $7.6 mln for wrongful termination -panel, Reuters, December 8, 2014


More Blog Posts:

Madoff Ponzi Scam Victims Recover Over $10 Billion, Institutional Investor Securities Blog, December 5, 2014

CFTC, FINRA, and SEC Fight Investor Fraud Together
, Stockbroker Fraud Blog, December 5, 2014

SEC Files Charges Against Former Broker-Dealer Owner Over Fraudulent Stock Sales
, Stockbroker Fraud Blog, December 2, 2014

November 29, 2014

Citigroup Global Markets Ordered by FINRA to Pay $15M Fine for Supervisory Failures Involving Equity Research, IPO Roadshows

The Financial Industry Regulatory Authority says it is fining Citigroup Global Markets, Inc. (C) $15 million for not adequately overseeing communications between clients and equity researchers and trading staff and sales members, as well as for letting one of its analysts indirectly take part in road shows that marketed IPOs to investors.

According to the self-regulatory organization, from 1/05 to 2/14, Citigroup did not satisfy its supervisory duty related to possible selective dissemination involving non-public research to clients and trading and sales teams. Citigroup had put out about 100 internal warnings about equity research analyst communications during this time. Yet, despite detecting violations related to client communications and selective dissemination, notes FINRA, there were long delays before the firm would discipline analysts. Also, contends the regulator, the disciplinary measures were not severe enough to discourage repeat violations.

The SRO reports that “idea dinners" were held, hosted by the equity research analysts at Citigroup, and attended by certain trading and sales personnel, as well as institutional clients. At the dinners, the analysts would talk about stock picks that were sometimes not in alignment with their published research. Even though Citigroup knew there was the risk of improper communications at these gatherings, the firm did not adequately monitor communications or give analysts proper guidance regarding what was considered permissible communications. In another purported instance, an analyst that worked with a Citigroup affiliate in Taiwan gave out research data about Apple Inc. to certain clients. A Citigroup equity sales employee then selectively disseminated the information to other clients.

Also, notes FINRA, in 2011 a Citigroup senior equity research analyst helped two companies prepare presentations for investment banking road shows. During that time and into last year, Citigroup did not prohibit equity research analysts from helping issuers work on materials for road show presentations.

By settling, Citigroup is not denying or admitting to the FINRA charges.

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

FINRA Fines Citigroup Global Markets Inc. $15 Million for Supervisory Failures Related to Equity Research and Involvement in IPO Roadshows, Stockbroker Fraud Blog, November 24, 2014


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Citigroup, Bank of America Are Selling Soured Home Loans, Sources tell Bloomberg, Stockbroker Fraud Blog, November 13, 2014

Citigroup Global Markets Fined $1.85M By FINRA, Must Pay $638K Restitution Over Non-Convertible Preferred Securities Transaction Valuations
, Stockbroker Fraud Blog, August 27, 2014

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


November 28, 2014

Wells Fargo Sued Over Allegedly Biased Lending in Chicago

Cook County, Illinois is suing Wells Fargo & Co. (WFC) for engaging in purportedly predatory and discriminatory lending practices in the Chicago area. The county said that the U.S. mortgage lending company targeted female, Hispanic, and black borrowers.

Per the mortgage lending lawsuit, for over a decade Wells Fargo discriminated against female and minority borrowers in the area to increase profits. Cook County claims that the bank went after borrowers from the time the loans were created through foreclosure and even during equity stripping, which included unnecessary or inflated fees and rates and refinancing penalties. The county believes its property tax base was eroded, it had to spend money to deal with abandoned properties, and some 26,000 borrowers were impacted. Cook County says damages could be as high as $300 million or greater.

It wants to stop Wells Fargo’s alleged practices and is seeking punitive and compensatory damages. Cook County also notes that certain practices involved the former Wachovia Corp, which Wells Fargo now owns. Meantime, the bank says that the accusations in the mortgage lending lawsuit have no merit.

Wells Fargo is not the only bank that Cook County has sued over mortgage lending. It also filed complaints against HSBC Holdings Plc. (HSBC) and Bank of America Corp. (BAC).

The California city of Los Angeles has also sued Bank of America and Wells Fargo along with Citigroup (C) and JPMorgan Chase & Co. (JPM) over their mortgage lending practices.

Meantime, in the wake of new guidelines recently issued by mortgage giants Freddie Mac (FMCC) and Fannie Mae (FNMA), some of the biggest mortgage lenders in the country are getting ready to relax standards for borrowers. The guidelines go into effect on December 1, 2014. According to The Wall Street Journal, this could allow hundreds of thousands of consumers who otherwise wouldn’t be able to obtain mortgages.

Lenders will likely broaden the scope of the kinds of borrowers that are able to qualify by lowering credit-score requirements and granting more flexibility to consumers who had credit problems because of a one-time incident, like a huge medical bill or losing a job.

Lawsuit accuses Wells Fargo of biased lending in Chicago area, Reuters, November 28, 2014

Mortgage Lenders Set to Relax Standards, The Wall Street Journal, November 28, 2014


More Blog Posts:
FINRA Orders Houston-Based USCA Capital Advisors LLC to Pay $3.8M to 19 ExxonMobil Retirees, Stockbroker Fraud Blog, November 24, 2014

Insider Trading Roundup: Ex-Broker Pleads Guilty to Securities Fraud Involving IBM Acquisition, BNP Officials Are Under Scrutiny, and Ex-Billionaire Is Tried In Historic Brazilian Case, Institutional Investor Securities Blog, November 19, 2014

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

November 26, 2014

Goldman Sachs, HSBC Sued For Manipulating Precious Metal Prices

A class action securities case is accusing Goldman Sachs Group (GS), HSBC Holdings Plc (HSBC), BASF SE (BAS), and Standard Bank Group Ltd. of manipulating prices for palladium and platinum. According to lead plaintiff Modern Settings LLC, the companies used insider information about sales orders and client purchases to make money from price movements for the precious metals, which are used in jewelry, cars, and other products.

The lawsuit, filed in Manhattan federal court, is the first of its kind in the United States. Similar complaints have been filed in New York accusing banks of rigging gold’s benchmark price.

According to this securities case, the defendants took part in daily conferences to establish the global price benchmarks for palladium and platinum. They said that this impacted derivative products based on the metals, while giving the four companies the ability to make trades in the metals prior to the movements. This purportedly resulted in in “substantial profits” for the banks, while harming those not in the know. Class action members are said to have lost value in tens of thousands of transaction.

The complaint uses analysis of price moves over seven-years beginning in October 2007. A judge will have to approve whether the plaintiff can represent other metal buyers.

Regulators have been clamping down on benchmarks after discovering that the prices in currencies and interbank-loans were being manipulated. In August, Silver was the first precious metal to modify its procedure, while gold fixing’s procedure will also be modified. The new mechanism for palladium and platinum will be implemented starting next month.

Earlier this year, AIS Capital, a hedge fund, filed a class action lawsuit accusing Barclays PLC (BARC), HSBC Holdings PLC, Deutsche Bank AG (DB), Société Générale SA, and Bank of Nova Scotia for purportedly manipulating gold’s price. According to the plaintiff, the banks worked together, along with unnamed co-conspirators, to manipulate the prices of gold derivatives contracts and gold so they could make money.

AIS Capital Management, which invest in gold futures, physical gold, and equities of gold-mining companies, noted that its Gold Fund dropped 67% in value last year as the cost of precious metals fell by nearly a third. The plaintiff pointed to several occasions when the gold price either dropped or fell not long after one of the gold-fixing conference calls attended by the defendants. The price of gold would then shift in the opposite direction right after the benchmark was established.

The institutions meet twice a day to figure out a snapshot of the price, also known as the London fix. This is the global benchmark for gold’s spot price that is used by central bankers and jewelers to place a cost on deals and figure out the value of securities linked to gold, including exchange-traded funds. The lawsuit also alleges that banks placed spoof trades to shift prices on the derivatives and physical markets toward their favor.

AIS Capital Management Sues Gold-Fix Banks
, The Wall Street Journal, March 11, 2014

HSBC, Goldman Rigged Metals’ Prices for Years, Suit Says, Bloomberg, November 26, 2014


More Blog Posts:
FINRA Orders Houston-Based USCA Capital Advisors LLC to Pay $3.8M to 19 ExxonMobil Retirees, Stockbroker Fraud Blog, November 24, 2014

Insider Trading Roundup: Ex-Broker Pleads Guilty to Securities Fraud Involving IBM Acquisition, BNP Officials Are Under Scrutiny, and Ex-Billionaire Is Tried In Historic Brazilian Case, Institutional Investor Securities Blog, November 19, 2014

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

November 25, 2014

HSBC to Pay $12.5M Settlement to SEC Over Charges That It Violated Securities Laws

The Securities and Exchange Commission is charging HSBC Private Bank (HSBC) with violating U.S. federal securities laws. According to the regulator, the Swiss private banking arm did not register with the agency before providing clients in this country with cross-border brokerage and investment advisory services.

HSBC Private Bank as agreed to pay $12.5 million to resolve the SEC’s charges. It is also admitting to wrongdoing.

According to the SEC order over the settled administrative proceedings, the private banking arm and its predecessors started providing the services at issue over 10 years ago, growing its clients base to up to 368 U.S. accounts while collecting about $5.7 million in fees. Banking personnel came to this country over three dozen times to solicit clients, offer advice, and fulfill securities transactions. The managers who completed these tasks were not registered to provide these services nor were they affiliated with a registered brokerage firm or investment adviser. These managers also communicated via e-mail and postal mail with clients in the U.S.

HSBC Private Bank left the U.S. cross-border business in 2010, closing almost all of its client accounts here or moving them by the end of 2011.

The SEC says that the private banking arm knew that it was at risk of violating federal securities laws with its managers’ actions and even put into place specific compliance initiatives to manage and mitigate risks. According to the regulator’s order, HSBC violated on purpose certain sections of the Securities Exchange Act of 1934 and the Investment Advisers Act of 1940.

HSBC has admitted to the facts presented in the SEC’s order, acknowledging that it violated federal securities laws. In addition to accepting a cease-and-desist order and a censure, the bank consented to pay over $5.7 million in disgorgement, $4.2 million in prejudgment interest, and a $2.6 million penalty.

SSEK Partners Group is an institutional investor fraud law firm.

Read the SEC Order (PDF)


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SEC Enforcement: Wedbush Settles SEC Probe for $2.4M, High-Frequency Trading Firm Gets $16M Penalty, and the Regulator Suspends Companies Touting Ebola Treatment, Stockbroker Fraud Blog, November 22, 2014

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

SEC News: Regulator Grants $30M Whistleblower Award and Charges Washington Investment Advisory Firm $600K for Undisclosed Principal Transaction, False Advertising, Stockbroker Fraud Blog, September 23, 2014

November 15, 2014

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

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

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

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

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

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

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

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

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

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

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

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

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


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

SEC News: Regulator Grants $30M Whistleblower Award and Charges Washington Investment Advisory Firm $600K for Undisclosed Principal Transaction, False Advertising, Stockbroker Fraud Blog, September 23, 2014

T.J. Malone’s Lincolnshire Management Settles with SEC for $2.3M Over Purportedly Improper Allocations That Cost Its Funds, Institutional Investor Securities Blog, September 23, 2014

November 12, 2014

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

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

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

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

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

FCA is fining:

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

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

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

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


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

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

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


More Blog Posts:

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

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

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

November 7, 2014

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

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

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

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

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

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

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

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

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

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

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


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

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

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

November 5, 2014

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

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

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

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

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

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

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

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

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

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


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

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

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

November 4, 2014

DOJ Launches Criminal Probe Into JPMorgan, Citigroup Foreign Exchange Business

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

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

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

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

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

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

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

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


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

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

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

October 28, 2014

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

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

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

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

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

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

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

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

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


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

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

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

October 27, 2014

European Commission Takes Action Against JPMorgan, UBS, RBS & Credit Swiss for Cartel Conduct

The European Commission has found that Royal Bank of Scotland (RBS), JPMorgan (JPM), UBS AG (UBS) and Credit Suisse (CS) engaged in cartel behavior. Except for RBS, which received immunity from having to pay any fines by disclosing the cartel conduct, the other banks were fined $120 million for their activities. For cooperating, UBS and JPMorgan received fine reductions. Along with Credit Suisse, both banks got a 10% reduction for consenting to settle.

All four financial institutions are accused of running a cartel involving bid-ask spreads of Swiss franc interest-rate derivatives in the European Economic Area. Banks and companies typically use interest rate derivatives to manage interest rate fluctuation risks. A “bid-ask spread” is the difference between how much a market maker is willing to sell and purchase a product.

According to the European Commission, between May and September ’07, the four banks agreed to quote to third parties wider fixed bid-ask spreads on certain short-term, over-the-counter Swiss franc interest rate derivatives while keeping narrower spreads for trades between them. The purpose was to reduce their transaction costs and keep liquidity among themselves, as well as keep other market makers from competing on equal terms in the Swiss franc derivatives market. In one action, JPMorgan Chase (JPM) was fined €61.7 million euros for purportedly manipulating the Swiss franc Libor benchmark interest rate in an illegal cartel with RBS, which, again, had immunity from fees.

The SSEK Partners Group is a securities fraud law firm.

EU fines JPMorgan, UBS, Credit Suisse for taking part in cartels, Reuters, October 21, 2014

Commission settles RBS-JPMorgan cartel in derivatives based on Swiss franc LIBOR, Europa.eu, October 24, 2014


More Blog Posts:

SEC Chairman Mary Jo White Wants Reforms Made to Bond Market, Stockbroker Fraud Blog, June 23, 2014

SEC to Reject BlackRock Inc. Proposal for Nontransparent Exchange-Traded Fund, Institutional Investor Securities Blog, October 23, 2014

SEC To Examine Exchange Traded-Fund Regulation Again, Stockbroker Fraud Blog, March 22, 2014

October 25, 2014

73 Swiss Banks Want the US to Modify Proposed Tax Amnesty Deals

Lawyers for 73 Swiss banks are questioning the terms of self-disclosure program that would allow them to achieve amnesty for having helped Americans avoid paying taxes to the U.S. government. In a request to the Justice Department, the attorneys objected to certain terms while recommending changes to the model accord.

The program wins bank participants a guarantee that they won’t be prosecuted if they disclose accounts belonging to Americans that had previously gone undeclared. While the bank could still be slapped with penalties the equivalent of up to half of what was in the hidden funds, they might be able to negotiate the amount down.

One of the requirements under the plan is that banks have to cooperate with other foreign or domestic law enforcement agencies that become involved in any probe over a tax evasion matter. However, Bloomberg reports, according to a number of the lawyers, this requirement wasn’t in the program when some 100 firms signed up so they could win non-prosecution deals in exchange for their cooperation. The banks claim that such a stipulation turns a program having to do with U.S. tax issues into a global agreement that doesn’t include guarantees or safeguards for them.

The banks want the program to ensure that the Internal Revenue Service doesn’t go after them if they reveal how they helped Americans to not pay taxes. They also are unhappy about the breadth of provisions related to breaches of the agreement.

Offshore accounts in Switzerland, Indian, Bermuda, Panama, Israel, the Cayman Islands, Liechtenstein, and Hong Kong already have been subject to criminal cases by the DOJ for tax evasion. The government has threatened to begin criminal probes against banks that don’t join the program.

Banks that are charged in criminal court would be jeopardizing their ability to hold deposits, make transactions in dollars for clients, and invest their assets in U.S. Securities, which could place their businesses in jeopardy. Wegelin & Co., a 270-year old bank, had to shut its doors after the U.S.indicted it for helping Americans evade paying their taxes. The bank filed a guilty plea last year.

Earlier this year, Credit Suisse Group AG (CS) was fined $2.6 billion after admitting it helped U.S. citizens evade taxes. In 2009, UBS AG (UBS) paid $780 million to settle charges that also were for helping Americans avoid paying taxes. The U.S. then sued UBS to get them to disclose the accounts. The bank disclosed 4,500 accounts to the government.

Earlier this month, Deutsche Bank AG (DB) also joined the self-reporting program. The bank recently drew scrutiny after The Wall Street Journal reported that the Federal Reserve Bank of New York found that the bank’s outfit in the U.S. suffered from financial reporting deficiencies.

Swiss banks urge U.S. to amend demands in tax amnesty deals, Chicago Tribune/Bloomberg, October 23, 2014

Deutsche Bank to Aid U.S. Justice Department in Swiss Tax Evasion Probe
, The Wall Street Journal, October 9, 2014


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

Wells Fargo to Pay $5M Over Inadequate Controls, Altered Documents, Institutional Investor Securities Blog, October 21, 2014

FINRA Bars Ex-Wells Fargo Broker From Industry For Allegedly Bilking Customers, Expels HFP Capital Markets LLC for Securities Fraud, Stockbroker Fraud Blog, September 19, 2014

October 21, 2014

Wells Fargo to Pay $5M Over Inadequate Controls, Altered Documents

Wells Fargo Advisers LLC has consented to pay $5M to resolve U.S. Securities and Exchange Commission charges accusing the firm of not keeping up adequate controls so that one of its employees would be unable to use a customer’s nonpublic information to engage in insider trading. Wells Fargo also was charged with taking too long to produce documents during the SEC’s probe and giving the regulator an altered document related to a review of a broker’s trading activities.

Federal law mandates that investment advisers and broker-dealers set up, keep up, and enforce procedures and policies so that material nonpublic data of customers is not misappropriated. This is the first time the Commission has charged a brokerage firm for not protecting a customer’s material, nonpublic data. Wells Fargo is settling the charges without admitting or denying wrongdoing.

The agency says that Wells Fargo broker Waldyr Da Silva Prado Neto found out in confidence from a customer that private equity firm 3G Capital Partners Ltd. was acquiring Burger King in 2010. The client had placed $50 million in the fund that would go on to acquire the hamburger chain. Prado then traded on the information before it was made public. The regulator filed insider trading charges in 2012.

The Commission says that the Wells Fargo groups responsible for supervision and compliance became aware of indicators that Prado was misusing customer data. But due to a lack of coordination and assigned accountabilities, they did not take action.

Also according to the SEC’s order, when its investigators requested documents related to Wells Fargo’s compliance review of Prado’s trading, the firm left out some documents related to his involvement in Burger King stock. The broker-dealer eventually provided the documents but not until six months later.

Also, one of the documents was purportedly altered with additional language before it was given to the SEC. The regulator is accusing Wells Fargo of not providing an accurate record of Prado’s compliance review.

Last week, the Commission instituted an administrative proceeding against Judy K. Wolf, the compliance officer accused of altering the document. She has been let go from Wells Fargo. Her job with the firm was to identify potentially suspicious trading, either by clients and customers or personnel, and analyzing whether material nonpublic data was involved.

In 2010, Wolf made a document summarizing her review of Prado’s trading activity that was concluded with no findings. The SEC Enforcement Division says that in 2012, she modified the document after Prado was charged, to make it look as if her review had been more thorough. Although Wolf initially denied altering the document, she later admitted to making the changes.

Read the SEC Order Charging Wells Fargo (PDF)

Read the SEC Order Against Wolf (PDF)

Read the SEC Order Charging Prado (PDF)


More Blog Posts:
FINRA Bars Ex-Wells Fargo Broker From Industry For Allegedly Bilking Customers, Expels HFP Capital Markets LLC for Securities Fraud, Stockbroker Fraud Blog, September 19, 2014

Wells Fargo Must Face Los Angeles’s Lawsuit Over Predatory Loans
, Stockbroker Fraud Blog, May 30, 2014

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

October 14, 2014

Barclays to Pay $20M To Settle Libor Manipulation

Barclays PLC (BARC) has consented to pay $20 million to settle complaints over the manipulation of the London interbank offered rate benchmark. As part of the accord, the bank will cooperate with a group of Eurodollar-futures traders that have filed lawsuits against other banks over Libor manipulation.

The deal resolves claims by firms and individuals that traded in Eurollar futures contracts and options on exchanges that were Libor based from 1/1/05 to 5/31/10. Now, a district court judge in Manhattan must approve the settlement.

This is the first settlement reached in the U.S. antitrust litigation involving investments linked to Libor. In addition to paying the $20 million, Barclays will help traders with their claims against other banks. This will include giving documents and information and other support to the plaintiffs so that they can bolsters their cases.

Authorities around the world have been looking into claims that over a dozen banks modified the submissions for establishing Libor and other benchmarks to make money from bets on interest-rate derivatives or cause their finances look more robust. In 2012, U.K. and U.S. authorities fined Barclays $469 million related to benchmark rate manipulation.

Bank of America Corp. (BAC), JPMorgan Chase & Co. (JPM), and Citigroup (C) are some of the other banks that were sued over allegedly manipulating Libor.

Meantime, regulators are trying to reach a settlement over rate-rigging allegations made against Deutsche Bank AG (DBK). According to The New York Times, U.S. prosecutors are considering whether to get the bank to plead guilty to interest-rate rigging.

Also under investigation of suspected wrongdoing related to currency manipulation are UBS (UBS), JPMorgan Chase, Barclays (BARC), Citigroup, and several other banks. Past resolved cases against these firms could be opened up if any misconduct was discovered that potentially violated earlier settlements related to interest rate manipulation.

Meantime, in the United Kingdom, the Financial Conduct Authority may be close to reaching settlements with JPMorgan, Citigroup, HSBC (HSBC) the Royal Bank of Scotland, and UBS. The agreement could potentially be a collective one.

U.S. May Press Deutsche Bank for Guilty Plea on Libor, NYT Says, Bloomberg, October 6, 2014

Barclays to pay $20 million to settle U.S. class action over Libor, Reuters, October 8, 2014


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

Virginia Files $1.15B Securities Lawsuit Against Citigroup, Credit Suisse, JPMorgan Chase, and Other Big Banks, Institutional Investor Securities Blog, September 27, 2014

Barclays to Pay $15M SEC Settlement Over Compliance Failures Following Lehman Brothers Acquisition, Pays $61.7M Fine to U.K.'s FCA Over Client Asset Issues, Institutional Investor Securities Blog, September 24, 2014

October 11, 2014

Credit Suisse, Goldman Sachs, JPMorgan, and 16 Other Banks Agree to Swaps Contract Modifications to Assist Failed Firms

JPMorgan Chase & Co. (JPM), HSBC Holdings Plc (HSBA), Goldman Sachs Group Inc. (GS), Credit Suisse (CS), and fourteen other big banks have agreed to changes that will be made to swaps contracts. The modifications are designed to assist in the unwinding of firms that have failed.

Under the plan, which was announced by the International Swaps and Derivatives Association, banks’ counterparties that are in resolution proceedings will postpone contract termination rights and collateral demands. According to ISDA CEO Scott O’Malia, the industry initiative seeks to deal with the too-big-to-fail issue while lowing systemic risks.

Regulators have pressed for a pause in swaps collateral collection. They believe this could allow banks the time they need to recapitalize and prevent the panic that ensued after Lehman Brothers Holdings Inc. failed in 2008. Regulators can then move the assets of a failing firm, as well as its other obligations, into a “bridge” company so that derivatives contracts won’t need to be unwound and asset sales won't have to be conducted when the company is in trouble. Delaying when firms can terminate swaps after a company gets into trouble prevents assets from disappearing and payments from being sent out in disorderly, too swift fashion as a bank is dismantled.

After Lehman’s bankruptcy filing, it still had tens of thousands of individual derivative positions. Trading partners tried to close out swaps trades with the firm right away, even demanding their collateral back. Because of this, billions of dollars of swap-termination payments were issued.

Current U.S. bankruptcy laws exempt swaps and other derivatives from the stay that prevents creditors of a firm that has failed from collecting on what they are owed right away. Banks’ swap counterparties, however, have been able to move fast to grab collateral.

ISDA has changed the language in a standard swaps contract following concerns from U.S. regulators that close-out derivatives transactions could slow resolution efforts. The changes allow banks to get involved in overseas resolution regimes that might only have been applicable to domestic trades.

The deal with the banks stretches out delays or stays to 90% of what is outstanding of notional value of derivatives. The firms have agreed in principal to wait up to 48 hours before canceling derivatives contracts and collecting payments from firms that are in trouble.

Establishing a credible plan to unwind failed banks could get rid of the impression that governments will rescue firms if they become too big too fail.

The other banks that have consented to this agreement:
· Bank of America (BAC)
· UBS AG (UBSN)
· Bank of Tokyo-Mitsubishi UFJ
· Sumitomo Mutsui Financial Group Inc.
· Societe Generale SA (GLE)
· Barclays Plc (BARC)
· Royal Bank of Scotland Group Plc
· BNP Paribas SA (BNP)
· Nomura Holdings Inc.
· Citigroup Inc. (C)
· Mizuho Financial Group. Inc.
· Credit Agricole SA (CA)
· Morgan Stanley (MS)
· Deutsche Bank AG (DBK)

The Wall Street Journal says that under the agreement, firms are agreeing to forfeit certain rights that exist with their current contracts.

Banks Back Swap Contracts That Could Help Unwind Too-Big-to-Fail, Bloomberg, October 11, 2014

Banks Ink Swaps Deal With U.S. Regulators
, The Wall Street Journal, October 12, 2014

International Swaps and Derivatives Association


More Blog Posts:
Securities Fraud: Ex-Ameriprise Adviser to Pay $3M for Ponzi Scam, Four Insurance Agents Allegedly Defrauded Senior Investors, and Trading in Nine Penny Stocks is Suspended, Stockbroker Fraud Blog, October 8, 2014

As SEC Examines Private-Equity Consultant Salaries, Blackstone Stops Monitoring Fees, Institutional Investor Securities Blog, October 8, 2014

Private Equity Firms, Including Blackstone, Settle ‘Club Deals’ Case with $325M Settlement, Stockbroker Fraud Blog, August 9, 2014

September 30, 2014

Citigroup Inc. Must Turn Over Bank Records Over Banamex Unit to Oklahoma Pension Fund

A judge has ordered Citigroup Inc. (C) to give over certain internal records to the Oklahoma Firefighters Pension and Retirement System related to the bank’s Banamex unit. The pension fund is a Citigroup shareholder.

Earlier this year, Citigroup revealed that its retail bank in Mexico City had been deceived in an accounting fraud involving Oceanografia, an oil-services company. Meantime, federal prosecutors have also been looking into whether Banamex USA did enough to protect itself so that customers couldn’t use it to launder money. Now, the U.S. Department of Justice and the Securities and Exchange Commission are examining Banamex USA and Banamex.

The Oklahoma fund submitted a complaint earlier this year asking to be able to look into whether Citigroup board members and executives had violated their fiduciary duty to shareholders related to the loan fraud scandal involving the Mexican unit. In its complaint, the pension fund alleged that Citigroup’s officers and directors may have known of the risks or existence of illegal activities and fraud but ignored them, as well as the likely civil and criminal penalties that could result.

Citigroup has since responded, contending that the Oklahoma fund did not demonstrate credible grounds for inferring the alleged wrongdoing and mismanagement. The bank said that it acted right away to remedy the problems at Banamex once they were identified.

Although Judge Abigail LeGrow ordered Citigroup to hand over certain bank records to the Oklahoma fund, she did not rule on whether the bank or its executives engaged in wrongdoing. However, she said that the issues stemming from the Banamex claims did have consequences.

Contact our securities lawyers if you suspect institutional investor fraud.

Citigroup Ordered to Turn Over Banamex Records, The Wall Street Journal, October 1, 2014

Citigroup ordered to turn over Banamex files to pension fund, Bloomberg, October 1, 2014


More Blog Posts:
Citigroup Global Markets Fined $1.85M By FINRA, Must Pay $638K Restitution Over Non-Convertible Preferred Securities Transaction Valuations, Stockbroker Fraud Blog, August 27, 2014

Securities Lawsuit Accuses Deutsche Bank, JPMorgan Chase, Credit Suisse, and Other Banks of Manipulating ISDAfix, Institutional Investor Securities Blog, September 4, 2014

Judge Rakoff Approves Citigroup’s $285M Mortgage Securities Fraud Deal with the SEC, Institutional Investor Securities Blog, August 5, 2014

September 28, 2014

Bank America to Pay $7.65M to SEC Over $4B Capital Error

Bank of America Corp. (BAC) will pay a $7.75 million penalty to settle U.S. Securities and Exchange Commission charges alleging violations of civil securities laws involving record keeping and internal controls. The case is over the $4 billion capital error that the bank disclosed earlier in the year.

In April, Bank of America said that it had been miscalculating certain capital levels since 2009. By the end of last year the error was over $4.3 billion. The violations took place after the firm took on a huge portfolio that included structured notes when it acquired Merrill Lynch.

The SEC says that when Bank of America acquired Merrill Lynch it permissibly recorded the notes it inherited at a discount to par. Bank of America then should have realized losses on the notes while they matured and deducted them for purposes of figuring out and reporting regulatory capital.

The regulator says that by the time 90% of the notes had matured as of March of this year, the bank still hadn’t subtracted the realized losses from its regulatory capital.

Bank of America was the one that discovered the mistake and notified regulators. Because of the error it had to resubmit stress-test plans to the Federal Reserve.

Aside from the penalty, Bank of America must cease and desist from causing or committing violations of specific sections of the Securities Exchange Act of 1934.

SEC Charges Bank of America With Securities Laws Violations in Connection With Regulatory Capital Overstatements, SEC.gov, September 29, 2014

The SEC Order (PDF)


More Blog Posts:

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

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

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

September 27, 2014

Virginia Files $1.15B Securities Lawsuit Against Citigroup, Credit Suisse, JPMorgan Chase, and Other Big Banks

The state of Virginia is suing 13 of the biggest banks in the U.S. for $1.15 billion. The state’s Attorney General Mark R. Herring claims that they misled the Virginia Retirement System about the quality of bonds in residential mortgages. The retirement fund bought the mortgage bonds between 2004 and 2010.

The defendants include Citigroup (C), JPMorgan Chase (JPM), Credit Suisse AG (CS), Bank of America Corp. (BAC), Goldman Sachs Group Inc. (GS), Morgan Stanley (MS), Deutsche Bank (DB), RBS Securities (RBS), HSBC Holdings Inc. (HSBC), Barclays Group (BARC), Countrywide Securities, Merrill Lynch, Pierce, Fenner & Smith Inc., and WAMU Capital (WAMUQ). According to Herring, nearly 40% of the 785,000 mortgages backing the 220 securities that the retirement fund bought were misrepresented as at lower risk of default than they actually were. When the Virginia Retirement System ended up having to sell the securities, it lost $383 million.

The mortgage bond fraud claims are based on allegations from Integra REC, which is a financial modeling firm and the identified whistleblower in this fraud case. Herring’s office wants each bank to pay $5,000 or greater per violation. As a whistleblower, Integra could get 15-25% of any recovery for its whistleblower claims.

In the last year, state attorneys general, the U.S. Justice Department, and other federal agencies have arrived at large settlements with several of the big banks over residential mortgage securities fraud charges.

Virginia sues 13 big banks, claiming mortgage securities fraud, The Washington Post, September 16, 2014

Virginia sues 13 banks for $1 billion over alleged mortgage bond fraud, Reuters, September 16, 2014


More Blog Posts:

SEC Investigates Pimco Exchange-Traded Fund for Artificial Inflation, Institutional Investor Securities Blog, September 25, 2014


Stifel, Nicolaus & Century Securities Must Pay More than $1M Over Inverse and Leveraged ETF Sales, Stockbroker Fraud Blog, January 14, 2014

Barclays to Pay $15M SEC Settlement Over Compliance Failures Following Lehman Brothers Acquisition, Pays $61.7M Fine to U.K.'s FCA Over Client Asset Issues, Institutional Investor Securities Blog, September 24, 2014

September 25, 2014

SEC Investigates Pimco Exchange-Traded Fund for Artificial Inflation

The Securities and Exchange Commission is looking at whether Pacific Investment Management Co, artificially upped the returns of a fund that targeted smaller investors. At issue is the way the $3.6B Pimco Total Return ETF (BOND) purchased investments at a discount but depended on higher valuations for the investments when the fund worked out its holdings’ value soon after. This type of move could make it appear as if the fund made rapid gains when it was actually just availing of the variations in how certain investments are valued.

According to The Wall Street Journal, sources familiar with the probe say that SEC investigators have already interviewed firm owner Bill Gross. The regulator could be looking at whether investors ended up with inaccurate data about the performance of the fund. If so, this could be a breach of securities law, even if the wrongdoing wasn't intentional.

While the probe has been going on for at least a year, it seems to have recently escalated. Other Pimco executives have also been interviewed.

The WSJ reports that the investments involved appear to be small quantities of mortgage securities that are priced low because of their size and due to the fact that backers are typically small institutions. After Pimco would buy the investments, it would designate high valuations assigned by outside pricing companies, in part because a bigger mortgage bond pool would be used to compare them with. This type of action would create an instant gain on the bond. If this were done enough times, then the ETF’s early results could have gotten a boost.

It is not clear whether the alleged activity did inflate the ETF’s results. However, the fund made big gains early on, bringing in more investors. Within six months the funds had acquired $2.4 billion.

In other Pimco news, the firm is dealing with a bevy of investor withdrawals from its $222 billion Total Return Fund, which Gross manages, because of poor returns. Morningstar reports that since May of last year, they’ve taken out over $65 million from the fund. Investors are also withdrawing their funds from other Pimco mutual funds.

Pimco is an Allianz SE (ALV.XE) unit. Allianz is the biggest insurance company in Germany.

Our exchange-traded fund fraud lawyers work with investors in recouping their losses. Contact our institutional investor fraud law firm today.

Pimco ETF Draws Probe by SEC, The Wall Street Journal, September 23, 2014

SEC's investigation into Pimco could ripple through ETF, fixed income markets, Investment News, September 24 2014


More Blog Posts:
SEC To Examine Exchange Traded-Fund Regulation Again, Stockbroker Blog Fraud, March 22, 2014

Stifel, Nicolaus & Century Securities Must Pay More than $1M Over Inverse and Leveraged ETF Sales, Stockbroker Fraud Blog, January 14, 2014

Barclays to Pay $15M SEC Settlement Over Compliance Failures Following Lehman Brothers Acquisition, Pays $61.7M Fine to U.K.'s FCA Over Client Asset Issues, Institutional Investor Securities Blog, September 24, 2014

September 24, 2014

Barclays to Pay $15M SEC Settlement Over Compliance Failures Following Lehman Brothers Acquisition, Pays $61.7M Fine to U.K.'s FCA Over Client Asset Issues

Barclays Capital Inc. (BARC) has consented to pay $15 million to the U.S. Securities and Exchange Commission to resolve civil charges claiming that it did not make sure the financial institution was in proper compliance with securities laws and its own rules after acquiring Lehman Brothers' advisory division. According to the regulator, the firm did not adopt and execute written procedures and policies or keep up the needed records and books to stop certain violations.

For example, says the SEC, Barclays executed over 1,500 principal transactions with advisory client accounts but did not seek the necessary written disclosures and get the requisite customer consent. It also made money and charged fees and commissions that were not consistent with disclosures for 2,785 advisory client accounts, underreported assets under management by $754 million when amending its Form ADV a few years ago, and violated the Advisers Act’s custody provisions.

The violations caused clients to lose about $472,000 and pay more than they should have, while Barclays made additional revenue that was greater than $3.1 million. Barclays has since paid back or credited $3.8 million plus interest to customers who were affected. It also consented to remedial action and will retain a compliance consultant to perform an internal review.

Meantime, across the Atlantic, the U.K. Financial Conduct Authority also fined Barclays PLC. The amount is $61.7 million for not safeguarding client assets at the bank.

According to the British regulator, About 16.5 billion pounds in client assets were placed at risk between 11/07 and 1/12 due to poor arrangements between the bank and external custodians that were retained to deal with client trades and settlement.

Barclays accepts the FCA’s findings but maintains that it didn’t make money from these issues and customers did not sustain losses. A bank spokesperson said that Barclays identified and self-reported the matters that led to the FCA’s findings and it has since improved systems to resolve such problems and make sure the necessary processes are implemented.

The British regulator’s fine comes four months after the FCA fined it 26 million pounds for control failings over settling gold prices. The bank also put aside over $1.6 billion pounds for customers that were sold insurance they didn’t require or interest-rate swaps that led to losses.

Also in the UK, Barclays settled a lawsuit by client CF Partners LLP accusing it of offering advice on a takeover bid then buying carbon-trading firm Tricorona AB for itself. The resolution was reached after a judge ruled that the bank wrongly used confidential information to make its purchase.

The SSEK Partners Group is a securities law firm. Contact us today to find out if you have a fraud case.

Barclays Fined Twice in One Day for Compliance Failures, Bloomberg, September 23, 2014

Read the SEC Order
(PDF)

Barclays Fined $62 Million by U.K.'s FCA, The Wall Street Journal, September 23, 2013


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

Barclays to Pay $3.75M FINRA Fine for E-mail Retention and Record Preservation Violations, Stockbroker Fraud Blog, December 30, 2014

Securities Lawsuit Accuses Deutsche Bank, JPMorgan Chase, Credit Suisse, and Other Banks of Manipulating ISDAfix, Institutional Investor Securities Blog, September 4, 2014

September 4, 2014

Securities Lawsuit Accuses Deutsche Bank, JPMorgan Chase, Credit Suisse, and Other Banks of Manipulating ISDAfix

The Alaska Electrical Pension Fund is suing several banks for allegedly conspiring to manipulate ISDAfix, which is the benchmark for establishing the rates for interest rate derivatives and other financial instruments in the $710 trillion derivatives market. The pension fund contends that the banks worked together to set the benchmark at artificial levels so that they could manipulate investor payments in the derivative. The Alaska fund says that this impacted financial instruments valued at trillions of dollars.

The defendants are:

Bank of America Corp. (BAC)
Deutsche Bank (DB),
• BNP Paribas SA (BNP)
Citigroup (C)
• Nomura Holdings Inc. (NMR)
Wells Fargo & Co. (WFC)
Credit Suisse (CS)
JPMorgan Chase & Co. (JPM)
• HSBC Holdings Plc. (HSBA)
Goldman Sachs Group (GS)
• Royal Bank of Scotland Group Plc (RBS)
• Barclays Plc (BARC)
UBS AG (UBS)

The banks are accused of using electronic chat rooms and other private means to communicate and colluding with one another by submitting the same rate quotes. The manipulation was allegedly intended to keep the ISDAfix rate “artificially low” until they would reverse its direction once the reference point was established.

The Alaska fund said the rigging was an attempt by the banks to make money on swaptions with clients looking to hedge against interest rate fluctuations. The defendants purportedly wanted to modify the swaps’ value because the ISDAfix rate determines other derivatives’ prices, which are used by firms, such as the fund. The rigging allegedly occurred via rapid trades just before the rate was established. ICAP, a British broker-dealer, was then compelled to delay the trades until the banks shifted the rate. Meantime, the brokerage firm, which is also a defendant in this lawsuit, would post a rate that did not accurately show the market activity.

The Alaska fund is adamant that the submission of identical numbers by the banks when they reported price quotes to establish ISDAfix could not have occurred without the financial institutions working together, which it believes occurred almost daily for over three years through 2012. It wants to represent every investor that participated in interest rate derivative transactions linked to ISDAfix between 01/06 through 01/14. The Alaska fund wants unspecified damages, which, under U.S. antitrust law, could be tripled.

Investors and companies utilize ISDAfix to price structured debt securities, commercial real estate mortgages, and other swap transactions. At The SSEK Partners Group, our securities lawyers represent pension funds and other institutional investors that have been the victim of financial fraud and are seeking to recoup their losses. Your case consultation with us is a free, no obligation session. We can help you determine whether you have grounds for a securities claim or lawsuit. If we decide to work together, legal fees would only come from any financial recovery.

An Alaska pension fund sues banks over rate manipulation allegations, Reuters, September 4, 2014

Barclays, BofA, Citigroup Sued for ISDAfix Manipulation, Bloomberg, September 4, 2014


More Blog Posts:
Lloyds Banking Group to Pay $370M Fine Over Libor Manipulation, Institutional Investor Securities Blog, July 29, 2014

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

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

August 29, 2014

J.P. Morgan Targeted in Possible Cyber Attack

J.P. Morgan Chase & Co. (JPM) and up to four other banks were the victims of a possible cyber attack. According to the media, the financial institution is working with law enforcement authorities to figure out what happened.

Reuters reports that sources say the firm began its own probe after malicious software was found in its network, which indicates there had likely been a cyber attack. The Federal Bureau of Investigation is looking to see whether Russian hackers may have been involved. A possible motive for them could be retaliation for sanctions against Russia because of its role in the Ukraine military conflict. It is not unusual for Russian organized crime to target big financial institutions. Also looking into the matter is the U.S. Secret Service.

According to the Wall Street Journal, the hackers appear to have gotten in through the personal computer of employee and penetrated the bank’s inner systems. Gigabytes of customer and employee data may have been targeted. Authorities are trying to determine whether any data that might have been stolen has been used to move funds.

It was JPMorgan’s office in Hong Kong that was reportedly infected with the Zeus Trojan horse malware earlier this summer. The malware is capable of stealing banking credentials. Another of its offices, this one in India, was infected with the Sality malware, which can compromise Web servers and nab information. One bank that was hacked was reportedly targeted with “Zero-day,” a software flaw that makes it easy for hackers to take control of a computer via remote.

Banks have a duty to disclose when customer data has been breached. Often, companies can’t immediately tell what has been stolen or who was impacted. Should a theft arise as a result of a data breach, consumers have greater protections than corporations.

Unfortunately, cyber security has been a worry for large banks in the last last few years. In 2012, Iranian hackers targeted JPMorgan, Wells Fargo & Co. Inc. (WFC), PNC Financial Services Corp. (PNC), and U.S. Bancorp (USB) a distributed denial of service threats (DDoS) cyber attack. DDoS involves kicking websites offline by sending useless traffic to them.

In his latest yearly shareholder letter, JPMorgan CEO and Chairman James Dimon said that by the end of the year the firm would have spent over $250 million annually. He estimates that the firm will have had 1,000 people working on cyber security. Dimon cited the increase in cyber attacks globally as a reason for the heightened efforts.

Cyber crooks have also lately been targeting high-net worth individuals who have substantial accounts and other holdings. Brokerage firms, registered investment advisers, and wealth management companies are also under risk of cyber attacks.

Cybersecurity threats to financial firms on the upswing in 2014, InvestmentNews, January 10, 2014

FBI Probes Possible Hacking Incident at J.P. Morgan
, Wall Street Journal, August 28, 2014


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

JP Morgan VP Barred from Securities Industry By FINRA for Insider Trading Scam, Stockbroker Fraud Blog, January 25, 2014

Christ Church Cathedral Sues JPMorgan Chase Over Proprietary Product Sales, Institutional Investor Securities Blog, August 13, 2014

August 28, 2014

MF Global Wants to Pay $925M to Creditors

Now that it has repaid the majority of its customers, MF Global Inc. wants the U.S. Bankruptcy Court in Manhattan to let it pay $295 million to its creditors. Most of the funds would go toward unsecured creditors, who would get a first distribution of approximately 20%. Holders of priority claims, as well as administrative and secured claims that were resolved, would get all of the money owed to them.

Giddens is also seeking to set up a reserve fund of over $400 for unresolved claims while placing a cap on how much each claim would get. MF Global has paid back the majority of its customers. Most of them got everything owed to them.

The brokerage firm and parent company MF Global Holdings Ltd. went into crisis when investors left after finding out that Jon S. Corzine, the CEO at the time and formerly a Goldman Sachs (GS) chairman and ex-governor of New Jersey, made big bets on European sovereign debt. Their departure created an approximately $1.6 billion shortfall in the accounts of customers that should have been kept separate from the firm’s money pool. The shortfall has since been recovered.

Meantime, a judge has ordered PricewaterhouseCoopers (PwC) to face a $1B lawsuit filed against it by MF Global’s bankruptcy plan administrator. The company is accused of giving the financial firm poor accounting advice that purportedly played a key role in MF Global Holdings Ltd. having to file for bankruptcy protection in 2011.

The district judge said PwC’s advice on “repurchase-to-maturity” transactions, which former MF Global head Jon Corzine used to purchase $6.3 billion of European sovereign debt, impacted the way the firm put into effect its strategy. The latter was a factor in the alleged losses. Marrero said that there is a plausible claim that PWC proximately caused harm to the firm.

In other MF Global news, Judge Martin Glenn of the U.S. Bankruptcy Court in Manhattan has decided that Corzine and other ex-executives of the firm can use more insurance money to cover their legal bills. He set a $55 million soft cap while stressing that he is not pleased about the costs.

Several of the ex-executives are dealing with regulatory proceedings and civil actions related to the brokerage firm’s bankruptcy.The former MF Global executives have already spent around $47.5 million in insurance funds for such bills.

The ex-executives want to be able to access the insurance money without having to get clearance from the court. Glenn has not ruled on this matter.

MF Global’s administrator and bankruptcy trustee had opposed the former executives’ request. Also, MF Global customers have said that some of the insurance money should go to them.

Contact our securities lawyers today.

MF Global Seeks Permission to Repay Creditors, The Wall Street Journal, August 26, 2014

PwC must face $1 billion lawsuit over MF Global advice, Reuters, August 27, 2014


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

$1.2 Billion of MF Global Inc.’s Clients Money Still Missing, Stockbroker fraud Blog, December 10, 2011

Ex-MF Global CEO John Corzine Says Bankruptcy Trustee’s Bid to Join Investors’ Class Action Securities Litigation is Hurting His Defense, Institutional Investor Securities Blog, September 5, 2012

August 26, 2014

FINRA Claims Wedbush Securities Engaged in Supervisory and Anti-Money Laundering Violations

The Financial Industry Regulatory Authority has filed a disciplinary complaint against Wedbush Securities Inc. that accuses the firm of violations related to anti-money laundering and systemic supervision. The self-regulatory organization says that from January 2008 through August 2013, Wedbush did not put enough of its resources towards a supervisory systems, risk-management controls, and procedures. At the time, the firm was one of the largest market access providers, making millions of dollars from the business.

Because of purported violations, contends FINRA, market-access customers, including non-registered participants, were able to permeate U.S. exchanges and make thousands of trades that could have been manipulative and may have even involved spoofing and manipulative layering. The agency says that even though it was Wedbush’s duty to look out for suspect and possibility manipulative trades, the firm depended mostly on its market access customers to self-report such trading, as well as self-monitor.

FINRA contends hat even though Wedbush received notice about the risks involved in its market access business, the firm ‘s supervisory procedures and risk management controls were not reasonably designed to deal with these factors. Wedbush even established incentives for compensation to be based on the value of market customer access trading. FINRA says that Wedbush should have set up, kept up, and enforced satisfactory AML policies and procedures, and it purportedly failed to report suspect transactions.

The disciplinary complaint is the start of FIRNA's formal proceeding against Wedbush. However, the findings with regards to the allegations made have not been made yet. Now, Wedbush can respond to the complaint. To date, the firm remains adamant that its supervisory procedures and market-access risk procedures were designed to reasonably achieve compliance with regulatory requirements.

In June, the Securities and Exchange Commission filed similar charges against Wedbush, Jeffrey Bell, who is ex-EVP in charge of market access, and Christina Fillhart, a market access division Sr. VP. The Commission’s claims are over alleged violations that would have taken place between 7/11 and 1/13. Wedbush says the trading activities under examination in the SEC’s case didn’t lead to any losses. The firm is challenging the claims.

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

Wedbush Securities Defends Market-Access Risk Management Practices, The Wall Street Journal, August 19, 2014

FINRA Charges Wedbush Securities for Systemic Market Access Violations, Anti-Money Laundering and Supervisory Deficiencies, FINRA, August 18, 2014


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

Goldman to Buy Back $3.15B in RMBS to Resolve FHFA Claims
, Stockbroker Fraud Blog, August 26, 2014

Bank of America to Pay $16.65 Billion to Settle DOJ Mortgage Probe, Institutional Investor Securities Blog, August 23, 2014

August 23, 2014

Bank of America to Pay $16.65 Billion to Settle DOJ Mortgage Probe

Bank of America (BAC) and the U.S. Department of Justice have arrived at a $16.65 billion mortgage settlement. Under the agreement, the lender will pay $9.65 billion to the DOJ, the SEC, other government agencies, and six states. The remaining $7 billion will be paid in the form of aid to struggling consumers. This is the largest settlement between the U.S. and just one company. It resolves claims not just against Bank of America, but also against its current and past subsidiaries, including Merrill Lynch and Countrywide Financial Corporation.

The numerous probes now resolved involve the packaging, sale, marketing, structuring, and issuance of collateralized debt obligations and residential mortgage-backed securities, as well as mortgage loan origination and underwriting practices. As part of the settlement, the bank issued a statement of facts acknowledging that it did not disclose key information to investors about the quality of billions of dollars of RMBS that it sold to them. When the securities failed, investors, including financial institutions that were federally insured, lost billions of dollars. Bank of America acknowledges that it originated mortgage loans that were high-risk and made misrepresentations about the loans to the Federal Housing Administration, Freddie Mac, and Fannie Mae.

Merrill Lynch and Countrywide made a lot of the loans at issue before Bank of America purchased both entities in 2008. However, the government also had a problem with Bank of America’s own mortgage securities, as well as the latter's attempts to circumvent internal underwriting standards by revising the financial data of applicants.

The bank is just one of several lenders accused of knowingly giving credit to borrowers who couldn’t afford the loans and then selling the mortgages to investors. When borrowers defaulted on the loans, they went into foreclosure. This cost investors big time.

As part of the settlement, the bank will pay $5 billion to settle the DOJ claims under the Financial Institutions Reform, Recovery and Enforcement Act. The deal also settles securities claims by the Federal Deposit Insurance Corporation, the states of Illinois, California, Kentucky, Delaware, Maryland, New York, and the U.S. Attorney’s Office for the Western District of North Carolina. The relief to consumers will include principal reduction loan modifications, new loans to credit worthy borrowers, money to help communities still recouping from the financial crisis, and the financing of affordable rental housing.

Meantime, prosecutors in Los Angeles, California are getting ready to file civil charges against former countrywide CEO Angelo Mozilo and other ex-Countrywide executives. The DOJ dropped its criminal probe of Mozilo three years ago. Still, others have sought to hold him responsible for his involvement in the way the mortgages were handled. In 2010 the SEC ordered Mozilo to pay $67.5 million to settle allegations that he misled Countrywide investors. The deal allowed him to avoid going to trial on civil fraud and insider trading charges. Now, also invoking FIRREA, the U.S. attorney’s office in LA is getting ready to sue Mozilo and others.

Bank of America settles mortgage probes for $16.65 billion, Reuters, August 21, 2014

Deal Done: Bank of America, Justice sign $16.7 billion deal over bad mortgages, BizJournals, August 21, 2014

Countrywide CEO Mozilo settles with SEC for $67.5M, The Christian Science Monitor, The Christian Science Monitor/AP, October 15, 2010

Countrywide’s Mozilo Said to Face U.S. Suit Over Loans, Bloomberg, August 20, 2014


More Blog Posts:

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

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

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

August 21, 2014

Lehman Brothers' Unsecured Creditors to Get $4.6B Payout

Pension funds, former employees, investment firms, and banks with unsecured claims against Lehman Brothers Holdings are finally getting an initial payout of $4.6 billion. That’s about 71% of the unsecured claims against the broker-dealer to be recovered. These creditors of the firm have waited years to get their money back, ever since investment bank went into bankruptcy in 2008 with $613 billion in liabilities.

Lehman’s collapse helped instigate the global financial crisis and it was Barclays (BARC) that bought the brokerage business. It’s trustee, James W. Giddens has already paid back brokerage customers the over $10 billion they were owed.

In total, the Lehman parent company and its units have paid $57.1 billion to unsecured creditors. The majority of creditors are expected to get back up to 35 cents on the dollar.

Giddens says that additional payments for the brokerage’s unsecured creditors are likely. While $20.4 billion claims have been allowed against the firm, about $6.8 billion remain unresolved.

Meantime, the Lehman estate continues to wind down. Remaining holdings will continue to be sold off over the next several years. The brokerage firm is being unwound separately under the Securities Investor Protection Act.

Recently, Lehman’s brokerage unit asked the Second U.S. Circuit Court of Appeals to reconsider its decision affirming that Barclays is entitled to billions of dollars in assets under dispute. They want the court to set up a new hearing.

Giddens noted that the ruling increases Barclay’s gain from when it purchased the brokerage during the bankruptcy court sale. He said this change would reduce how much creditors would get back.

When U.S. Bankruptcy Judge James Peck approved the sale in 2008, he said that “no cash” would go to Barclays from the brokerage firm, including exchange-traded derivatives and the money linked to them. In 2009, Lehman sued Barclays, accusing the British bank of working out a secret discount when it purchased the brokerage. Peck, however, ruled that Barclays did not get an improper “windfall.” He said that the brokerage was entitled to the approximately $4 billion that was held to secure exchange-traded derivatives, while Barclays should get $1.9 billion in clearance box assets.

The two sides appealed. The district court ruled in Barclays favor, saying it had the right to both assets groups. Giddens appealed to the Second Circuit, which affirmed the ruling from the district court. Now, Giddens wants a rehearing.

Lehman continues to face litigation from derivative counterparties and former affiliates.

If you are an institutional investor that has suffered losses because of the negligence of a brokerage firm or another entity, you will want to speak with our securities lawyers right away. Contact The SSEK Partners Group today. Your initial case consultation is free.

Lehman Brokerage Creditors to Get $4.6 Billion, The Wall Street Journal, August 15, 2014

Lehman Bros Creditors Are About To Get $4.6 Billion, Business Insider/Reuters, August 15, 2014

In re: Lehman Brothers Inc, U.S. Bankruptcy Court, Southern District of New York, No. 08-01420, Justia


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

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

Lehman Brothers’ “Structured Products” Investigated by Stockbroker Fraud Law Firm Shepherd Smith Edwards & Kantas LTD LL, Stockbroker Fraud Blog, September 30, 2008

August 18, 2014

SEC Charges Linkbrokers Derivatives in $18M Securities Fraud

The U.S. Securities and Exchange Commission is charging Linkbrokers Derivatives LLC with involvement in an $18 million fraud scam . The New York-based firm, which is no longer a broker-dealer, is settling the charges by paying $14 million.

According to the regulator, brokers at Linkbrokers secretly manipulated the costs of securities trades that it processed. They promised low commission fees and then charged fees that were 1,000% more than what they misrepresented they would be.

Over 36,000 transactions were involved in the securities fraud, which took place between 2005 and 2009. The SEC has already charged a number of brokers at Linkbrokers’ cash equities desk over this matter.

The brokers are accused of secretly raising or lowering trade prices while hiding the actual prices. The alleged manipulations usually took place during times when the market was more volatile and when prices were expected to fluctuate. Although illicit profits in some instances were minimal, they eventually added up. Three of the brokers settled the SEC fraud charges against them for around $4 million. Criminal charges also were filed.

The securities fraud settlement strips the firm of what assets it had left. The money will go to customers that were harmed.

By settling, Linkbrokers is not denying or admitting to the securities charges. Also, it is going to withdraw its broker-dealer registration.

Linkbrokers executed high-volume trades for institutional customers. However, certain institutional clients, such as pension funds and mutual funds, invested the money of smaller investors, meaning that these customers too were affected.

Contact our institutional investor fraud lawyers today.

SEC Charges N.Y.-Based Brokerage Firm With Overcharging Customers in $18 Million Scheme, SEC, August 14, 2014

The SEC Order (PDF)


More Blog Posts:
$18.7M Securities Fraud Case Involving Former Linkbrokers Derivatives Brokers is A Prime Example of How Trade Markups Involving Pennies Can Eventually Cost Investors Millions, Stockbroker Fraud Blog, October 10, 2012

UBS Wealth, OppenheimerFunds Take Financial Hit From Puerto Rico Muni Bonds, Stockbroker Fraud Blog, August 15, 2014

Christ Church Cathedral Sues JPMorgan Chase Over Proprietary Product Sales, Institutional Investor Securities Blog, August 13, 2014

August 15, 2014

FINRA Panel Orders Morgan Stanley Unit to Pay Banamex Unit $4.5M Over Alleged Unauthorized Third Party Loans

According to a Financial Industry Regulatory Authority arbitration panel, Morgan Stanley & Co. (MS) must pay Banco Nacional de Mexico SA unit $4.5 million for allegedly letting funds from a family’s trust account be utilized for paying back third-party loans without authorization. The Mexican bank, also known as Banamex, was trustee to the account. It filed its securities arbitration case in 2012.

The trust was established in 2007 with proceeds from a property that members of a family had inherited and decided to sell. Banamex and the beneficiaries of the trust worked with a Morgan Stanley (MS) broker, who ran their accounts. The trust accounts were at a Morgan Stanley banking unit. They were set up in such a way that the assets were not supposed to be used as guarantees to pay third-party loans that another family member’s account had taken.

Morgan Stanley is accused of compelling the trust accounts to guarantee payment of a third-party loan without getting Banamex’s consent. According to the plaintiffs, the brokerage firm improperly guaranteed or recorded the trust assets for the relative, who did not belong to the trust.

The securities arbitration panel said that Morgan Stanley was negligent and engaged in negligent supervision. The damages are compensatory.

A spokesperson for Morgan Stanley said the broker-dealer was disappointed in the hearing's outcome. The firm maintains that the evidence demonstrates that the head of the family pledged the trust accounts as collateral for loans. Banamex is a Citigroup Inc. (C) subsidiary.

In other FINRA arbitration news, the self-regulatory organization has extended the deadline for how long the SEC has to vote on its proposed measure that would restrict who qualifies as a public arbitrator to resolve investor disputes. The SEC had 45 days from when FINRA published the proposed rule in the Federal Register. Now, the deadline has been moved to October 1. The postponement provides the Commission with additional time to go over comment letters that were sent about the proposal.

The rule is supposed to deal with the perceived perception that bias may be a factor in arbitration panels that adjudicate claims between broker-dealers and investors. If approved, no one from the securities industry would be allowed to serve as a public arbitrator. Instead, these individuals could only serve on the panel in the role of nonpublic arbitrator. Anyone that has worked in the industry for at least 15 years would be permanently barred from serving.

At The SSEK Partners Group, our FINRA arbitration lawyers represent high net worth individuals and institutional investors to recouping their losses. Your best chances of getting back your investment fraud losses is to work with a securities law firm that knows how to help you.


Morgan Stanley must pay $4.5 million to Banamex: panel, Reuters, August 15, 2014

Finra delays decision on public arbitrators, Investment News, August 5, 2014


More Blog Posts:

Former MIT Professor and His Son Plead Guilty to $140M Hedge Fund Fraud, Stockbroker Fraud Blog, August 14, 2014

LPL Financial to Pay Illinois $2 Million Fine Related to Variable Annuity Exchanges, Stockbroker Fraud Blog, August 13, 2014

Christ Church Cathedral Sues JPMorgan Chase Over Proprietary Product Sales, Institutional Investor Securities Blog, August 13, 2014

August 13, 2014

Christ Church Cathedral Sues JPMorgan Chase Over Proprietary Product Sales

Christ Church Cathedral in Indiana is suing JPMorgan Chase & Co. (JPM) According to church leaders, the bank made inappropriate recommendations, causing $13 million in losses. They’re accusing JPMorgan of advising that the church invest in proprietary funds that were underperforming.

The church filed its securities fraud lawsuit in the U.S. District Court in Indianapolis. According to the complaint, the firm inappropriately guided the church into 177 investment products that gave the firm high revenues. InvestmentNews reports that the church said the proprietary products made up at least 68% of its investment portfolio.

The plaintiff contends that the private equity and hedge funds, cash sweep accounts, managed accounts, and mutual funds it invested in between 2004 and 2013 were bound to perform poorly, especially with all the associated fees and expenses. The church said that last year, its assets declined from $31.6 million to $19.2 million, while JPMorgan made millions from cross-selling investment products.

The Episcopalian institution is accusing the bank of breaching its fiduciary duty. It wants compensatory and punitive damages.

The U.S. Securities and Exchange Commission recently started looking into possible conflicts of interest involving JPMorgan and the firm’s sale of certain investments to individual clients. This inquiry is reportedly not public. The Wall Street Journal reported that the Office of the Comptroller of the Currency had been conducting a similar probe of the firm. The newspaper says that this investigation was one of the reasons the bank modified the way it discloses to investors the difference between outside offerings and its products. JPMorgan also now notifies them regarding how much of their monies are in each.

In May, the bank said in a disclosure to clients that it prefers its own funds unless they believe that third-party managers can provide portfolio construction benefits that are “substantially differentiated.” The document was reviewed by The WSJ. The firm admitted that the bank gets “more overall fees” when internal strategies are used. Private bank employees are notified about “investment priorities” that the firm would like to sell.

Banks can take in more of the fees if clients invest in their own products. Sometimes, offering their own investment vehicles allows them to provide performance that is better than average. Doing so can also be less costly for customers.

Amid SEC probe, church sues J.P. Morgan over asset mismanagement, Fortune.com, August 13, 2014

J.P. Morgan Faces More Questions on Conflicts of Interest, The Wall Street Journal, August 8, 2014

JPMorgan's fund choices for its clients said to be under regulatory review, InvestmentNews, August 11, 2014


More Blog Posts:

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

JP Morgan VP Barred from Securities Industry By FINRA for Insider Trading Scam, Stockbroker Fraud Blog, January 25, 2014

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

August 9, 2014

Regulators Tell Deutsche Bank to Enhance Its Risk Controls and Reporting Systems

The Federal Reserve Bank of New York and the state’s Department of Financial Services want Deutsche Bank AG (DB) to improve its technology and compliance procedures and get rid of risk-management deficiencies. The U.S. regulators made the demand to the financial institution via a private memorandum.

The Wall Street Journal says the confidential pact went into effect two years ago. While it doesn’t appear that regulators plan to take other action against Deutsche Bank over this matter, the New York Fed did give the financial institutional a deadline of the middle of 2015 to remedy a number of priority issues. Sources tell The WSJ that there is worry that reporting or trading mistakes by the bank could result in bigger, unplanned losses for the financial institution and even impact the market.

The Wall Street Journal recently reported that the New York Fed discovered that Deutsche Bank’s U.S. operations has known that it had serious financial reporting problems for years but did nothing to remedy the matter. Last year, New York Fed senior vice president Daniel Muccia sent a letter to the bank's executives saying that the firm's reports were not accurate and of poor quality. The extent of their errors was such that “wide-ranking remedial action” is needed. Muccia called the deficiencies a “systemic breakdown." He said that the regulator has been worried about Deutsche Bank’s US outfit for years.

New York’s Department of Financial Services wants to place government monitors in Deutsche Bank. The initiative is part of the regulator’s growing examination of the foreign-exchange market to determine whether manipulation is occurring. Barclays (BARC) has also been singled out for extra observation.

Meantime, the U.S. Commodity Futures Trading Commission wants Deutsche Bank to modify its systems, including make fixes to transaction reporting problems that could be place the firm, and possibly its trading partners, at greater risk. Bank officials said that they’ve been working to tackle compliance and technology problems and enhance systems and controls, including those involved with daily transaction reports and real-time trade confirmations.

Meantime, the bank also faces scrutiny abroad. BaFin, the financial regulator in Germany, is looking into possible interest-rate manipulation involving Deutsche Bank. Ernst & Young LLP is trying to determine when Anshu Jain, the bank’s co-CEO, first found out about the potential manipulation. In 2013, Deutsche Bank agreed to pay a fine of 725 million euros from manipulating Libor-linked interest rates.

Our institutional investor fraud lawyers are here to help our clients recoup their losses. The SSEK Partners Group represents high net worth individuals and different types of institutional investors.

Deutsche Bank Ordered by U.S. Regulators to Improve Reporting Systems, Risk Controls, The Wall Street Journal, August 7, 2014

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


More Blog Posts:

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

Deutsche Bank, UBS Being Probed Over Dark Pools & High-Frequency Trading, While An Investor Sue Barclays, Institutional Investor Securities Blog, July 30, 2014

Barclays and Deutsche Bank Under Scrutiny Over Barrier Options Transactions, Institutional Investor Securities Blog, July 17, 2014

August 5, 2014

Judge Rakoff Approves Citigroup’s $285M Mortgage Securities Fraud Deal with the SEC

Two months after the Second U.S. Circuit of Appeals ruled that he had made a mistake in blocking the $285 million mortgage securities fraud settlement between Citigroup (C) and the SEC, U.S. District Judge Jed Rakoff has approved the deal. Rakoff had originally refused to allow the agreement to go through in 2011, chastising the regulator for letting the firm settle without having to admit wrongdoing.

Following his decision, other judges followed his lead and began questioning certain SEC settlements. The regulator went on to modify a longstanding, albeit unofficial, policy of letting companies settle without having to deny or admit wrongdoing.

Even though Rakoff is approving the deal now, he was clear to articulate his reluctance. In his latest opinion he wrote that he worries that because of the Second Circuit’s ruling, settlements with governmental regulatory bodies, and enforced by the contempt powers of the judiciary, will not have to contend with any meaningful oversight. However, Rakoff said that if he were to ignore the Court of Appeals’ dictates this would be a “dereliction of duty.” Nonetheless, he noted that approving this settlement has left his court with “sour grapes.”

After Rakoff’s refusal to approve the deal a few years ago, the SEC and Citigroup joined forces to appeal his ruling. The Second Circuit found that Rakoff “abused” his discretion and applied the “incorrect legal standard” to the securities case. It remanded the lawsuit back to his court.

The mortgage securities settlement resolves the SEC’s claims that Citigroup misled investors in a $1 billion collateralized debt obligation involving risky mortgages that ended up costing investors $600 million.

Citigroup Judge Approves Accord, Warning of No Oversight, Bloomberg Businessweek, August, 2014

After Long Fight, Judge Rakoff Reluctantly Approves Citigroup Deal, NY Times, August 5, 2014

Approval of SEC-Citigroup Deal Leaves Rakoff With a Case of ‘Sour Grapes’, The Wall Street Journal, August 5, 2014


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

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

Citigroup’s LavaFlow to Pay $5M to SEC For Not Protecting Subscriber Data in ATS
, Stockbroker Fraud Blog, July 28, 2014

July 31, 2014

Bank of America’s Countrywide Must Pay $1.3B for Faulty Mortgage Loans

U.S. District Judge Jed Rakoff in Manhattan is ordering Countrywide, a Bank of America (BAC) unit, to pay $1.3 billion in penalties for faulty mortgage loans that it sold to Freddie Mac (FMCC) and Fannie Mae (FNMA) leading up to the 2008 financial meltdown. This was the first mortgage fraud lawsuit that the federal government brought to go to trial.

The penalty is much less than the $2.1 billion maximum that the government had asked for. The government’s mortgage lawsuit against Countrywide originated from a whistleblower case brought against Bank of America by Edward O’Donnell, an ex-Countrywide executive.

Rakoff determined that Freddie and Fannie paid close to $3 billion for High Speed Swim Lane loans. This, after a jury determined last year Countrywide and Rebecca Mairone, one of its ex-executives, were liable for selling thousands of defective loans to the government-sponsored enterprises. Mairone’s penalty is $1 million.

During the trial, the government argued that Countrywide misrepresented risky loans it processed through the HSSL program, also known as “Hustle,” as being investment quality when in fact they bad loans were issued. The misrepresentations took place in 2007 and 2008. Loans were purportedly handled swiftly, and quality was not a priority.

The HSSL program tied bonuses to how rapidly bankers could originate the loans. Federal prosecutors said that this caused Countrywide to bring in loan processors who lacked the proper qualifications and experience and break down internal controls that should have weeded out high risk borrowers.

Rakoff called the fraud by the defendants “brazen," driven by “profits,” and having no regard for the harm inflicted that was inflicted on others. He wrote that even though there were reports internally at Countrywide indicating that the quality of the loans were deteriorating, and employees were vocal about concerns, the lender proceeded to put even more pressure on loan specialties to disregard their worries.

Rakoff said he decided on the bank’s penalty according to how much Freddie and Fannie paid for the mortgages that were proven defective—about 42% of over 17,600 loans. Bank of America has until September 2 to pay. It had argued that it shouldn’t have to pay the penalties, or at least no more than $1.1 million under the Financial Institutions Reform, Recovery and Enforcement Act. Meantime, Mairone will pay her penalty in installments.

Meantime, the impasse between the bank and the U.S. Justice Department over the latter’s mortgage securities investigation remains. The two parties are at odds over whether Bank of America should pay a penalty for alleged wrongdoing by Merrill Lynch & Co. Inc. and Countrywide before the bank owned both. The amount Bank of America is expected to pay to resolve the probe is at least $13 billion. The monies are expected to consist of cash and consumer relief.

Bank of America’s Countrywide Ordered to Pay $1.3 Billion, Bloomberg, July 30, 2014

Judge Orders Bank of America to Pay $1.27 Billion in 'Hustle' Case, The Wall Street Journal, July 30, 2014


More Blog Posts:
SEC Gets Nearly $70M Judgment Against Richmond, VA Firms, CEO Find Liable for Securities Fraud, Stockbroker Fraud Blog, August 5, 2014

Investors Pursue UBS's Puerto Rico Brokerage Over Closed-End Bond Funds, Stockbroker Fraud Blog, July 23, 2014

Deutsche Bank, UBS Being Probed Over Dark Pools & High-Frequency Trading, While An Investor Sue Barclays, Institutional Investor Securities Blog, July 30, 2014

July 30, 2014

Deutsche Bank, UBS Are Probed Over Dark Pools & High-Frequency Trading, While An Investor Sue Barclays

Deutsche Bank AG (DB) and UBS AG (UBS) have disclosed that they are cooperating with regulators investigating dark pool trading venues and high frequency trading venues. Currently a number of banks are under investigation.

UBS says that among those probing its dark pool operation, which is consider the largest in the U.S. according to trade volume, are the Financial Industry Regulatory Authority, the U.S. Securities and Exchange Commission, and New York Attorney General Eric Schneiderman. The bank says it is one of many defendants named in related class action lawsuits over dark pool trading.

Meantime, Deutsche Bank also says that it too has gotten requests from certain regulators for data about high frequency trading. The bank’s dark pool is known as the SuperX European Broker Crossing System. Deutsche Bank is a defendant in a class action case claiming that high frequency trading may have violated U.S. securities laws.

The Wall Street Journal says that Credit Suisse (CS), another large dark pool operator, hasn’t disclosed that it was specifically asked for information about its trading system. However, its CEO, Brady Dougan, recently told reporters that the bank is “cooperating on a lot of those discussions.”

Dark Pools
Dark pools let investors sell and buy shares anonymously. This allows them to conceal their trading activities from competitors who might otherwise bet against them. Dark pools are where institutional investors can look for big blocks of shares without anyone knowing. This is done to decrease any price impact so as to garner a better deal. Recently, however, regulators have been worrying that the lack of transparency in these trading venues may give some traders an unfair advantage.

As our dark pool fraud law firm has reported before, New York’s attorney general sued Barclays (BARC) PLC . Schneiderman claims the bank showed preference to high-frequency traders in its Barclays LX dark pool while making it seem otherwise.

Barclays is seeking to have the case dismissed. The bank claims that misleading data was used in the complaint. Since the dark pool lawsuit was submitted, several of Barclays' clients have left and the number of trades in Barclays LX has significantly gone down. A day after Schneiderman sued, Barclays dropped 7.4% in New York trading.

Now, an investor is suing Barclays because of the drop in share prices. The plaintiff, Barbara Strougo, says that she and other Barclays American Depositary share buyers lost funds.

Strougo wants to sue for all the investors that purchased Barclays ADSs from 8/2/11 to 6/25/214. She believes the bank falsified marketing collateral to conceal the extent to which high-frequency traders were active on the dark pool. She is also accusing Barclays of not disclosing that when these traders were purportedly favored over other LX clients, the bank made revenue that was “significant.”

Deutsche Bank, UBS Sucked Into Dark-Pools Trading Probe, The Wall Street Journal, July 30, 2014

Barclays Sued by Investor Over Losses From Dark Pool Suit, Bloomberg, July 28, 2014

U.S. regulators looking into UBS, Deutsche Bank speed trading operations, Reuters, July 29, 2014


More Blog Posts:
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

Barclays and Deutsche Bank Under Scrutiny Over Barrier Options Transactions, Institutional Investor Securities Blog, July 17, 2014

Investors Pursue UBS's Puerto Rico Brokerage Over Closed-End Bond Funds, Stockbroker Fraud Blog, July 23, 2014

July 29, 2014

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

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

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

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

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

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

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

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


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

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

Read Blackwell's Letter to Carney (PDF)


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

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

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

July 28, 2014

JPMorgan Expands Disclosures for Private-Banking Clients

According to The Wall Street Journal, J.P. Morgan Chase (JPM) is now articulating more clearly the difference between outside products and its own offerings to private-banking clients, as well as letting them know how much of their monies have gone to each. These more detailed explanations come, say the newspaper’s sources, in the wake of recent questioning by regulators on whether the firm was pushing its own products over others.
The Office of the Comptroller of the Currency and the U.S. Securities Exchange Commission has been monitoring whether brokers are selling the products that are right for a client or directing a customer to the ones that would make a broker-dealer the most money.

Individuals that belong to J.P. Morgan’s private-banking division have at least $10 million in investible assets, reports The Wall Street Journal. The firm has been criticized before for favoring its own funds. It even paid $384 million to American Century Investments in an arbitration case a few years ago for promoting J.P. Morgan funds over the latter’s funds.

In this current probe by the OCC, no formal complaint was made and the regulator did not insist on any changes. J.P. Morgan chose to expand its disclosures of its own accord.

The current wealth-management mode has drawn some criticism by those who worry that giving employees incentive to sell the firm’s own products would inevitably compel them to push these offerings to garner more money for a brokerage firm and the broker. Currently, brokers do not have a duty to only recommend products that are in the clients’ best interests. However, the U.S. Labor Department and the SEC are considering putting fiduciary standards into place for this.

The SSEK Partners Group represents high-net worth individuals and institutional investors in getting their securities fraud losses back.

J.P. Morgan Questioned for Conflicts of Interest, The Wall Street Journal, July 27, 2014


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

JP Morgan VP Barred from Securities Industry By FINRA for Insider Trading Scam, Stockbroker Fraud Blog, January 25, 2014

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

July 25, 2014

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

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

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

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

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

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

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

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

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

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

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


More Blog Posts:

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

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

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

July 23, 2014

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

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

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

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

· Morgan Capital 1 Inc. Trust 2007-HE7

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

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

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

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

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

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

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

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

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

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


More Blog Posts:

Morgan Stanley Must Pay Connecticut Regulators $5M for Supervisory Violations, Stockbroker Fraud Blog, June 18, 2014

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

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

July 18, 2014

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

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

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

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

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

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

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

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

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

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

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

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


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

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

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

July 17, 2014

Barclays and Deutsche Bank Under Scrutiny Over Barrier Options Transactions

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

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

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

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

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

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

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

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

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

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

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

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

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


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

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

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

July 14, 2014

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

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

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

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

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

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

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

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

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

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

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

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

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


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

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

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

July 3, 2014

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

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

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

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

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

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

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

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


More Blog Posts:

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

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

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

July 2, 2014

US Supreme Court Will Hear Appeal Over Libor Antitrust Claims

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

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

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

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

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

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

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

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

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

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

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


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

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

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

July 1, 2014

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

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

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

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

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

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

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

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

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

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

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

June 24, 2014

FINRA Arbitration Panel Orders Stifel Nicolaus to Pay $2.7M to Ex-Head Trader

A Financial Industry Arbitration Panel says that Stifel Financial Corp. (SF), the brokerage unit of Stifel Nicolaus, must pay $2.7 million to, Sean Horrigan. Stifel’s ex-head trader claims that the brokerage firm defamed him and withheld his bonus without just cause. Now, the panel is holding the broker-dealer liable.

Horrigan was fired from Stifel in 2012. According to his lawyer, his termination happened several weeks after he overheard a phone call in which a manager insulted his wife to a salesperson. Horrigan’s wife was also employed at Stifel at the time. After the incident, he reacted emotionally. It was after trading hours. The firm then demoted him before letting him go just weeks prior to giving him his bonus for 2011.

Stifel contended that Horrigan was not entitled to get that money because on the day that the bonuses were issued he no longer worked for the firm. His attorney, however, says that unless an industry professional signs a contract mandating that an employee has to be employed on bonus payout day, he/she is still entitled to that money.

The brokerage firm wrote in his dismissal paperwork that the ex-head trader behaved in a manner that was “detrimental to management and co-workers.” This information was included in his form U5, which states the “reason for termination.” Form U5s have to be sent to the Central Registration Depository.

The FINRA panel found that the language used to describe Horrigan’s termination was defamatory. Its members recommended that the verbiage "was not in parity with management's new strategy” be used instead.

The panel decided that Stifel was liable and would have to pay Horrigan $1.9 million plus interest in compensatory damages, and over 5,800 in Stifel, Nicolaus, and Co., Inc. stock (or the cash equivalent).

Compensation disputes involving financial firms and their employees are not uncommon. Recently, ex-Goldman Sachs Inc. (GS) trader Deeb Salem said he wants the firm to pay him significantly more than the $8.25 million bonus he received for his work in 2010. Salem says that he helped the bank make over $7 billion that year. The former Goldman Sachs trader contends that the bonus he should have gotten was unfairly docked due to a written warning regarding a 2007 self-evaluation.

A FINRA arbitration panel rejected Salem’s claims. Now, his lawyer has filed a petition in New York State Supreme Court. Salem wants $16.5 million in deferred compensation from Goldman Sachs.


FINRA Withdraws Proposal Ordering Brokers To Reveal Big Bonuses
In other news regarding broker bonuses, FINRA has withdrawn a proposal that would obligate brokers to tell clients about any substantial bonuses they received for switching to another firm. The move comes in the wake of criticism from the brokerage industry that the rule would be too expensive to implement.

The SRO intends to revise its proposal. It believes that customers should know about any financial incentives their representative got to switch firms and whether it will cost them for following the adviser or if their holdings will be impacted.

Stifel Nicolaus to pay 'defamed' trader more than $2.7 mlm, Reuters, May 12, 2014

A Young Ex-Goldman Trader Thinks His $8.25 Million Bonus Was Too Low, Business Trader, June 19, 2014

Finra Withdraws Proposal Requiring Brokers to Disclose Big Recruitment Bonuses, Wall Street Journal, June 23, 2014


More Blog Posts:
SEC Chairman Mary Jo White Wants Reforms Made to Bond Market, Stockbroker Fraud Blog, June 23, 2014

Pennsylvania Private Equity Firm Settles SEC Charges Over “Pay to Play” Violations Related to Political Campaign Contributions, Institutional Investor Securities Blog, June 23, 2013

Ex-ArthroCare CEO and CFO Convicted in Texas Securities Fraud Case, Stockbroker Fraud Blog, June 11, 2014

June 21, 2014

Bank of America Must Face SEC and Department of Justice RMBS Fraud Lawsuits, Seeks Meeting with US Attorney General

In North Carolina, U.S. District Judge Max O. Cogburn Jr. said that Bank of America Corp. (BAC) would have to face government two residential mortgage-backed securities lawsuits. The Securities and Exchange Commission and the Department of Justice contend that the bank misled investors about the quality of loans tied to $850 million in RMBS.

Bank of America wanted the cases dismissed. It argued that the investors, both financial institutions, never sued the bank.

Judge Cogburn, however, found that the SEC’s lawsuit properly laid out that the bank lied about the mortgages’ projected health in its RMBS fraud case. With the DOJ’s case, he gave the department 30 days to revise its securities lawsuit. He found that the Justice Department did not properly state its argument, which was that bank documents included false statements while leaving out key facts.

According to both plaintiffs, Bank of America failed to let investors know in preliminary documents that the majority of its mortgages were obtained via wholesale markets that bank executives did not think very highly off. The bank is also accused of not submitting the flawed documents to the Commission.

The DOJ invoked a law that lets the government punish for acts that are too old to be covered under other laws and also push for bigger awards. The government claims that as the lender Bank of America made it seem as if its bonds were backed by prime loans that had staff approval when really the riskiest loans came from external brokers.

Meantime, Bank of America continues to battle other claims related to mortgage securities. This week, bank officials asked for a meeting between its top executives and U.S. Attorney General Erica Holder to talk about a potential multibillion-dollar settlement over mortgage-backed securities. At issue is the way the bank handled MBSs leading up to the financial crisis. Bank of America is expected to pay at least $12 billion to settle civil investigations brought by the DOJ and a number of states.

However, there is one securities case that just took a positive turn in Bank of America’s favor. On Thursday, U.S. District Judge Barbara Rothstein vacated her order from last year that dismissed the bank’s case against the Federal Deposit Insurance Corp.

Bank of America is suing FDIC over $1.7 billion in client losses related to a mortgage-fraud scam at former lender Taylor Bean & Whitaker Mortgage Corp. The fraud took place from 2002 through 2009 when Taylor Bean Chairman Lee Farkas sold over $1.5 billion in bogus mortgage loans to Colonial Bank while diverting over $1.5 billion from Ocala funding.

Bank of America claims that when assessing Colonial Bank's receivership funds the FDIC did not follow procedures. Judge Rothstein has now withdrawn her earlier finding that there are sufficient assets in Colonial Bank’s receivership to pay general unsecured creditors.

Our RMBS fraud law firm represents institutional investors and high net worth individuals. Contact The SSEK Partners Group today.

Bank of America Requests Meeting With Attorney General, The Wall Street Journal, June 20, 2014

BofA FDIC Suit for $1.7 Billion Investor Losses Revived, Bloomberg, June 20, 2014

BofA must face mortgage-securities fraud lawsuits, Crains New York, June 20, 2014


More Blog Posts:
Massachusetts Files Lawsuit Against Fannie Mae, Freddie Mac, and FHFA, Stockbroker Fraud Blog, June 2, 2014

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

FINRA Orders Merrill Lynch to Repay $89M in Restitution, $8M Fine for Excessive Mutual Fund Fees for Charities, Retirement Accounts, Institutional Investor Securities Blog, June 17, 2014

June 19, 2014

DOJ Investigates Foreign-Exchange Industry Over Sales Markups

According to Bloomberg News, the U.S. Department of Justice is expanding its probe of the foreign-exchange industry by talking to the salespersons at the biggest banks in the world. They want to know about current sales practices, including how much customers are charged to exchange currency.

Over a dozen ex- and current traders and salespersons that were interviewed said that it is common to charge a hard markup, which factors in a slight margin for the services of a salesperson. Clients who don’t make currency deals too often or just in small quantities often don’t pay much attention to the rate they receive. Now, the DOJ wants to know if banks are committing fraud when they don’t properly disclose this practice to customers.

The Justice Department is just one of over a dozen authorities in the world that are probing the currency Now, banks are also conducting their own investigations in an attempt to negotiate for leniency just in case any disciplinary actions result.

These institutions don’t have to time stamp when a currency transaction is completed. This can give dealers a chance to mislead customers about the rate under which the order took place. Also, spot foreign-exchange transaction are outside the purview of the EU’s Markets in Financial Instruments Directive, which mandates that dealers execute all reasonable steps to make sure their clients end up garnering the best results.

Because banks don’t charge fees or commissions for currency transactions, the profit they make is impacted by what rate they get as opposed to what they can provide for clients. Certainly, certain markups are warranted but abuses can happen.

If you suspect that you have been the victim of securities fraud, please contact The SSEK Partners Group today. We work with high net worth individual investors and institutional investors.

Currency Probe Widens as U.S. Said to Target Markups, Bloomberg, June 18, 2014

Banks caught in widening foreign exchange probes, USA Today, April 7, 2014


More Blog Posts:
NY Hedge Fund Adviser Faces SEC Charges Over Conflicted Transactions and Whistleblower Retaliation, Institutional Investor Securities Blog, June 16, 2014

Retirees Hurt, Brokers Enriched by $300 Billion 401(k) Rollover Boom, Stockbroker Fraud Blog, June 17, 2014

JPMorgan Investment Management’s Shareholders Claim The Firm Charged Excessive Mutual Fund Fees, Institutional Investor Securities Blog, June 13, 2014

June 17, 2014

FINRA Orders Merrill Lynch to Repay $89M in Restitution, $8M Fine for Excessive Mutual Fund Fees for Charities, Retirement Accounts

FINRA says Bank of America (BAC) Merrill Lynch failed to waive mutual fund sales charges for a number of retirement accounts and charities. Now the wirehouse must pay as restitution $89 million and a fine of $8 million. The firm settled without denying or admitting to the findings.

The majority of mutual funds with the firm’s retail platform are supposed waive specific fees for charities and retirement plans that qualify for this consideration. However, Merrill Lynch neglected to ensure that its advisers were correctly implementing these waivers. This impacted 41,000 accounts.

The SRO says that from about ’06 – ’11, firm advisers put tens of thousands of accounts into certain funds, including Class A mutual fund shares, and promised to waive specific sales charges for charities and retirement accounts. It then did not act to ensure that all of the fees were actually waived.

In a statement, FINRA said that Merrill Lynch’s formal procedures don’t offer enough guidance or information about these waivers. Even when the firm found out that the waivers weren’t implemented in all eligible accounts, it still depended on its advisers to waive the fees. The regulator believes that Merrill Lynch did not properly supervise the sales nor did it notify or train its staff that there might be less costly alternatives they could offer investors.

A spokesman for Bank of America Merrill Lynch said the issue is a legacy one from prior to the merging of Bank of America with Merrill Lynch Pierce Fenner & Smith Inc. The discrepancy was discovered after the acquisition. FINRA said that even though the firm discovered the problem as early as in 2006, it did not notify the SRO about it until 2011.

Investors have already been repaid $65 million of the $89 million in restitution. $21.2 million will go to some 13,000 small business retirement accounts. More than 2.1 million 403(B) retirement accounts will get $3.2 million.

Please contact the SSEK Partners Group today.


Finra tags Merrill Lynch with $8 million fine for mutual fund sales charges
, Investment News, June 16, 2014

FINRA Fines Merrill Lynch $8 Million; Over $89 Million Repaid to Retirement Accounts and Charities Overcharged for Mutual Funds, FINRA, June 16, 2014


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

NY Hedge Fund Adviser Faces SEC Charges Over Conflicted Transactions and Whistleblower Retaliation, Institutional Investor Securities Blog, June 16, 2014

Ex-ArthroCare CEO and CFO Convicted in Texas Securities Fraud Case, Stockbroker Fraud Blog, June 11, 2014

June 13, 2014

JPMorgan Investment Management’s Shareholders Claim The Firm Charged Excessive Mutual Fund Fees

In the US Southern District of Ohio, Eastern Division, JP Morgan (JPM) Investment Management shareholders are claiming that the firm charged them excessive fees in three of its funds:

• JP Morgan Core Bond Fund
• JP Morgan Short Duration Bond Fund
• JP Morgan High Yield Fund

The plaintiffs contend that by charging these higher fees, compared to fees that other fund companies charged, the defendant got up to $108 million more in fees from its management company than if there was no in-house relationship. This allowed JP Morgan to purportedly achieve substantial economies of scale from a growth in assets under management each year. However, contend shareholders, they did not benefit from these savings through reduced fees.

The plaintiffs are claiming fiduciary breach since a board of directors is in charge of oversight of over 160 other JP Morgan Investment funds, as well as service providers, and also the fee arrangements of these providers. The lawsuit also contends that the defendant charged an advisory fee determined by AUM and charged more when administering its own funds as opposed to sub-advised funds. The result was a difference between proprietary and sub-advised fee schedules of about $100 million in profits to JP Morgan.

They also say that the board did not seek competitive bidding for offering similar advisory services nor did it try to obtain a “most favored nation” provision that would have pushed for fee parity between the subadvised funds and the JP Morgan managed ones. The board is also accused of knowingly approving the higher fees.

The shareholders say that not only were they charged larger fees but also they did not get an increase in services for paying more. The plaintiffs want these fees back, as well as lost profits and other actual damages.


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

JP Morgan VP Barred from Securities Industry By FINRA for Insider Trading Scam, Stockbroker Fraud Blog, January 25, 2014

$13B MBS Fraud Settlement Between JPMorgan and the US is Under Dispute in New Securities Lawsuit, Institutional Investor Securities Blog, February 10, 2014

June 7, 2014

Bank of America Could Settle Mortgage Probes for $12B

According to The Wall Street Journal, Bank of America Corp. (BAC) is in negotiations to settle the mortgage probes by the U.S. Department of Justice and several states for at least $12 billion. The bank has been under investigation over the sale, underwriting and securitization of residential mortgage bonds from prior to the 2008 financial crisis.

At least $5 billion would go to consumer relief as help for homeowners to lower their principals, as well as pay blight removal in certain neighborhoods. Already, BofA has agreed to pay $6 billion to settle with the Federal House Finance Agency related to residential mortgage backed securities that were purchased by Freddie Mac (FMCC) and Fannie Mae (FNMA) between 2005 and 2007. That case also involved allegations made against the bank’s Merrill Lynch and Countrywide Financial Group.

However, government negotiators are pressing BofA to pay billions of dollars more than $12B in this case. If a deal isn’t struck, the US Department of Justice may opt to file a civil lawsuit against the bank.

According to some analysts, Bank of America and its subsidiaries put out about $965 billion in private-label MBSs between 2004 and 2008. A lot of the mortgage-backed securities were made by Countrywide, which BofA acquired in 2008.

Last month, Michael P. Stephens, Acting Inspector General of the Federal Housing Finance Authority, said that there are still over a dozen mortgage bond investigations ongoing that will ultimately cost financial companies billions of dollars. He also said that contrary to media complaints that executives linked to the mortgage crisis have not been pursued, hundreds have been indicted and convicted for mortgage fraud.

Recently, ex-Goldman Sachs (GS) trader Fabrice Tourre said he wouldn’t file an appeal in the SEC case against him that he lost. The Commission accused Tourre of involvement in a mortgage-backed securities fraud scam that collapsed during the financial crisis. The fraud centered around the Abacus, 2007-AC1, a synthetic collateralized debt obligation made up of bundled RMBSs.

A district court judge entered a final judgment against Tourre earlier this year. Tourre has been ordered to pay $650,000. He was told to disgorge $175,463 and pay over $31,000 in prejudgment interest.

A settlement with Bank of America could potentially eclipse the $13 billion reached between JPMorgan Chase (JPM) and a number of government authorities late last year. That deal included $4 billion in assistance to beleaguered homeowners and $9 billion in payments. The settlement also took care of government civil claims over RMBS sales made by the firm and Washington Mutual, which it acquired, prior to 2009. JPMorgan also agreed to pay Freddie Mac and Fannie Mae $5.1 million over mortgage-backed securities losses.

BofA in Talks to Pay At Least $12 Billion to Settle Probes, The Wall Street Journal, June 5, 2014

Billions More in Mortgage Penalties Coming: Federal Regulator
, The Street, May 21, 2014

Former Goldman Trader Tourre Says He Will Not Appeal, The NY Times, May 27, 2014


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

$500M MBS Settlement Reached Between Countrywide and Investors, Stockbroker Fraud Blog, May 10, 2014

Bank of America Ordered to Hold Off Giving Back Money To Shareholders After Incorrectly Reporting $4B in Capital, Institutional Investor Securities Blog, May 5, 2014

June 6, 2014

SEC Sues Wedbush Securities and Dark Pool Operator Liquidnet Over Regulatory Violations

The Securities and Exchange Commission has filed a civil case against Wedbush Securities Inc. and two of its officials. The regulator claims they violated a rule that mandates that firms have proper risk controls in place before giving customers market access.

According to the SEC order, between 2011 through 2013 Wedbush allowed most of its market access customers to send orders straight to U.S. Trading venues and did not keep up direct and sole control over trading platform settings. Customers used these platforms to transmit orders to the markets.

The Commission contends that Wedbush should have had the mandated pre-trade controls in place. It claims that the firm failed to perform a yearly review of its risk management controls related to market access and did not limit trading access to people that the firm had authorized and pre-approved. As a result, overseas traders who were never approved and may not have been in compliance with U.S. laws ended up having market access.

SEC Enforcement Division Andrew J. Ceresney says that the SEC will hold Wedbush accountable for profiting while failing to protect the US markets. His agency says that Jeffrey Bell, one of the firm’s ex-EVPs, and Christina Fillhart, a Wedbush market access division Sr. VP, are to blame for causing the market access violations.

Meantime, the SEC is also accusing brokerage firm LiquidNet of regulatory violations. The regulator claims that the firm, which runs a dark pool alternative trading system, improperly used the confidential trading data of subscribers to market its services.

ATSs must set up and enforce procedures and systems to safeguard its subscribers confidential information. This includes only allowing employees who run the ATS or have a direct compliance role to access this data.

However, an SEC probe found that for almost three years, Liquidnet violated the regulatory duties and commitments that it made to its ATS subscribers when it improperly let a business unit that wasn’t part of the dark pool operation have access to that confidential trading information. These employees then used the data during marketing presentations and when communicating with other customers. The data was also used by the firm to design two ATS sales tools. Liquidnet will pay $2 million to settle the SEC charges.

The SEC has said it is cracking down on dark pools. Commission Chair Mary Jo White announced this week that there is a regulatory proposal in the works to require dark pools and other alternative trading venues to be more transparent with regulators and the public about the way they do business.

Meantime, the Financial Industry Regulatory Authority is now making dark pool data about the activity levels in each alternative trading system available to the public on its website. The SRO says the information is part of its efforts to improve market transparency and strengthen investor confidence.

The SSEK Partners Group is a securities fraud law firm.

SEC Order (PDF)

Dark Pool Operator Liquidnet to Pay $2 Million to Settle SEC Charges, The Wall Street Journal, June 6, 2014


More Blog Posts:
NYSE Euronext Head Wants SEC to Revive Rule Proposal Enhancing Dark Pool Transparency, Institutional Investor Securities Blog, July 4, 2014

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

SEC Temporarily Shuts Down Investment Adviser Over Alleged $8.8M NY Securities Fraud, Institutional Investor Securities Blog, June 4, 2014

May 31, 2014

Bank Fraud Cases: Wells Fargo to Pay $62.5M Settlement Over Class Action Lawsuit & City of Los Angeles, CA Sues JPMorgan Over Discriminatory Lending Practices

Wells Fargo Settles Securities Lending Case for $62.5M
Wells Fargo & Co. (WFC) will pay $62.5 million to settle a class action securities fraud case. A group of retirement funds claim that the bank committed fraud and breached its fiduciary duty in its securities lending program. Now, a district court judge must preliminarily approve the agreement.

Wells Fargo promoted its securities lending program to large institutional investors, including insurance companies, pension funds, and foundations. The bank would lend the clients’ securities to third-party brokerage firms. For lending the securities, the bank was given cash collateral. It then invested the funds, sharing returns with the clients. The program was marketed as a means for institutional investors to make additional funds to cover the cost of having Wells Fargo maintain their investment portfolios.

The plaintiffs of this lawsuit include the Arizona State Carpenters Defined Contribution Trust Fund, the Arizona State Carpenters Pension Trust Fund’s trustees, a Michigan pension fund, and the City of Farmington Hills Employees Retirement System.

According to the plaintiffs, Wells Fargo told them its securities lending program was a conservative vehicle that would allow them to make extra money. However, between 2005 and 2008, the bank’s managers made risky bets on complex illiquid investments. This included placing the retirement funds’ money in hedge fund-run structure investment vehicles and subprime mortgage pools. When the financial crisis happened, a lot of the deals turned toxic or failed.

By settling this latest securities lending case, Wells Fargo is not denying or admitting to any wrongdoing. Meantime, there are other lawsuits over the lending program that are still pending.

While the bank won one of the cases in court last year, a jury that presided over another lawsuit awarded the plaintiffs, a group of charitable foundations in Minnesota, $57 million.


City of Los Angeles, CA Sues JPMorgan for Predatory Lending
Los Angeles, CA is suing JPMorgan Chase & Co. (JPM). The city says that the bank took part in mortgage lending practices that were discriminatory. The practices helped to raise the foreclosure rates among minority borrowers in the city.

According to the predatory lending lawsuit, JPMorgan’s ongoing mortgage discrimination practice went on in L.A. for years, since at least 2004. Alleged practices included reverse headlining—this involves placing borrowers in minority neighborhoods in loans that are out of their budget because of their ethnicity or race—and redlining—when a minority borrower’s credit is denied even when others were approved under the same terms.

The city of L.A. wants punitive and compensatory damages. It also has filed similar lawsuits against Wells Fargo, Citigroup (C), and Bank of America Corp. (BAC). This week, Wells Fargo lost in its efforts to get that lawsuit dismissed.

Wells Fargo will pay $62.5 million to settle suit over securities lending, StarTribune, May 31, 2014

Los Angeles sues JPMorgan, alleges discriminatory lending, Reuters, May 30, 2014

Wells Fargo to pay $62.5 million to settle securities lending lawsuit
, The Boston Journal, May 30, 2014


More Blog Posts:
Wells Fargo Must Face Los Angeles’s Lawsuit Over Predatory Loans, Stockbroker Fraud Blog, May 30, 2014

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

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

May 20, 2014

Credit Suisse to Pay $2.6B, Pleads Guilty to DOJ Charges Over U.S. Tax Evasion

Credit Suisse (C) will pay $2.6 billion to the federal government and financial regulators in New York after pleading guilty to charges that it illegally helped thousands of American clients avoid paying taxes to the Internal Revenue Service. The U.S. Department of Justice said that for decades through 2009 the Swiss bank ran an illegal cross-border banking business.

This is the first time in years that a financial institution has pleaded guilty to a crime. Among the accusations was that Credit Suisse knew and agreed to help thousands of Americans set up accounts and help them hide their income and assets. Attorney General Eric Holder claims that the bank even got rid of account records, hid transactions, and failed to perform even the most basic steps to make sure clients were in compliance with US tax laws.

The DOJ contends that even after the 2008 US crackdown on Swiss accounts that compelled UBS AG (UBS) and Credit Suisse to become stricter about what services they offer American customers, the latter kept getting in the way of investigators looking into tax evasion allegations. Some Credit Suisse managers even purportedly helped clients transfer their assets to other offshore banks so their assets could stay concealed. Key documents to the DOJ’s probe were either lost or destroyed. Eight ex-Credit Suisse employees have been criminally charged with aiding in the tax evasion.

The $2.6B settlement includes $100 million that will go to the Federal Reserve, approximately $1.8 billion to the Justice Department, and over $715 million to the New York Department of Financial Service. However, Credit Suisse does not have to hand over the names of the US citizens who used the bank to conceal their money. The bank will, however, give over information that should lead investigators to account holders.

Since the crackdown on tax evasion from abroad, more than 43,000 US taxpayers have voluntarily become part of an IRS disclosure program allowing them to admit to previously unknown accounts. A recent Senate report says that these taxpayers have paid over $6 billion in back taxes, penalties, and interest.

The US is still probing about a dozen Swiss banks. Over 100 other banks are participating in a self-reporting program run by the DOJ. In 2009, UBS consented to pay $780 million in a deferred-prosecution deal where it admitted to helping Americans avoid paying taxes.

US banking regulators here have agreed to not revoke Credit Suisse’s license to do business in the country. However, the guilty plea could prove problematic in other ways. A lot of mutual funds and pension funds are not allowed to work with institutions that have pled guilty in a criminal case. Other clients may decide that they no longer want to work with Credit Suisse.

Credit Suisse pleads guilty in tax evasion case, CNNMoney, May 19, 2014

Credit Suisse Pleads Guilty in Criminal Tax Case, The Wall Street Journal, May 19, 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

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

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

May 5, 2014

Bank of America Ordered to Hold Off Giving Back Money To Shareholders After Incorrectly Reporting $4B in Capital

The Federal Reserve says that for now Bank of America (BAC) has to suspend its plans to give money back to shareholders because it did not correctly report capital ratios on recent stress tests. The mistake was a result of an "incorrect adjustment" connected to bad debts that the bank took on during the Merrill Lynch acquisition several years ago. This blunder caused Bank of America to report $4 billion more capital on its books than what actually exists.

The bank got $60 billion in structured notes as part of the Merrill deal. Because it did not lower its capital to factor in the losses related to the notes, the amount of capital was erroneously boosted.

Before the error became known, the Fed granted permission for the bank to up its quarterly dividend for the first time since the economic crisis. It also said BofA could repurchase $4 billion of stock. Now, BofA will have to develop a new capital plan.

According to The Wall Street Journal, legal experts say that the mistake could expose the bank to false reporting fines. (Right now, however, it doesn’t look like Bank of America turned the incorrect data in on purpose.) Upon announcing the snafu, the bank provided correct numbers for capital up to as far back as 2013’s first quarter.

If there were to be a penalty and all the time from then to the discovery of the error were factored in, the penalty could be $788,000 (perhaps even $3-4 million if the time considered were to stretch far back as 2009, which is when the bank started using the calculation method that resulted in the recent mistake). The Fed said it doesn’t plan to file an enforcement action against the bank over the blunder.

The news prompted BofA shares to drop last week. The mistake comes at a time that the bank is trying to enhance its credibility and its business. (Just last month, it announced that litigation costs tied to its settlement with the Federal Housing Finance Agency was about $6 billion.)

The “Stress Test”
This process is supposed to make sure that banks have enough capital available in the event of a bad recession. This has allowed the Fed to monitor how much capital banks give to shareholders as opposed to dividend increase and stock buybacks. This year, Citigroup’s (C) capital plan was rejected because of a number of deficiencies.

At the SSEK Partners Group, we represent partnerships, private foundations, corporations, large trusts, financial firms, banks, charitable organizations, school districts, municipalities, and high net worth individuals that need to recover their securities fraud losses. Contact our institutional investor fraud lawyers today.

Is Bank of America’s $4 billion blunder proof it’s too big?, CBS News, April 29, 2014

Bank of America's big math error, CNNMoney, April 28, 2014

Stress Test and Capital Planning, Federal Reserve


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

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

Citigroup and Royal Bank of Scotland Fail Federal Stress Test, Institutional Investor Securities Blog, March 26, 2014

April 28, 2014

Fidelity Investment, BlackRock, Other Asset Managers Take Issue with Plans to Expand Too Big to Fail Rules

According to InvestmentNews, some of the largest asset managers in the world are complaining that draft proposals for identifying financial institutions besides insurers and banks that may be too big to fail would employ an erroneous analysis of the investment industry. Fidelity Investment, Pacific Investment Management Co.(PIMCO), BlackRock Inc. (BLK), and others wrote written responses to a consultation made by international standard setters. Pimco, whose response was published on the International Organization of Securities Commission’s web site, called the blue print “fundamentally flawed,” saying that it failed to accurately show the risks involving the asset management industry or investment funds.

The proposals regarding too-big-to fail come after efforts by global regulators in the Financial Stability Board to rank insurers and banks according to their potential to trigger a worldwide financial meltdown. Under the plans published earlier this year by Iosco and FSB, investment funds with assets greater than $100 billion could be given the too big to fail label. The proposals are also suggesting possibly making asset managers that oversee with big funds subject to additional rules.

However, BlackRock, in its consultation response, is arguing that a fund’s size isn’t a sign of systemic risk and many of the biggest funds are not likely to pose issues of systemic risk. It also contends that concentrating on asset managers is the ‘wrong approach” seeing as they are “dramatically less susceptible” to getting into financial distress than other financial institutions. BlackRock is one of the firms that believes that international standard setters should instead put their attention on figuring out which activities could prove systematically essential rather than trying to label certain funds and asset managers as too big to fail.

The SSEK Partners Group is an institutional investor fraud law firm that represents high net worth individual investors and institutional clients. Your case consultation with us is free. Contact our securities lawyers today.

Pimco to BlackRock Protest Expansion of Too Big to Fail, Bloomberg, April 28, 2014

Is BlackRock too big to fail?, CNN Money, December 4, 2013

International Organization of Securities Commission (IOSCO)

Financial Stability Board


More Blog Posts:
US Senator Elizabeth Wants Obama Administration to Break Up Our Biggest Banks, Stockbroker Fraud Blogs, November 19, 2013

Ex-Bank of America CFO to Pay $7.5M to Settle with NY Over Merrill Lynch Acquisition Allegations, Institutional Investor Securities Blog, April 26, 2014

Charles Schwab’s Barring of Customers from Joining Class Actions Violated FINRA Rules, Says Board of Governors, Stockbroker Fraud Blog, April 25, 2014

April 26, 2014

Ex-Bank of America CFO to Pay $7.5M to Settle with NY Over Merrill Lynch Acquisition Allegations

Joe Price, the ex-chief finance officer of Bank of America Corp. (BAC) has consented to pay $7.5 million to settle allegations by the state of New York that the bank and its ex-executives misled investors over losses that were happening at Merrill Lynch even as shareholders were getting ready to approve its acquisition by the bank.

Bank of America’s decision to purchase Merrill as Lehman Brothers Holdings Inc. was collapsing was initially seen by many as a positive. However, after the deal was made public and Merrill’s problems soon became known, speculation over how much information was kept from those approving the deal mounted.

The state contended that Bank of America misled shareholders about Merrill’s losses to get the $18.5 billion deal approved. They then got the federal government to contribute bailout money from the Troubled Asset Relief Program to complete the sale. The bank has since become the subject of regulatory investigations and securities lawsuits over their actions. It even consented to pay $2.43 billion in 2012 to resolve a class action securities fraud case filed by investors over the Merrill acquisition. Settlements in total have to date surpassed $50 billion.

In Price’s agreement, reached with New York State Attorney General Eric Schneiderman, he is not denying or agreeing to the allegations of wrongdoing. He did consent to an 18-month bar from serving as a director or officer of a public company for 18 months. Bank of America will pay the costs for Price.

Just last month, Bank of America and its ex-Chairman Kenneth Lewis reached a $25 million settlement with New York, also over allegations they misled investors about the Merrill buy. The bank will pay $15 million while Lewis will pay $10 million and abide by a three-year ban from serving as a director or officer of a public company. The bank will also cover Lewis’s share of the settlement.

In other Bank of America-related news, at, Douglas Campbell, one of its ex-senior vice presidents who became a cooperating witness in the federal government’s bid-rigging investigation. will not be going to jail. As part of his deal with the government, Campbell had pleaded guilty to wire fraud, conspiracy to restrain trade, and conspiracy in 2010.

The U.S. Department of Justice accused Campbell of taking part in a municipal bond bid rigging scheme for several years that involved working out with other scammers ahead of time who would win bids on municipal contracts and investment agreements that CDR Financial Products had brokered. He would purposely turn in bids to CDR that he knew would lose.

Bank of America settled allegations by the US and state governments for $137.3 million. Settlements were also reached with UBS (UBS), Wells Fargo & Co. (WFC), JPMorgan Chase and Co (JPM)., and General Electric Co.

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

Ex-Bank of America employee avoids punishment in bid rigging case, Reuters, April 22, 2014

BofA Ex-CFO Settles Merrill Case With New York, The Wall Street Journal, April 24, 2014

Lewis, BofA Reach $25 Million Pact With N.Y. Over Merrill, Bloomberg, March 26, 2014


More Blog Posts:
U.S. Wants Bank of America to Pay Over $13B Over Residential Mortgage-Backed Securities, Institutional Investor Securities Blog, April 24, 2014

Bank of America, Its Ex-CEO To Pay $25M to Settle Securities Case with NY Over Merrill Lynch Deal, Stockbroker Fraud Blog, March 31, 2013

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

April 25, 2014

Barclays Must Face Shareholder Lawsuit Over Libor Manipulation

The 2nd U.S. Circuit Court of Appeals in New York says that Barclays Plc (BARC) shareholders can go ahead with their securities lawsuit claiming that the British bank caused them to suffer financial losses over manipulation of Libor. The ruling reverses a lower court’s decision.

The London Interbank Offered Rate is used to set interest rates on mortgages, credit cards, and student loans. It is also the average interest rate that banks can use to estimate what they would be charged if they borrowed from other banks. Regulators in Europe and the US have been investigating whether banks manipulated Libor when the 2008 financial crisis was happening.

In 2012, Barclays consented to pay British and American regulators $453 million and admitted that between August 2007 and January 2009 it frequently made Libor submissions that were artificially depressed. (Other big financial institutions that have settled Libor manipulation allegations included UBS AG (UBS), ICAP Plc (IAB), Rabobank, and Royal Bank of Scotland Group (RBS)).

In their Libor manipulation case, these investors, led by the St. Clair Shores Police & Fire Retirement System in Michigan and the Carpenters Pension Trust Fund of St. Louis in Missouri, believe that between July 2007 and June 2012 share prices in Barclays were artificially inflated as a result of false Libor submissions and because the bank understated borrowing costs. They also contend that ex-CEO Robert Diamond lied to them during a 2008 conference call when he denied that the bank’s borrowing coasts were higher than competitors.

A judge in Manhattan tossed out the case last year, noting that Judge share price inflation caused by Libor manipulation had gone down by the time the settlement was reached. Now, however, the Second Circuit is saying that investors put together a “plausible claim” that the drop in American depositary shares of 12% on June 28, 2012 was a result of misrepresentations made by Barclays and its officials.

The SSEK Partners Group is here to help institutional investor get back losses they suffered because of negligence or wrongdoing by a financial institution or one of its representatives. Contact our institutional investor fraud lawyers today.

U.S. appeals court revives part of shareholder lawsuit against Barclays over Libor, Reuters, February 25, 2014

The Libor Investigation, The Wall Street Journal

Barclays Investors’ Rate-Rigging Suit Revived on Appeal, Bloomberg, April 25, 2014

Carpenters Pension Trust Fund of St. Louis v. Barclays Plc


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

Three Ex-Barclays Employees Charged by UK Prosecutors in Libor Rigging Scandal, Institutional Investor Securities Blog, February 18, 2014

Ex-Sentinel CEO is Convicted of $500M Fraud, Stockbroker Fraud Blog, April 24, 2014

April 24, 2014

U.S. Wants Bank of America to Pay Over $13B Over Residential Mortgage-Backed Securities

Bloomberg is reporting that U.S. prosecutors want Bank of America Corp. (BAC) to settle state and federal investigations into the lender’s sale of home loan-backed bonds leading up to the 2008 financial crisis by paying over $13 billion. The bank is one of at least eight financial institutions that the Department of Justice and state attorneys general are investigating for misleading investors about the quality of the loans that were backing mortgages just as housing prices fell.

A lot of Bank of America’s loans came from its purchase of Countrywide Financial Corp., a subprime lender, and Merrill Lynch & Co., which packaged a lot of the loans into bonds.
If there ends up being no deal, the government could sue the bank.

A settlement of more than $13 billion would be even larger than the $13 billion global settlement reached with JPMorgan Chase (JPM) over similar claims (including a $4 billion agreement with the Federal Housing Finance Agency). Included in that deal was resolution over loans the firm took over when it bought Bear Stearns Cos. and Washington Mutual Inc.
(WAMUQ)

Already, claims against Bank of America over mortgages related to the financial crisis have cost it at least $50 million to resolve. Just last month, the bank agreed to settle claims made by the FHFA for $9.5 billion. That case was related to mortgage-backed securities that it sold to Freddie Mac (FMCC) and Fannie Mae (FNMA) prior to the economic crisis.

In its latest first quarter, Bank of America disclosed to investors that not not only did it sustain a $276 million loss but also it paid $6 billion in legal costs related to the financial crisis. Other big mortgage cases against the bank are still pending.

Our RMBS fraud lawyers represent institutional clients and high net worth investors. Contact The SSEK Partners Group today.

U.S. Said to Ask BofA for More Than $13 Billion Over RMBS, Bloomberg, April 24, 2014

Bank of America, Weighed by Legal Costs, Posts Loss, NY Times, April 16, 2014

Fannie, Freddie, FHFA settle MBS lawsuit with BofA, Housing Wire, March 26, 2014


More Blog Posts:
Bank of America, Its Ex-CEO To Pay $25M to Settle Securities Case with NY Over Merrill Lynch Deal, Stockbroker Fraud Blog, March 31, 2013

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

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

April 16, 2014

Barclays Settles Two Libor-Related Securities Cases

Barclays (BARC) has just settled two Libor-related securities cases alleging mis-selling related to Libor. In the first lawsuit, filed by Guardian Care Homes over interest swaps worth £70M that were linked to the benchmark interest rate, Barclays has agreed to restructure a loan for the home care operator.

The bank had tried to claim the case lacked merit and that it was the home care operator that owed money. Barclays argued that the swaps, purchased in 2007 and 2008, cost the bank millions of pounds when interest rates plunged in the wake of the economic crisis. In 2012, Barclays was fined $450 million for Libor rigging.

The London interbank offered rate is relied on for measuring how much banks are willing to lend each other money. Among the allegations against the firm was that it tried to manipulate and make false reports about benchmark interest rates to benefit its derivatives trading positions. Barclays settled with regulators in the US and the UK.

In the other Libor mis-selling case, the bank has arrived at a “formal” compromise in the securities case involving property firm Domingos Da Silva Teixeira over more rigging claims and Portuguese construction. The company had filed a 11.1 million euro securities case against the bank.

Also, this week, three ex-ICAP (IAP) brokers appeared in court in London to face charges accusing them of running a securities scam to manipulate the Libor benchmark interest rates. ICAP is the biggest interbroker dealer in the world.

The men allegedly engaged in conspiracy to defraud. Their scam allegedly involved Tom Hayes, an ex-yen derivatves trader. He is charged with multiple counts of conspiracy to commit fraud while he worked for UBS (UBS) in Japan.

To date, 10 banks and ICAP have been ordered to pay$6 billion in fines. The Libor rigging scandal spans multiple continents and led to numerous criminal charges. Traders are accused of fixing Libor for profit.

Barclays settles with Guardian Care Homes in Libor-linked court case, The Guardian, April 7, 2014

Three former ICAP brokers in UK court on Libor fixing charges, Reuters, April 15, 2014

Barclays settles second Libor case in week, Telegraph, April 11, 2014


More Blog Posts:
Three Ex-Barclays Employees Charged by UK Prosecutors in Libor Rigging Scandal, Institutional Investor Securities Blog, February 18, 2014

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

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

Continue reading "Barclays Settles Two Libor-Related Securities Cases" »

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