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 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

October 17, 2014

Pension Fund Securities Lawsuits: JPMorgan to Face MBS Case, PERSM Files Class Action Case, & Institutional Clients Can Sue BP

JPMorgan Ordered to Face $10B Mortgage-Backed Securities Case
A federal judge said that JPMorgan Chase & Co. (JPM) must face a class action securities fraud lawsuit filed by investors accusing the bank of misleading them about the risks involved in $10B of mortgage-backed securities that they purchased from the firm prior to the financial crisis.

U.S. District Judge Paul Oetken certified a class action as to the bank’s liability but not for damages. He said it wasn’t clear how investors were able to value the certificates they purchased considering that the market hadn’t been especially liquid. He did, however, say that the plaintiffs could attempt again to seek class certification on class damages.

The class in this securities case is made up of investors in certificates from nine trusts established by JPMorgan for an April 2007 offering. The lead plaintiffs are the Construction Laborers Pension Trust for Southern California and the Laborers Pension Trust Fund for Northern California.

Mississippi Pension Fund Files Class Action Securities Case
The Public Employees’ Retirement System of Mississippi is helming a class action securities case accusing Millennial Media Inc. that alleges Securities Exchange Act of 1934 violations. PERSM contends that Millennial Media and a number of other entities, including Oppenheimer & Co. (OPY), Morgan Stanley & Co. (MS), Stifel Nicolaus & Company (SF), Goldman Sachs & Co. (GS), Allen & Company LLC, and Barclays Capital Inc. (BARC) concealed information that didn’t reflect well on Millennial. The pension group says that once the data became public, the company’s stock fell.

Millennial Media started its initial public offering on March 28, 2012, selling, along with certain shareholders, over 11.7 million shares to make aggregate gross proceeds of over $152 million. With a second stock offering six months latter, Millennial and its shareholders made aggregate gross proceeds greater than $162 million from another 11.5 million shares.

The plaintiffs believe that the defendants made misleading and materially false statements and omissions that caused Millennial’s common stock to be offered and traded at artificially high prices during the class period. When the truth about the company’s operations and prospects became clear, Millennial's common stock dropped 86.56 percent from its high price during the class period, causing significant damages and losses to plaintiffs and other class members.

Institutional Clients can Sue BP for Investment Losses
Earlier this month the U.S. District Court for the Southern District of Texas put out a number of rulings allowing certain institutional clients to pursue securities claims against British Petroleum (BP). The plaintiffs want to get back their investment losses stemming from the Gulf of Mexico oil spill in 2010.

Included among the plaintiffs are U.S. public pension funds, ERISA trusts, limited partnerships, and private and public pension funds in other countries. They claim that BP misrepresented not just its commitment to putting into effect safety reforms in the years leading up to spill but also the extent of the spill when it happened. They want to get back the losses they sustained in BP American Depository Shares and common stock shares from January ‘07 through June ’10.

JP Morgan Is About To Face An Enormous Class Action Lawsuit By Investors, Business Insider/Reuters, September 30, 2014

Class action lawsuit alleges Millennial Media misled shareholders, BizJournals, October 1, 2014


More Blog Posts:

DOJ Charges Another Two Ex-Rabobank Traders Over Libor Manipulation, Institutional Investor Securities Blog, October 16, 2014

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

Ex-Ameriprise Adviser Pleads Guilty To Nearly $1M Fraud, Stockbroker Fraud Blog, October 17, 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 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 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

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

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

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 10, 2014

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

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

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

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

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

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

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


More Blog Posts:

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

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

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

August 15, 2013

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

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

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

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

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

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

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

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

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

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


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

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

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

July 29, 2013

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

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

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

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

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

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

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

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

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

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


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

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

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


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

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

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

June 8, 2013

Financial Firm Roundup: Citigroup Settles $3.5B MBS Lawsuit with FHFA, JPMorgan Unit Fined $4.64M, Court Won’t Dismiss USB Whistleblower’s Action, & Ex-Goldman Sachs Executive to Pay $100K Over Pay-To-Play Scam

Citigroup (C) Settle $3.5B securities lawsuit Over MBS Sold to Freddie Mac, Fannie Mae
Citigroup has settled the $3.5 billion mortgage-backed securities filed with the Federal Housing Finance Agency. The MBS were sold to Freddie Mac and Fannie Mae and both sustained resulting losses. This is the second of 18 securities fraud cases involving FHFA suing banks last year over more than $200B in MBS losses by Fannie and Freddie. The lawsuit is FHFA v. Citigroup.

J.P. Morgan International Bank Ltd. Slapped with $4.64M Fine by UK Regulator
The UK Financial Conduct Authority says that JPMorgan unit (JPM) J.P. Morgan International Bank Ltd. must pay a $4.64 million fine for controls failures and systems involving its retail investment advice and portfolio investment services. Per the agency, financial firms that don’t maintain the proper records not only put their clients at risk of getting involved inappropriate investments, but also they don’t have a way to determine whether the proper advice was given. Fortunately, investors were not harmed despite the risk exposure.

The UK regulator says the problems went on for two years. Among the problems identified: outdated files, insufficient key client data, inadequate record system, inadequate suitability reports, and insufficient communication with clients about suitability. FCA says that it wasn’t until after it identified the problems and notified the JP Morgan unit about them that the necessary modifications were made.

Whistleblower’s Retaliation Action Against UBS Securities Can Go Ahead, Says Court
A district court judge made the decision not to dismiss ex-UBS Securities LLC (UBS) senior strategist Trevor Murray’s retaliatory action against his former employer. Murray was allegedly fired after he told his managers about possible securities law violations.

He contends that he was let go because he refused to write reports about UBS’s commercial MBS that were “more favorable to the financial firm.” Murray sued, arguing that the action violated the Dodd-Frank Act’s whistleblower protection provisions. UBS then tried arguing that Murray wasn’t a whistleblower because he didn’t tell the SEC about the alleged violation, but the judge said that a whistleblower is allowed to report alleged violations to governmental authorities and persons other than the regulator.


Former Goldman Sachs VP Consents to Pay $100K Payment SEC Pay-to-Play Action
Neil M. M. Morrison, an ex-Goldman Sachs & Co. (GS) vice president, will pay $100,000 to resolve an SEC action accusing him of taking part in an alleged pay-to-play scheme involving former Massachusetts state Treasurer Timothy Cahill’s gubernatorial campaign. The Commission said that he solicited the state’s underwriting business while “engaged” in Cahill’s campaign and that his use of the financial firm’s resources and work time are considered campaign contributions. By settling, Morrison is not admitting or denying the allegations.

Meantime, Goldman will pay approximately $12 million to settle the related proceedings against it, as well as $4.5 million to Massachusetts Attorney General Martha Coakley. Even though the firm wasn’t allowed to take part in municipal underwriting business for two years after Morrison’s alleged violations, the SEC says that Goldman still took part in 30 underwriting contracts with issuers in the state and made about $7.5 million in fees.

Citi settles U.S. suit over $3.5 billion in mortgage securities, Reuters, May 28, 2013

U.K. Regulator Fines JPMorgan Unit $4.64M For Failures in Investment Systems, Controls, Bloomberg/BNA, May 28, 2013

Internal Whistleblowing Deserves Protection, Judge Tells UBS, Law360, May 22, 2013

SEC Charges Goldman Sachs and Former Vice President in Pay-to-Play Probe Involving Contributions to Former Massachusetts State Treasurer, SEC, September 27, 2012


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FINRA Orders Wells Fargo & Banc of America’s Merrill Lynch Ordered to Pay $5.1M for Floating-Rate Bank Loan Funds Sales, Stockbroker Fraud Blog, June 4, 2013

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

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

December 3, 2012

SEC's Antifraud Claim Against Goldman Sachs Executive Fabrice Tourre Won’t Be Reinstated, Says District Court

The U.S. District Court for the Southern District of New York has refused the Securities and Exchange Commission’s request to reinstate its antifraud claim against Goldman Sachs & Co. (GS) executive Fabrice Tourre for alleged misstatements related to a collateralized debt obligation connected to subprime mortgages. Judge Katherine Forrest said that the facts did not offer enough domestic nexus to support applying 1934 Securities Exchange Act Section 10(b). To do so otherwise would allow a 10(b) claim to be made whenever a foreign fraudulent transaction had even the smallest link to a legal securities transaction based in the US, she said, and that this is “not the law.” The case is SEC v. Tourre.

The SEC had sued the Goldman and its VP, Tourre, over alleged omissions and misstatements connected with the ABACUS 2007-AC1’s sale and structuring. This 2007 CDO was linked to subprime residential mortgage-backed securities and their performance. The Commission claimed Goldman had misrepresented the part that Paulson & Co., a hedge fund, had played in choosing the RMBS that went into the portfolio underlying the CDO and that Tourre was primarily responsible for the CDO deal’s marketing and structuring.

In 2010, Goldman settled the SEC’s claims by consenting to pay $550M, which left Tourre as the sole defendant of this case. Last year, the court dismissed one of the Section 10(B) claims predicated on $150 million note purchases made by IKB, a German bank, because of Morrison v. National Australia Bank Ltd. In that case, the US Supreme Court had found that this section is applicable only to transactions in securities found on US exchanges or securities transactions that happen in this country. The court, however, did let the regulator move forward under Section 10(b) in regards to other ABACUS transactions, and also the 1933 Securities Act’s Section 17(a).

However, following Absolute Activist Value Master Fund Ltd. v. Facet in which the U.S. Court of Appeals for the Second Circuit earlier this year found that ““irrevocable liability is incurred or title passes” within the US securities transaction may be considered domestic even if trading did not occur on a US exchange, the SEC requested that the court revive the Section 10(b) claim. Although IKB was the one that had recommended the CDO to clients, including Loreley Financing, it was Goldman that obtained the title to $150 million of the notes through the Depository Trust Co. in New York. Goldman then sent the notes to the CDO trustee in Chicago before the notes were moved from the DTC to Goldman's Euroclear account to Loreley's account. The Commission said that, therefore, transaction that the claim was based on had closed here.

Noting in its holding that Section 10(b) places liability on any person that employs deception or manipulation related to the selling or buying of a security, the court said that the Commission was trying to premise the domestic move of the notes’ title from the CDO trustee to Goldman at the closing in New York as a “hook” to show liability under this section. The court pointed out that while the title of the transfer that took place in New York was legal and it wasn’t until later that the alleged fraud happened. The “fraud was perpetuated upon IKB/Loreley, not Goldman” so “no fraudulent US-based” title transfer related to the note purchase is “sufficient to sustain a Section 10(b) and rule 10b-5 claim against Tourre” for the transaction.

SEC v. Tourre (PDF)

Morrison v. National Australia Bank Ltd. (PDF)


More Blog Posts:
Goldman Sachs Ordered by FINRA to Pay $650K Fine For Not Disclosing that Broker Responsible for CDO ABACUS 2007-ACI Was Target of SEC Investigation, Stockbroker Fraud Blog, November 12, 2010

Goldman Sachs Settles SEC Subprime Mortgage-CDO Related Charges for $550 Million, Stockbroker Fraud Blog, November 12, 2010

Class Action MBS Securities Lawsuit Against Goldman Sachs is Reinstated by 2nd Circuit, Institutional Investor Securities Blog, September 14, 2012

Continue reading "SEC's Antifraud Claim Against Goldman Sachs Executive Fabrice Tourre Won’t Be Reinstated, Says District Court " »

September 14, 2012

Class Action MBS Securities Lawsuit Against Goldman Sachs is Reinstated by 2nd Circuit

The U.S. Court of Appeals for the Second Circuit has reinstated a would-be class action securities lawsuit accusing Goldman Sachs (GS) (in the role of underwriter) and related entities of misstating the risks involving mortgage-backed securities certificates. The revival is based on 7 of 17 challenged offerings, causing the appeals court to conclude that the plaintiff can sue on behalf of investors in mortgaged-back certificates whose lenders originated the mortgages backing the certificates that were bought. The 2nd Circuit said that those investors’ claims and the pension fund’s claims implicate the same concerns.

Per the court, NECA-IBEW Health & Welfare Fund is alleging violations of the Securities Act of 1933’s Sections 15, 12(a)(2), and 11 involving a would-be class of investors who bought certain certificates that were backed by mortgages that Goldman had underwritten and one of its affiliates had issued. The certificates were sold in 17 offerings pursuant to the same shelf registration statement but with 17 separate prospectus supplements that came with specific details about each offering.

In its class action securities lawsuit, the plaintiff alleged that the shelf registration statement had material misrepresentations about both the risks involving the instruments and underwriting standards that are supposed to determine the ability of a borrower to repay. A district court dismissed the lawsuit.

The Second Circuit acknowledged that NECA suffered personal injury from the defendants’ use of allegedly misleading statements in the offering documents linked to the certificates that it bought. However, whether the defendants’ behavior implicates the same concerns as their decision to include similar statements in the Offering Documents associated with other certificates is more difficult to answer.

While the plaintiff’s claims are partially based on general allegations of a deterioration in loan origination practices that is industry wide, the most specific claims link the allegedly abusive conduct to the 17 trusts’ 6 main originators. However, Wells Fargo Bank (WFC) and GreenPoint Mortgage Funding Inc., the only two entities that are the originators of the loans behind the certificates that the fund bought, are not defendants in this securities lawsuit.

That the alleged misrepresentations showed up in separate Offering Documents doesn’t alone bring up fundamentally different concerns because their location doesn’t impact a given buyer’s “assertion that the representation was misleading,” said the court. Because of this, and other reasons, the plaintiff has class standing to assert the claims of the buyers of the Certificates from the 5 other Trusts that have loans that were originated by Wells Fargo, Greenpoint, or both.

The second circuit said that the fund didn’t need to “to plead an out-of-pocket loss” to allege a cognizable diminution in the value of a security that was not liquid under that statute. Finding the “requisite inferences” in favor of the plaintiff, the appeals court said that not only was it “plausible,” but also it was obvious that mortgage-backed securities, such as the Certificates, would experience a drop in value because of ratings downgrades and uncertain cash flows. The fund “plausibly alleged” a distinction between how much it paid for the certificates, their value, and when the class action MBS lawsuit was filed.

NECA-IBEW Health & Welfare Fund v. Goldman Sachs & Co.
, Justia (PDF)

Appeals Court Revives Class Suit Against Goldman Over MBS Certificates, Bloomberg/BNA, September 7, 2012

Continue reading "Class Action MBS Securities Lawsuit Against Goldman Sachs is Reinstated by 2nd Circuit" »

August 21, 2012

Amerigroup Shareholders Claim Goldman Sachs Advisers’ Had Conflicts of Interest That Influenced $4.5B Sale of Company to WellPoint

Amerigroup Corp (AGP) shareholders are suing its board and Goldman Sachs Group (GS) because they say that the defendants’ conflicts of interest got in the way of other bids being considered before they agreed to let WellPoint Inc. (WLP) buy the managed care company for $4.9B The shareholders’ securities lawsuit was filed by the Louisiana Municipal Police Employees Retirement System and the City of Monroe Employees Retirement System in Michigan in the Delaware Court of Chancery, which has seen an increase in cases over whether certain deals shouldn’t go through because of questions surrounding whether the advisors involved had conflicts of interest.

According to the plaintiffs, a complex derivative transaction with Amerigroup created a financial incentive for Goldman to execute a deal quickly even if was not in the best interests of shareholders. The financial firm is accused of pushing for the WellPoint purchase instead of one with another company that was willing to pay more albeit bringing more regulatory issues with it that would take time to resolve. The WellPoint deal, contend the pension funds, allowed for the possibility that Goldman would get a windfall profit on the derivative deal that would obligate Amerigroup to pay the financial firm $233.7M if an agreement on the sale was reached by August 13, as well as another “substantial” financial figure if by October 22 it was closed.

Now, Amerigroup’s shareholders want to block the sale of the company until the board improves the deal’s terms. They believe that the process that led to the deal, which could nearly double WellPoint’s Medicaid business, prevented the highest price possible from being considered and was “flawed.” They said that the derivative transaction was a conflict for Goldman because Amerigroup would be it much more than the $18.7M it was supposed to get from the WellPoint deal.

Although not defendants in this shareholder complaint, Amerigroup’s management and Barclays (BCS) also had conflicts when arranging the company’s sale, claim the plaintiffs. They said that one could argue that WellPoint bought Amerigroup executives’ loyalty by indicating that they could stay in their positions after the acquisition and that following the merger they would be given $12M worth of WellPoint stock.

Under President Barack Obama’s health-care law, up to 17 million patients would be added under Medicaid. The sale would make WellPoint the largest provider of Medicaid coverage for the impoverished. UnitedHealth Group Inc. (UNH) would be the second largest. More healthcare company acquisitions are expected as competition for the growing Medicaid market continues.

Goldman 'conflicted' in Amerigroup/WellPoint deal-lawsuit, Reuters, August 17, 2012

WellPoint dragged into Goldman Sachs suit, IBJ.com, August 20, 2012


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Shareholder Lawsuit Against Goldman Sachs CEO and Other Financial Firm Executives is Dismissed, Institutional Investor Securities Blog, August 18, 2012

Ex-Goldman Sachs Director Rajat Gupta Pleads Not Guilty to Insider Trading Charges, Stockbroker Fraud Blog, October 20, 2011

Goldman Sachs Ordered by FINRA to Pay $650K Fine For Not Disclosing that Broker Responsible for CDO ABACUS 2007-ACI Was Target of SEC Investigation, Stockbroker Fraud, November 12, 2010

Continue reading "Amerigroup Shareholders Claim Goldman Sachs Advisers’ Had Conflicts of Interest That Influenced $4.5B Sale of Company to WellPoint" »

August 18, 2012

Shareholder Lawsuit Against Goldman Sachs CEO and Other Financial Firm Executives is Dismissed

In the US District Court for the Southern District of New York, the shareholder complaint against a number of Goldman Sachs Group (GS) executives, including CEO Lloyd Blankfein, COO Gary Cohn, CFO David Viniar, and ex-director Rajat Gupta, has been dismissed. The lead plaintiffs of this derivatives lawsuit are the pension fund Retirement Relief System of the City of Birmingham, Alabama and Goldman shareholder Michael Brautigam. They believe that the investment bank sponsored $162 billion of residential mortgage-backed securities while knowing that the loans backing them were in trouble. They say that Goldman then proceeded to sell $1.1 billion of the securities to Freddie Mac and Fannie May. Their securities complaint also accuses the defendants of getting out of the Troubled Asset Relief Program early so they could get paid more.

According to Judge William Pauley, the plaintiffs did not demonstrate that “red flags” had existed for bank directors to have been able to detect that there were problems with the “controls” of mortgage servicing business or that problematic loans were being packaged with RMBS. He also said that the shareholders did not prove that firm directors conducted themselves in bad faith when they allowed Goldman to pay back the $10 billion it had received from TARP early in 2009, which then got rid of the limits that had been placed on executive compensation.

Even with this shareholder complaint against Goldman tossed out, however, the investment bank is still dealing with other shareholder lawsuits. For example, they can file securities lawsuits claiming that they suffered financial losses after Goldman hid that there were conflicts of interest in the way several CDO transactions were put together.

Meantime, the US Department of Justice has officially concluded its criminal investigation into Goldman’s activities before the economic collapse. Yet, some are now wondering why the DOJ chose to issue an official statement that there was no “viable basis to bring a criminal prosecution” against the financial firm when such a public disclosure usually isn’t protocol in this type of probe.

Also, Goldman is reporting that the SEC has concluded its civil investigation into the bank’s sale of over a billion dollars of subprime mortgage debt and has decided not to take any civil action. This is a reversal from the Commission’s earlier Wells notification to Goldman notifying the bank that it would likely be the target of a civil action. The SEC had been looking into whether the bank misled investors, causing them to think that MBS were safe investments for them.

Unfortunately, the economic crisis led to massive losses for many investors of residential mortgage-backed securities, auction-rate securities, and other complex investments. You should speak to an experienced RMBS law firm to explore your legal options for recovery.

U.S. Goldman Disclosure a Rare Break in Secrecy, New York Times, August 10, 2012

Goldman execs win dismissal of mortgage, TARP lawsuit, Reuters, August 15, 2012

Troubled Asset Relief Program, Federal Reserve


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Ex-Goldman Sachs Director Rajat Gupta Pleads Not Guilty to Insider Trading Charges, Stockbroker Fraud Blog, October 26, 2011

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

Goldman Sachs Execution and Clearing Must Pay $20.5M Arbitration Award in Bayou Ponzi Scam, Upholds 2nd Circuit, Institutional Investor Securities Blog, July 14, 2012


July 14, 2012

Goldman Sachs Execution and Clearing Must Pay $20.5M Arbitration Award in Bayou Ponzi Scam, Upholds 2nd Circuit

The U.S. Court of Appeals for the Second Circuit is allowing a $20.5M award issued by a Financial Industry Regulatory Authority arbitration panel against Goldman Sachs Execution & Clearing LP to stand. The court turned down Goldman’s claim that the award should be vacated because it was issued in “manifest disregard of the law” and said that the clearing arm must pay this amount to the unsecured creditors of the now failed Bayou hedge fund group known as the Bayou Funds, which proved to be a large scale Ponzi scam.

Goldman was the prime broker and only clearing broker for the funds. After the scheme collapsed in 2005, the Bayou Funds sought bankruptcy protection the following year. Regulators would go on to sue the fund’s funders over the Ponzi scam and the losses sustained by investors. Meantime, an Official Unsecured Creditors’ Committee of Bayou Group was appointed to represent the debtors’ unsecured debtors. Blaming Goldman for not noticing the red flags that a Ponzi fraud was in the works, the committee proceeded to bring its arbitration claims against the clearing firm through FINRA. In 2010, the FINRA arbitration panel awarded the committee $20.58M against Goldman.

In affirming the arbitration award, the 2nd Circuit said that in this case, Goldman did not satisfy the manifest disregard standard. As an example, the court pointed to the $6.7M that was moved into the Bayou Funds from outside accounts in June 2005 and June 2004. While the committee had contended during arbitration that these deposits were “fraudulent transfers” and could be recovered from Goldman because they were an “initial transferee” under 11 U.S.C. §550(a), Goldman did not counter that the deposits weren’t fraudulent or that it was on inquiry notice of fraud. Instead, it claimed the deposits were not an “initial transferee” under 11 U.S.C. §550 and the panel had ignored the law by finding that it was.

Offering a rejoinder, the court agreed with the district court that Goldman’s argument for manifest disegard doesn’t succeed due to the recent case of Bear Stearns Securities Corp. v. Greddin, during which the Southern District of New York upheld the arbitration favoring the Creditors’ Committee. The court said it therefore could not conclude that arbitrators “manifestly disregarded the law” when they applied the legal principles in Greddin to impose on Goldman transferee liability.

The appeals court also found that arbitrators did not manifestly disregard the law as this relates to the $13.9M in transfers from the original Bayou fund to four new ones in March 2003. It affirmed the lower court’s decision that prejudgment interest should be awarded to the committee per the federal rate in 28 USC §961 and not the New York statutory rate.

If you are an institutional investor that was suffered financial losses due to fraud, contact our securities fraud law firm today.

Goldman Sachs Execution & Clearing LP v. Official Unsecured Creditors’ Committee of Bayou Group LLC

2d Circuit Agrees Goldman Clearing Arm Must Pay $20.5M Bayou Arbitration Award, Bloomberg/BNA, July 6, 2012

Goldman Battles Bayou Decision, The Wall Street Journal, October 15, 2011


More Blog Posts:

Goldman Sachs to Pay $22M For Alleged Lack of Proper Internal Controls That Allowed Analysts to Attend Trading Huddles and Tip Favored Clients, Institutional Investors Securities Blog, April 14, 2012

$698M MBS Lawsuit Seeking Damages from Goldman Sachs Group Can Take on Class Action Status, Says District Judge, Institutional Investors Securities Blog, February 23, 2012

Ex-Goldman Sachs Director Rajat Gupta Pleads Not Guilty to Insider Trading Charges, Stockbroker Fraud Blog, October 26, 2011

April 14, 2012

Goldman Sachs to Pay $22M For Alleged Lack of Proper Internal Controls That Allowed Analysts to Attend Trading Huddles and Tip Favored Clients

Accused of not putting in place policies to prevent analyst huddles, Goldman Sachs Group Inc. (GS) will settle for $22 million the allegations made against it by US regulators. According to the Securities and Exchange Commission and FINRA, due to the nature of the financial firm’s internal control system research analysts were able to share non-public information with select clients and traders.

To settle the securities case, Goldman will pay $11 million each to FINRA and the SEC. It also consented to refrain from committing future violations and it will reevaluate and modify its written policies and procedures so that compliance won’t be a problem in the future. The financial firm has agreed to have the SEC censure it. By settling Goldman is not denying or admitting to the allegations.

Meantime, FINRA claimed that Goldman neglected to identify and adequately investigate the increase in trading in the financial firm’s propriety account before changes were made to analysis and research that were published. The SRO says that certain transactions should have been reviewed.

This is not the first time that Goldman has gotten in trouble about its allegedly inadequate control systems. Last year, it agreed to pay $10 million to the Massachusetts Securities Division over ASI and the huddles. In 2003, the financial firm paid $9.3 million over allegations that its policies and controls were not adequate enough to stop privileged information about certain US Treasury bonds from being misused.

The latest securities actions are related to two programs that the financial firm created that allegedly encouraged analysts to share non-public, valued information with select clients. The SEC says that during weekly “huddles” between 2006 and 2011, Goldman analysts would share their perspectives on “market color” and short-term trading with company traders. Sales employees were also sometimes present, and until 2009, employees from the financial firm’s Franchise Risk Management Group who were allowed to set up large, long-term positions for Goldman also participated in the huddles.

Also in 2007, the financial firm established the Asymmetric Service Initiative. This program let analysts share ideas and information that they acquired at the huddles with a favored group made up of approximately 180 investment management and hedge fund clients.

The SEC contends that ASI and the huddles occurred so that Goldman’s traders’ performances would improve and there would be more revenue in the form of commissions. The financial firm even let analysts know that it would be monitoring whether ideas discussed at the huddles succeeded and that this would be a factor in performance evaluations. The Commission said that the two programs created a serious risk, especially considering that a lot of ASI clients were traders who did so often and in high volume.

Meantime, FINRA claimed that before changes were made to published analysis and research, Goldman would neglect to identify and adequately investigate the increase in trading in the financial firm’s proprietary account. The SRO says that there were certain transactions that should have been reviewed.

This is not the first time that Goldman has gotten in trouble over its allegedly inadequate control systems. Last year, it agreed to pay $10 million to the Massachusetts Securities Division over ASI and the huddles. In 2003, the financial firm paid $9.3 million over allegations that its policies and controls were not adequate enough to stop privileged information about certain US Treasury bonds from being misused.

Read the SEC order in this case (PDF)

Read the FINRA order in this case (PDF)

Goldman Sachs to Pay $22 Million Over Analyst Huddle Claims, Bloomberg, April 12, 2012


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Whistleblower Lawsuit Claims Taxpayers Were Defrauded When Federal Government Bailed Out Houston-Based American International Group in 2008, Stockbroker Fraud Blog, May 5, 2011

Wirehouses Struggle to Retain Their Share of the High-Net-Worth-Market, Institutional Investor Securities Blog, April 6, 2012

Continue reading "Goldman Sachs to Pay $22M For Alleged Lack of Proper Internal Controls That Allowed Analysts to Attend Trading Huddles and Tip Favored Clients" »

February 23, 2012

$698M MBS Lawsuit Seeking Damages from Goldman Sachs Group Can Take on Class Action Status, Says District Judge

U.S. district judge says that Public Employees' Retirement System of Mississippi v. Goldman Sachs Group Inc., a securities fraud lawsuit, may proceed as a class action case. Some 150 investors would fall under this class plaintiff category as they seeking damages related to a $698 million mortgage-backed securities offering.

According to the complaint, loan originator New Century Financial Corp. did not abide by its own underwriting standards and overstated what the value was of the collateral backing the loans. The plaintiffs are accusing Goldman Sachs of failing to conduct the necessary due diligence when it purchased the loans seven years ago. The financial firm then structured, issued, and sold the mortgage pass-through certificates in a single offering.
Goldman attempted to fight certification on the grounds of numerosity, typicality, commonality, statute of limitations, typicality, and alleged conflicts involving buyers of different tranches, what investors knew, and other claims.

Judge Harold Baer Jr. turned down the defendants’ contention that class claims wouldn’t predominate due to individual investors’ knowledge of possibly false statements that may have been made in the offering documents when the acquisition took place. The defendants also had argued that class status should not be granted because investors, who conducted their own research and due diligence, interacted directly with loan originators, as well as had access to data that gave them information about New Century’s practices and the loan pool.

The court also turned down the defendants’ claim revolving around investors’ relying on asset managers and the change in information that was made publicly available over time. The court said that determining whether individual or common issues predominate is reliant upon whether putative class members took part in or knew about the alleged behavior and that likelihood of knowledge is not enough.

Public Employees' Retirement System of Mississippi had been seeking to certify as a Class any entity or person that bought or otherwise publicly acquired offered certificates of GSAMP Trust 2006-S2 and, as a result, sustained damages. Not included in the Class are defendants, respective officials, directors, affiliates, these parties’ immediate relatives, heirs, legal representatives, successors, assigns, and any entity that defendants had or have controlling interested in.

Goldman Sachs Mortgage-Backed Securities Suit Granted Class-Action Status, Bloomberg, February 3, 2012

$698 Million Class Can Sue Goldman, Courthouse News Service, February 7, 2012


More Blog Posts:
Goldman Sachs CEO Hires Prominent Defense Attorney in the Wake of Justice Department Probe into Mortgage-Backed Securities, Institutional Investor Securities Fraud Blog, August 24, 2011

Mortgage-Backed Securities Lawsuit Against Bank of America’s Merrill Lynch Now a Class Action Case, Stockbroker Fraud Blog, June 25, 2011

Two Ex-Credit Suisse Executives Plead Guilty to Mortgage-Backed Securities Fraud, Institutional Investor Securities Fraud Blog, February 7, 2012

Continue reading "$698M MBS Lawsuit Seeking Damages from Goldman Sachs Group Can Take on Class Action Status, Says District Judge" »

September 20, 2011

SEC Proposes Restricting Financial Firms From Betting Against Financial Products Sold to Investors

The SEC has taken steps to prevent financial firms from betting against their packaged financial products that they sell to investors. Its proposal, introduced this week, also seeks to prevent the types of conflict witnessed in last year’s civil lawsuit against Goldman Sachs through a ban on third parties being able to set up an asset-backed pool allowing them to make money from losses sustained by investors.

The proposal comes following a report by US Senate investigators accusing Goldman of setting itself up to make money from investor losses sustained from complex securities that the financial firm packaged and sold. It would place into effect a provision from the Dodd-Frank Wall Reform Consumer and Protection Act, which requires that the commission ban for one year placement agents, underwriters, sponsors, and initial buyers of an asset-backed security from shorting the pool’s assets and establishing material conflict. Restrictions, however, wouldn’t apply when a firm is playing the role of market-maker or engaged in risk hedging. The SEC also wants the industry to examine how the proposal would work along with the “Volcker rule,” which would place restrictions on proprietary trading at banks and other affiliates.

SEC’s Securities Case Against Goldman
The SEC accused Goldman of creating and marketing the ABACUS 2007-AC1, a collateralized debt obligation, without letting clients know that Paulson & Co. helped pick the underlying securities that the latter then went on to bet against. Last year, Goldman settled the securities case with the SEC for $550 million.

In settlement papers, Goldman admitted that it did issue marketing materials that lacked full information for its ABACUS 2007-AC1. The financial firm said it made a mistake when it stated that ACA Management LLC “selected” the reference portfolio and did not note the role that Paulson & Co. played or that the latter’s “economic interests” were not in line with that of investors. The $550 million fine was the largest penalty that the SEC has ever imposed on a financial services firm. $250 million of the fine was designated to go to a Fair Fund distribution to pay back investors.

Volcker Rule
Named after former Federal Reserve Chairman Paul Volcker, the proposed rule is designed to limit the kinds of high-risk investments that helped contribute to the recent financial crisis. It would also restrict the financial firms’ use of their own money to trade. Bloomberg.com reports that overseas firms with businesses in the US may also be subject to these limits on proprietary trading. Per Dodd-Frank, October 18 is the deadline to establish rules to execute the provision.

Volcker Rule May Be Extended to Overseas Banks With Operations in the U.S., Bloomberg, September 16, 2011

SEC moves to limit firms' bets against clients, Reuters, September 19, 2011

Volcker Rule Delay Is Likely, Wall Street Journal, September 12, 2011


More Blog Posts:
Goldman Sachs Reports $3.4 Billion in “Reasonably Possible” Losses from Legal Claim, Institutional Investor Securities Blog, March 2, 2011

Goldman Sach’s $550 Million Securities Fraud Settlement Not Tied to Financial Reform Bill, Says SEC IG, Institutional Investor Securities Blog, October 27, 2010

Goldman Sachs Ordered by FINRA to Pay $650K Fine For Not Disclosing that Broker Responsible for CDO ABACUS 2007-ACI Was Target of SEC Investigation, Stockbroker Fraud Blog, November 12, 2010

Continue reading "SEC Proposes Restricting Financial Firms From Betting Against Financial Products Sold to Investors" »

August 24, 2011

Goldman Sachs CEO Hires Prominent Defense Attorney in the Wake of Justice Department Probe into Mortgage-Backed Securities

Now that the Justice Department is investigating Goldman Sachs (GS), Lloyd C. Blankfein, the broker-dealer’s chief executive, has retained the services of a prominent defense attorney. This move comes following allegations by the Senate Permanent Subcommittee on Investigations accusing firm executives of misleading investors and Congress about mortgage-backed securities. News of Reid Weingarten’s hiring caused Goldman Sachs’ shares to drop almost 5%. On Tuesday, Goldman Sachs lost almost $2.7 billion in market value.

The Senate panel issued a report claiming that Goldman Sachs misled investors when it failed to disclose that it was betting against securities that they were buying from the financial firm. The report also accuses the financial firm’s CEO of lying under oath when making the claim that the financial firm did not have a massive short position against the housing market.

Weingarten is a leading criminal defense attorney at Steptoe & Johnson. He previously represented ex-Enron accounting officer Richard Causey, ex-WorldCom chief executive Bernard Ebbers, ex-Duane Reade chief executive Anthony Cuity, and ex-Tyco International general counsel Mark Belnick.

The senate panel’s report, which is 639 pages long, comes after a 2-year bipartisan investigation. The subcommittee found that traders and executives tried to eliminate their exposure to the subprime mortgage market while shorting the market to make a profit.

The panel accused Goldman of misleading clients when it didn’t tell them that it was betting or shorting against their investments. In 2007, Goldman’s mortgage department made a $1.2 billion profit.

Goldman Sachs’s latest quarterly filing with the SEC reveals that the financial is under scrutiny for a number of issues, including its role as a clearing broker and its compliance with the US Foreign Corrupt Practices Act. The investment bank is also be under investigation at the state, federal, and local levels and is the recipient of subpoenas. In 2010, Goldman Sachs agreed to settle for $550 million charges by the SEC that it misled clients about a synthetic collateralized debt obligation (CDO) when the housing market was collapsing.

Recently, Allstate (ALL) sued Goldman Sachs Group for the over $123 million in MBS that it says that the financial firm fraudulently sold it. Allstate claims that Goldman issued misstatements and made omissions about the mortgages. The National Credit Union Administration also just filed its securities fraud case seeking $491 million from Goldman for the purchase of more than $1.2 billion in MBS sales. NCUA blames Goldman and other financial firms, including JPMorgan and RBS Securities, for the failure of five wholesale credit unions. NCUA says that because of the way Goldman handled the mortgage-backed securities sales, the credit unions did not know they were taking on such huge risks when they made those investments.

Why Goldman Investors Are Overreacting, New York Times, August 23, 2011

Goldman confirms Blankfein and other execs hired outside lawyers, Efinancial News, August 23, 2011


More Blog Posts:

NCUA’s Sues Goldman Sachs for $491M Over $1.2B of Mortgage-Back Securities Sales That Caused Credit Unions’ Failure, Institutional Investor Securities Blog, August 23, 2011

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

Goldman Sachs Group Made Money From Financial Crisis When it Bet Against the Subprime Mortgage Market, Says US Senate Panel, Institutional Investors Securities Blog, April 15, 2011


Continue reading "Goldman Sachs CEO Hires Prominent Defense Attorney in the Wake of Justice Department Probe into Mortgage-Backed Securities" »

August 23, 2011

NCUA Sues Goldman Sachs for $491M Over $1.2B of Mortgage-Back Securities Sales That Caused Credit Unions’ Failure

In its fifth MBS lawsuit seeking what is now totaling to be nearly $2 billion in compensatory damages for wholesale credit union members, the National Credit Union Administration (NCUA) wants $491 million in compensatory damages from Goldman Sachs. NCUA is accusing the financial firm of misrepresenting the MBS that were sold to member credit unions that then sustained huge losses that led to their failure.

Goldman Sachs allegedly misrepresented material facts in prospectuses, marketing collaterals, and when selling the MBS. Because of this, NCUA says that the credit unions thought that the risk of loss for their investments was low.

NCUA filed its securities complaint against Goldman Sachs in California district court. NCUA is serving as the liquidating agent for the corporate credit unions that failed. It has filed other securities lawsuits seeking nearly $2 billion in compensatory damages. Two of the other defendants that NCUA is suing are RBS Securities and JPMorgan. Both, and others, are accused of underestimating the risks involved with the MBS.

The wholesale credit unions that failed are:
• Constitution Corporate Credit Union
• Southwest Corporate Credit Union
• Members United Corporate Credit Union
• U.S. Central Corporate Credit Union.
• Western Corporate Credit Union

Because these “corporate” credit unions failed after they invested in toxic MBS that was marketed by Wall Street firms, the credit unions industry has suffered. There are also smaller credit unions that have failed, which has resulted in costs of at least another $1.3 billion. Now, the industry must contend with billions of dollars that will have to be paid over the next several years.

While the NCUA did try to prevent having to shut down the failed corporate credit unions by taking over management of US Central and WesCorp in 2009, including guaranteeing all retail credit union deposits in the corporate credit unions and borrowing up to $20 billion from the Treasury to offer liquidity (this amount has since been paid back), the five credit unions mentioned above were closed in 2010.

NCUA says it is its statutory obligation to obtain recoveries from the parties responsible for the demise of the corporate credit unions and that this will minimize the failure costs to the industry and its insurance funds. It is pursuing those who issued, soled, and underwrote the faulty MBS. NCUA contends that the credit unions.

Our securities fraud law attorneys represents institutional and individual investors throughout the US. We are appalled at all the misconduct on Wall Street that contributed to the financial crisis of 2008. We continue to help our clients’ recoup their losses while holding the negligent parties responsible through arbitration and in court.

Regulator sues Goldman Sachs over risky mortgages, AP, August 9, 2011

Mortgage-backed securities losses costing nation's credit unions, Investigative Reporting Workshop, December 22, 2010

NCUA Sues Wall Street Over Corporate Debacle, Credit Union Journal, June 20, 2011

NCUA sues JPMorgan and RBS to recover losses from failed institutions, Housing Wire, June 20, 2011


More Blog Posts:
$629M Mortgage-Backed Securities Lawsuit Blames RBS Securities and Other Financial Firms For Bankruptcy of Western Corporate Federal Credit Union in 2009, Institutional Investor Securities Blog, July 26, 2011

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

Morgan Keegan Settles Subprime Mortgage-Backed Securities Charges for $200M, Stockbroker Fraud Blog, June 29, 2011

August 18, 2011

Allstate Files Securities Fraud Lawsuit Against Goldman Sachs Over More Than $123M of Mortgage-Backed Securities

According to Allstate Corp., Goldman Sachs Group Inc. committed securities fraud by fraudulently selling the insurer over $123 million of mortgage-backed securities prior to the collapse of the housing market. Allstate is also accusing Goldman of making “untrue statements” and leaving out “material facts” about the mortgages.

Allstate Insurance Corp, a subsidiary of Allstate Corp, filed the securities fraud complaint in New York State Supreme Court this week. The plaintiff is accusing the broker of violating state laws and negligent misrepresentation. Allstate believes that Goldman marketed the MBS as low-risk with strict underwriting criteria even though the latter knew the lenders had stopped abiding by the guidelines and that loans were being produced without the chance of payback.

Goldman has already settled for $550 million similar securities fraud charges filed by the SEC. This was the largest penalty a Wall Street financial firm has ever been ordered to pay. The Commission claimed that Goldman encouraged investors to buy into complex mortgage investments while failing to tell them that a client who was betting against the securities had crafted them. In April, a Senate Report said that in an attempt to move risk away from Goldman and to investors, the broker marketed four complex mortgage securities.

With this latest securities lawsuit against Goldman, Allstate has now filed nine MBS lawsuits since December. The defendants of the other complaints are Countrywide Financial, Bank of America Corp., Morgan Stanley , Merrill Lynch and Co, JPMorgan Chase & Co, Citigroup Inc., Deutsche Bank AG, and Credit Suisse Group:

• The securities lawsuit against Countrywide is over $700 million of toxic MBS that the insurer purchased. Bank of America is named in the complaint because it purchased Countrywide in 2008.

• The complaint against Morgan Stanley is over Allstate’s purchase of over $104 million in residential MBS in six offerings and the broker’s “central role” in creating and selling the securities. Allstate says that Morgan Stanley either knew or “recklessly disregarded” that the lenders involved were putting out risky loans that were not in compliance with underwriting standards.

• Allstate’s lawsuit against Merrill Lynch involves the allegedly fraudulent sale of approximately $167 million of residential mortgage-backed securities.

• The insurer is accusing JP Morgan Chase of misrpersenting the risks involved in over $757 million of mortgage securities that it purchased.

• Allstate bought over $200 million of MBS from the Citigroup defendants and approximately $185 million from the Deutche bank units. Misrepresentations and omissions related underwriting standards, loan-to-value ratios, and owner occupancy data are among the allegations.

• Allstate’s securities lawsuit against Credit Suisse is over $231 million of MBS. Allstate, which bought the securities from the financial firm, says that the latter did not disclose that the underlying loans were toxic. Allstate is alleging fraudulent inducement, fraud, and negligent misrepresentation.

Our securities fraud attorneys represent investors who have suffered financial losses from investing in mortgage-backed securities.

Allstate sues Goldman Sachs over toxic investments, AP, August 16, 2011

Allstate sues Goldman over sour mortgage-backed securities, USA Today, August 16, 2011

Allstate Sues Goldman Sachs Over Toxic Mortgage Securities, Insurance Journal, August 17, 2011


More Blog Posts:

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

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

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

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

Continue reading "Allstate Files Securities Fraud Lawsuit Against Goldman Sachs Over More Than $123M of Mortgage-Backed Securities" »

June 10, 2011

SEC Examining Whether Goldman Sachs Violated Bribery Laws When Dealing with Libya’s Sovereign-Wealth Fund

According to the Wall Street Journal, the SEC is trying to figure out whether Goldman Sachs Group Inc. and a number of other financial firms were in violation of bribery laws because of the way they handled Libya’s sovereign-wealth fund. SEC enforcement lawyers are now looking at documents detailing these relationships. Several other companies have had significant interactions with the Libyan Investment Authority, including Och-Ziff Capital Management Group, JP Morgan Chase, and Carlyle Group.

The Journal says that Goldman invested over $1.33 billion from Libya’s fund in a number of trades in 2008. The investment lost over 98% of its value.

US regulators want to know about a $50M and transaction fees that Goldman Sachs said it would pay the fund in exchange for a release of liability and winding down the trades. Although the money reportedly was never handed over before violence flared up last year in Libya, this doesn’t mean that the financial firm is exempt from the federal Foreign Corrupt Practices Act, which does not let US companies offer (or pay) bribes to state-owned company employees or foreign government officials. The money would have gone to an outside advisory firm that was at the time run by the son-in-law of the Libyan national company.

Goldman spokesman Lucas van Praag has said that the financial firm is “confident” that it didn’t do anything that violated any regulation or rule. He noted that the company worked with outside counsel to make sure that it was in compliance with all rules.


Related Web Resources:

SEC Examining If Goldman-Libya Connection Violated Bribery Laws, Huffington Post, June 9, 2010

SEC Looks At Goldman, Others’ Dealing With Libyan Sovereign Fund, The Wall Street Journal, June 9, 2011


More Blog Posts:
Goldman Sachs Subpoenaed Over Financial Crisis, Institutional Investors Securities Blog, May 31, 2011

Goldman Sachs and Wells Fargo Investments Repurchase $26.9M in Auction-Rate Securities from New Jersey Investors, Institutional Investor Securities Blog, May 25, 2011

Goldman Sachs Ordered by FINRA to Pay $650K Fine For Not Disclosing that Broker Responsible for CDO ABACUS 2007-ACI Was Target of SEC Investigation, Stockbroker Fraud Blog, November 12, 2010


Continue reading "SEC Examining Whether Goldman Sachs Violated Bribery Laws When Dealing with Libya’s Sovereign-Wealth Fund" »

May 31, 2011

Goldman Sachs Subpoenaed Over Financial Crisis

Manhattan District Attorney Cyrus R. Vance Jr. has subpoenaed Goldman Sachs. The New York Times says that someone familiar with this matter told the newspaper that the prosecutor is seeking information related to the financial crisis. The District Attorney’s request comes following the Senate investigators’ report last April accusing the financial firm of abusive conduct.

The Senate Permanent Subcommittee on Investigations produced the report, which claims that Goldman Sachs contributed to the financial crisis when it developed mortgage-linked investments that allowed it to make money even as its clients sustained financial losses. Per the NY Times, this subpoena, which comes nearly three years after the height of the crisis, is a clear indicator that officials are continuing to probe the role that Wall Street might have played.

It was last year that Goldman Sachs consented to settle for $550 million the Securities and Exchange Commission charges accusing it of misleading investors about an investment package linked to subprime mortgages. Even as it bet against the package, the financial firm neglected to disclose that Paulson & Co. helped choose the loans. While investors in the Abacus 2007-AC1 collateralized debt obligation (CDO) lost over $1 billion, Paulson made approximately $1 billion.

The report is also alleging a wider scope of abusive conduct by Goldman. For example, when the mortgage market was failing in 2007, the financial firm allegedly sold mortgage-related investments to buyers but neglected to tell them that it was betting against the subprime market and would make money if some of these securities lost value. Goldman also allegedly minted CDOs with assets that it thought might “lose money,” while selling them at prices higher than what they thought they were worth.

Per the report, these arrangements resulted in a number of conflicts of interests and allegedly allowed Goldman to put its interests before its clients. One example involves Goldman choosing assets for the Hudson 1, which is a $2 billion CDO. The report says that the financial firm neglected to reveal that it’s $2 billion short position far outweighed the $6 million investment it made on the same side as the buyers of the CDO.

Goldman has said that it disagrees with many of the report’s findings.


Goldman Sachs subpoenaed, Washington Post, June 2, 2011

Wall Street and the Financial Crisis: The Role of Investment Banks, Senate Permanent Subcommittee on Investigations


More Blog Posts:

Goldman Sachs Ordered by FINRA to Pay $650K Fine For Not Disclosing that Broker Responsible for CDO ABACUS 2007-ACI Was Target of SEC Investigation, Stockbroker Fraud Blog, November 12, 2010

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

Securities Practices of JPMorgan Chase & Goldman Sachs Under Investigation by Federal Investigators, Institutional Investors Securities Blog, May 19, 2011


Continue reading "Goldman Sachs Subpoenaed Over Financial Crisis" »

May 25, 2011

Goldman Sachs and Wells Fargo Investments Repurchase $26.9M in Auction-Rate Securities from New Jersey Investors

According to the New Jersey Bureau of Securities, Wells Fargo Investments Inc. (WFC) and Goldman Sachs & Co. (GS) has repurchased $26.9 million in ARS tosettle securities allegations that they sold auction-rate securities to New Jersey investors without disclosing the risks involved. Goldman bought back $25.5 million in ARS (it will also pay a $959,794 civil penalty), while Wells Fargo Investments repurchased $1.37 million in ARS.

The Bureau says that Goldman Sachs did not properly supervise and train its salespeople to make sure that all of its clients knew of the mechanics involved in the auction market and that the ARS could become illiquid. The financial firm also is accused of failing to disclose to investors the risks involved in buying or owning ARS even as it was becoming aware that the market was in trouble. The Bureau also accused Wells Fargo Investments of not properly supervising or training its agents that marketed the securities.

The two Consent Orders against Goldman Sachs and Wells Fargo Investments are the 11th and 12th that the state’s Bureau of Securities has reached with financial firms over ARS that were sold to investors in New Jersey. As part of the settlements, several firms that sold and marketed ARS have offered to buy back $2.8 billion of these securities.

It was in 2008 that state offices started getting complaints from investors about problems related to ARS investments. New Jersey was one of the 12 states that became part of a task force that looked into whether financial firms misled investors that bought ARS, which were sold and marketed as liquid, safe, and like cash. When the ARS market did fail, many investors were unable to access their money as the securities became illiquid.

Related Web Resources:
Goldman Sachs and Wells Fargo Investments Agree to Repurchase $26.9 Million in Auction Rate Securities from N.J. Investors, Division of Consumer Affairs Announces, NJ.gov, May 16, 2011

New Jersey Bureau of Securities


More Blog Posts:

Anschutz Corp.’s Securities Fraud Lawsuit Against Deutsche Bank and Credit Rating Agencies Over Their Alleged Mishandling of Auction-Rate Securities Can Proceed, Says District Court, Institutional Investor Securities Blog, April 21, 2011

Akamai Technologies Inc’s ARS Lawsuit Against Deutsche Bank Can Proceed, Institutional Investor Securities Blog, March 4, 2011

Auction-Rate Securities Investigations by SEC and NY Attorney General Are Ongoing, Stockbroker Fraud Blog, April 21, 2011

Continue reading "Goldman Sachs and Wells Fargo Investments Repurchase $26.9M in Auction-Rate Securities from New Jersey Investors" »

May 19, 2011

Securities Practices of JPMorgan Chase & Goldman Sachs Under Investigation by Federal Investigators

Federal investigators are taking an even closer took at the securities-related practices of JPMorgan Chase & Co. (JPM) and Goldman Sachs Group Inc. (GS ). In a May 6 Filing with the Securities and Exchange Commission, JPMorgan reported that an investigation into its municipal derivatives securities practices is being conducted by the SEC, the US Justice Department, the Office of the Comptroller of the Currency, the Internal Revenue Service, and a number of state attorneys general. The investment bank and Bear Stearns are under investigation for possible tax, antitrust, and securities-related violations related to “the sale or bidding of guaranteed investment contracts and derivatives to municipal issuers." The SEC’s Philadelphia office is recommending that the commission file civil charges against JPMorgan.

Meantime, in its May 9 filing to the SEC Goldman Sachs revealed that the Commodity Futures Trading Commission is looking at the clearing-services practices that Goldman subsidiary Goldman Sachs Execution and Clearing LP provided to a broker-dealer. Goldman is also being investigated by the Justice Department over matters “similar” to a European Commission probe into anti-competitive practices involving credit default swap transactions.

Goldman’s filing notes that CFTC staffers verbally notified GSEC that it will recommend that the commission bring charges related to supervision, aiding and abetting, and civil fraud over the financial firm providing a broker-dealer client with clearing services. The charges are being recommended because of allegations that GSEC knew or should have known that subaccounts belonged to the broker-dealer’s customers and were not the client’s “proprietary accounts.”

Related Web Resources:
Federal Investigators Expand Inquiries Into Goldman Sachs, JPMorgan Practices, BNA Securities Law Daily, May 11, 2011

Wall Street inquiry expands beyond Goldman Sachs, Los Angeles Times, May 14, 2011

Office of the Comptroller of the Currency

Commodity Futures Trading Commission

More Blog Posts:
Ex-Goldman Sachs Board Member Accused of Insider Trading with Galleon Group Co-Founder Seeks to Have SEC Administrative Case Against Him Dropped, Institutional Investor Securities Blog, April 19, 2011

Motion for Class Certification in Lawsuit Against J.P. Morgan Securities Inc. Over Alleged Market Manipulation Scam Granted in Part by Court, Stockbroker Fraud Blog, July 23, 2010

Insurer Claims that JP Morgan and Bear Stearns Bilked Clients Of Billions of Dollars with Handling of Mortgage Repurchases, Institutional Investor Securities Blog, February 23, 2011

Continue reading "Securities Practices of JPMorgan Chase & Goldman Sachs Under Investigation by Federal Investigators" »

April 19, 2011

Ex-Goldman Sachs Board Member Accused of Insider Trading with Galleon Group Co-Founder Seeks to Have SEC Administrative Case Against Him Dropped

Our securities fraud attorneys had previously reported on the Securities and Exchange Commission’s case against Rajat Gupta, an ex-Goldman Sachs board member accused of passing on confidential information to Galleon Group Co-Founder Raj Rajaratnam about Berkshire Hathaway Inc.’s $5 billion investment in Goldman Sachs. Rajaratnam is accused of making $45 million from the scheme, which has been the target of what is being called one of the largest insider trading crackdowns involving a hedge fund. As part of its Galleon probe, the SEC has filed insider trading lawsuits against at least two dozen businesses and individuals.

The SEC is accusing Gupta of sharing with Rajaratnam details about the respective quarterly earnings of the investment bank and Proctor and Gamble, where Gupta also served as a director. Last month, agency filed its charges insider trading allegations against Gupta in administrative forum—a move that he is contesting.

On March 18, the ex-Goldman Sachs board member filed a lawsuit against the SEC denying the insider trading allegations and asking the federal court to block the SEC’s administrative claims and grant him a jury trial. Gupta contends that the SEC allegations took place at least a year and a half before the Dodd-Frank Wall Street Reform and Consumer Protection Act gave regulators permission to file such an action.

The Dodd-Frank Act has given the SEC the authority to use administrative proceedings to get monetary penalties from all individuals, regardless of whether or not they are connected to regulated entities. The SEC’s administrative trial in the Gupta case is scheduled for July 18. Gupta is the only defendant in the Galleon case that the SEC is pursuing administratively. He is a non-regulated person.


Related Web Resources:
Gupta Says U.S. Judge in New York Should Handle Suit to Block SEC's Action, Bloomberg, April 11, 2011

Ex-Goldman director charged with insider trading, CBS News, March 1, 2011

Gupta v. Securities and Exchange Commission, Justia Docket Filings

U.S. v. Rajaratnam, SD New York 2011


More Blog Posts:
A Texan is Among Those Arrested in Insider Trading Crackdown Involving Apple Inc., Dell, and Advanced Micro Devices' Confidential Data, Stockbroker Fraud Blog, December 16, 2010

3 Hedge Funds Raided by FBI in Insider Trading Case, Stockbroker Fraud Blog, November 23, 2010

Ex-Goldman Sachs Associate Will Serve Nearly Five Years in Prison for Insider Trading, Stockbroker Fraud Blog, January 10, 2008

Continue reading "Ex-Goldman Sachs Board Member Accused of Insider Trading with Galleon Group Co-Founder Seeks to Have SEC Administrative Case Against Him Dropped" »

April 15, 2011

Goldman Sachs Group Made Money From Financial Crisis When it Bet Against the Subprime Mortgage Market, Says US Senate Panel

The Senate's Permanent Subcommittee on Investigations says that because Goldman Sachs Group Inc. bet billions against the subprime mortgage market it profited from the financial crisis. The panel’s findings come following a two-year bipartisan probe and were released in a 639-page report on Wednesday.

The subcommittee released documents and emails that show executives and traders attempting to get rid of their subprime mortgage exposure, which was worth billions of dollars, and short the market for profit. Their actions ended up costing their clients that purchased the financial firm’s mortgage-related securities.

The panel says that Goldman allegedly deceived the investors when failing to tell them that the investment bank was simultaneously shorting or betting against the same investments. The subcommittee estimates that Goldman’s bets against the mortgage markets in 2007 did more than balance out the financial firm’s mortgage losses, causing it to garner a $1.2 billion profit that year in the mortgage department alone. Also, when Goldman executives, including Chief Executive Lloyd Blankfein appeared before the committee in 2010, the panel says that they allegedly misled panel members when they denied that the financial firm took an a position referred to as being “net short,” which involves heavily tilting one’s investments against the housing market.

It was just last year that the Securities and Exchange Commission ordered Goldman to pay $550 million to settle securities fraud charges over its actions related to the mortgage-securities market. The allegations in this report go beyond the claims covered by the SEC case. The report also names mortgage lender Washington Mutual, credit rating firms, the Office of Thrift Supervision, and a federal bank regulator as among those that contributed to the financial crisis.

Goldman is denying many of the subcommittee’s claims and says its executives did not mislead Congress.

Related Web Resources:
Goldman Sachs shares drop on Senate report, Reuters, April 14, 2011

Senate Panel: 'Goldman Sachs Profited From Financial Crisis', Los Angeles Times, April 14, 2011

Senate Permanent Subcommittee on Investigations

More Blog Posts:
Goldman Sachs Sued by ACA Financial Guaranty Over Failed Abacus Investment for $120M, Institutional Investor Securities Blog, January 10, 2011

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

Goldman Sachs COO Says Investment Firm Shorted 1% of CDOs Mortgage Bonds But Didn’t Bet Against Clients, Stockbroker Fraud Blog, July 14, 2010

Continue reading "Goldman Sachs Group Made Money From Financial Crisis When it Bet Against the Subprime Mortgage Market, Says US Senate Panel " »

March 2, 2011

Goldman Sachs Reports $3.4 Billion in “Reasonably Possible” Losses from Legal Claims

In its latest 10-K filing with the US Securities and Exchange Commission, Goldman Sachs Group Inc. says that its “reasonably possible” losses from legal claims may be as high as $3.4 billion. The investment bank’s admission comes after the SEC told corporate finance chiefs that the should disclose losses “when there is at least a reasonable possibility” they may be incurred regardless of whether the risk is so low that reserves are not required.

Goldman admits that it hasn’t put side a “significant” amount of funds against such possible losses and its estimate doesn’t factor in possible losses for cases that are in their beginning stages. The $3.4 billion figure comes from a calculation of three categories of possible liability. Also factored in were the number of securities sold in cases where purchasers of a deal underwritten by Goldman Sachs are now suing the financial firm and cases involving parties calling for Goldman Sachs to repurchase securities.

Between 2009 and 2010, the financial firm reported a 38% decline in net income from $13.4 billion to $8.35 billion. Trading revenue dropped while non-compensation expenses, which were affected by regulatory proceedings and litigation, went up 14%. It was just last year that the investment bank paid $550 million to settle SEC charges that it misled investors when selling a mortgage-linked investment in 2007. Goldman Sachs is still contending with state and federal securities complaints alleging improper disclosure related to mortgage-related products. As of the end of 2010, estimated plaintiffs’ aggregate cumulative losses in active cases against Goldman Sachs was at approximately $457 million.

Related Web Resources:
Goldman Sachs Puts ‘Possible’ Legal Losses at $3.4 Billion, Bloomberg Businessweek, March 1, 2011

Form 10-K, SEC

Worst-Case Scenario Losses for JP Morgan & Chase May Be As High as $4.5 Billion, Institutional Investors Securities Blog, February 28, 2011

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

Continue reading "Goldman Sachs Reports $3.4 Billion in “Reasonably Possible” Losses from Legal Claims " »

February 17, 2011

Ex-Goldman Sachs Broker’s Request for SEC Help in Obtaining Documents from Germany Denied by District Court

The U.S. District Court for the Southern District of New York says it will not direct the Securities and Exchange Commission to contact German authorities on behalf ex-Goldman Sachs & Co. (GS) executive Fabrice Tourre, who is seeking to obtain certain documents related to the securities fraud case against him. Per Magistrate Judge Michael Dolinger’s ruling, a discovery request based on Federal Rule of Civil Procedure 34(a) doesn’t “extend” to having a
“government agency make requests to a foreign government under the terms of” a memorandum of understanding between both parties. Dolinger notes that while MOU between the SEC and its German equivalent allows both regulators to help each other in the enforcement of their respective securities laws, “there is no indication” that the MOU is supposed to offer a right or a benefit to a private party, such as allowing a securities fraud litigant to obtain discovery in Germany.

The SEC charged Goldman Sachs and Tourre over alleged misstatements and omissions related to collateralized debt obligations called Abacus 2007-AC1, a derivative product linked to subprime mortgages. The broker-dealer settled its securities case for $550 million. Meantime, Tourre, who is accused of giving Goldman Sachs “substantial assistance” in its alleged efforts to mislead investors, is seeking to have the SEC case against him dismissed. He is pointing to Morrison v. National Australia Bank Ltd., a US Supreme Court decision that was issued two months after the SEC filed charges against him.

This week, his lawyers argued that the SEC was attempting to circumvent the Supreme Court ruling, which limits the reach of civil claims over acts that occurred outside the country. The transactions involving Tourre that are under dispute took place abroad.

Goldman’s Tourre Shouldn’t Face SEC Lawsuit, His Lawyers Say, Bloomberg Businessweek, February 15, 2011

The SEC Complaint (PDF)

Morrison v. National Australia Bank Ltd., US Supreme Court


More Blog Posts:
Goldman Sachs Sued by ACA Financial Guaranty Over Failed Abacus Investment for $120M, Institutional Investors Securities Blog, January 10, 2011

Goldman Sach’s $550 Million Securities Fraud Settlement Not Tied to Financial Reform Bill, Says SEC IG, Institutional Investors Securities Blog, October 27, 2010

Goldman Sachs International Fined $27M by UK’s FSA for Not Reporting SEC Investigation into Abacus 2007-AC1 Synthetic Collateralized Debt Obligation, Institutional Investors Securities Blog, October 7, 2010

Continue reading "Ex-Goldman Sachs Broker’s Request for SEC Help in Obtaining Documents from Germany Denied by District Court" »

January 10, 2011

Goldman Sachs Sued by ACA Financial Guaranty Over Failed Abacus Investment for $120M

ACA Financial Guaranty Corporation is seeking $90 million in punitive damages and $30 million in compensatory damages from Goldman Sachs over its failed Abacus investment. The insurer contends that the broker-dealer sold a mortgage-backed investment that was designed to fail, causing investors to lose $1 billion.

ACA says that not only did it spend $15 million insuring Abacus, but also that the investment caused it to lose $30 million. The insurer contends that Goldman deceived it into thinking that hedge fund manager John Paulson also had invested in Abacus, when allegedly, the point of the flawed investment was so that Paulson & Co. could make huge profits by shorting the portfolio and the broker-dealer would then earn large investment banking fees.

ACA says that the Abacus 2007-AC1 collateralized debt obligation investment was already “was worthless” when Goldman marketed it to the insurer. Not only did ACA insure the underlying portfolio’s super-senior parts for $909 million, but also it purchased Abacus notes worth millions of dollars. Goldman hired ACA asset-management unit ACA Management LLC as "portfolio selection agent” to choose the securities for the Abacus deal.

Goldman has already settled for $550 million the Securities and Exchange Commission’s securities case against it over the failed collateralized-debt obligation investment. SEC had accused the federal agency the investment bank and its employee Fabrice Tourre of failing to tell investors that Paulson was involved in choosing the securities for Abacus and wanted to bet against the portfolio. Goldman has since acknowledged that it had provided incomplete marketing materials and agreed to business practice reforms.

Related Web Resources:
Insurer Sues Goldman Over Controversial Bond Deal, ABC News, January 6, 2011

UPDATE: ACA Financial Sues Goldman For Alleged Abacus-Related Fraud, Wall Street Journal/Dow Jones, January 6, 2011

Goldman Sach’s $550 Million Securities Fraud Settlement Not Tied to Financial Reform Bill, Says SEC IG, Institutional Investor Blog, October 27, 2010

$1 Billion Goldman Sachs Synthetic CDO Debacle a Reminder that Even Highly Sophisticated Investors Can Be Defrauded, Stockbroker Fraud Blog, April 30, 2010

Continue reading "Goldman Sachs Sued by ACA Financial Guaranty Over Failed Abacus Investment for $120M" »

December 23, 2010

Ex-Goldman Sachs Employee Found Guilty of Stealing Code for High-Frequency Trading Activity

A New York jury has found ex-Goldman Sachs & Co. computer programmer Sergey Aleynikov guilty of one count of transportation of stolen property in interstate and foreign commerce and one count of trade-secret theft. Aleynikov is accused of stealing a specialized computer source code used in high-frequency trading activity from the investment bank.

Aleynikov, who worked for Goldman for two years, allegedly transferred “hundreds of thousands” of source-code lines and took the broker-dealer's source code with him to Chicago, where he went to work with Teza Technologies LLC, a firm that wanted to compete with Goldman’s high-frequency trading operations. Although Aleynikov admitted to uploading parts of the investment bank’s trading codes, he told the FBI that he hadn’t intend to steal Goldman’s proprietary data.

Per the indictment, Goldman had implemented a number of precautions to protect its proprietary source code, including mandating that workers sign confidentiality agreements and requiring employees to “irrevocably assign to Goldman Sachs” the rights to any discoveries invention, ideas, concepts, or information developed while employed by the brokerage firm.

High-Frequency Trading
High-frequency trading is a trading strategy using sophisticated programs that involve the employment of algorithms that can place a series of sell and buy orders for large blocks of stock at a super fast pace while exploiting tiny price discrepancies. This type of trading has become a key source of revenue for hedge funds and investment firms on Wall Street.

In 2009, high-frequency trading was responsible for about $300 million in revenue for Goldman. This is less than 1% of the broker-dealers $45 billion in revenue.

Related Web Resources:
United States v. Aleynikov, Indictment (PDF)

Former Goldman Programmer Found Guilty of Code Theft, NY Times, December 10, 2010

Former Goldman Sachs Programmer Found Guilty After Stealing Computer Code, Security Week, December 14, 2010

Goldman Sachs, Stockbroker Fraud Blog


Continue reading "Ex-Goldman Sachs Employee Found Guilty of Stealing Code for High-Frequency Trading Activity " »

December 14, 2010

Goldman Sachs & Co. Clearing Unit Must Pay Unsecured Creditors of Bayou Hedge Funds $20.5M FINRA Arbitration Award, Says District Court

A district court has rejected Goldman Sachs & Co.’s (GS ) challenge to a $20.5 million securities fraud award for unsecured creditors of the failed Bayou hedge funds. The unsecured creditors are blaming the investment bank of failing to look at certain red flags and, as a result, facilitating the massive scam. The U.S. District Court for the Southern District of New York said it was sustaining the award issued by the Financial Industry Regulatory Authority arbitration panel.

The court said that contrary to Goldman’s argument, the FINRA panel “did not ‘manifestly disregard the law’ when reaching its conclusion. Also, the court noted that the panel had found that Goldman Sachs Execution and Clearing unit was not innocent of wrongdoing in that it failed to take part in a “diligent investigation” that could have uncovered the fraud.

The Bayou Hedge Funds group collapsed in 2005. According to regulators, investors lost over $450 million as a result of the false performance data and audit opinions that were issued. The Securities and Exchange Commission and the Justice Department sued the group’s founders, Daniel Marino and Samuel Israel III over the investors’ financial losses and the firm’s collapse. Both men have pleaded guilty to criminal charges and are behind bars.

The court not only disagreed with the Goldman Sachs clearing unit that the panel was not in manifest disregard of the law, but also, it found that as Goldman’s client agreements with the Bayou funds provided it with “broad discretion” over the use of securities and money in the funds’ accounts, it was not unusual for a “reasonable arbitrator” to find that Goldman’s rights in relation to the accounts provided it with “sufficient dominion and control to create transferee liability.”

Related Web Resources:
Goldman Sachs Execution & Clearing L.P. v. Official Unsecured Creditors' Committee of Bayou Group LLC, FINRA Dispute Resolution (PDF)

Court Rebuffs Goldman ChallengeTo $20.5M Bayou Arbitration Award, BNA, December 9, 2010

Goldman Sachs, Stockbroker Fraud Blog

Continue reading "Goldman Sachs & Co. Clearing Unit Must Pay Unsecured Creditors of Bayou Hedge Funds $20.5M FINRA Arbitration Award, Says District Court" »

October 30, 2010

Securities Claims Against Goldman Sachs Over Mortgage-Backed Certificates are Partially Dismissed by Court Due to Lack of Injury

The U.S. District Court for the Southern District of New York has ruled that without an injury, a mortgage-backed certificates holder cannot maintain a securities claim against MBS underwriter Goldman Sachs & Co. (GS) and related entities for allegedly misstating the risks involved in the certificates in their registration statement. Judge Miriam Goldman Cedarbaum says that plaintiff NECA-IBEW Health & Welfare Fund knew that the investment it made could be illiquid and, therefore, cannot allege injury based on the certificates hypothetical price on the secondary market at the time of the complaint. The court, however, did deny Goldman's motion to dismiss the plaintiff's claims brought under the 1933 Securities Act’s Section 12(a)(2) and Section 15.

The Fund had purchased from Goldman a series of MBS certificates with a face value of $390,000 in the initial public offering on Oct. 15, 2007. The fund then bought another series of MBS certificates with a $49,827.56 face value from Goldman, which served as underwriter, creator of the mortgage loan pools, sponsor of the offerings, and issuer of the certificates after securitizing the loans and placing them in trusts.

Per the 1933 Act’s Section 11, the Fund alleged that in the resale market the certificates were valued at somewhere between “‘between 35 and 45 cents on the dollar.” However, instead of alleging that it did not get the distributions it was entitled to, the plaintiff contended that it was exposed to a significantly higher risk than what the Offering Documents represented. The court said that NECA failed to state any allegation of an injury in fact. The court granted the defendants’ motion to dismiss.

Following the court’s decision, Shepherd Smith Edwards and Kantas Founder and Securities Fraud Attorney William Shepherd said, “It is sad that large and small investors have little clout in the processes of selecting judges. Thus, Wall Street continues to gain advantages in court—especially federal court.”

Related Web Resources:
NECA-IBEW Health & Welfare Fund v. Goldman Sachs & Co.

Court Partially Dismisses Claims Against Goldman Over Mortgage-Backed Certificates, AlacraStore

NECA-IBEW

Continue reading "Securities Claims Against Goldman Sachs Over Mortgage-Backed Certificates are Partially Dismissed by Court Due to Lack of Injury" »

October 27, 2010

Goldman Sach’s $550 Million Securities Fraud Settlement Not Tied to Financial Reform Bill, Says SEC IG

According Securities and Exchange Commission Inspector General H. David Kotz, there is no evidence that the SEC’s enforcement action against Goldman Sachs or the $550 million securities fraud settlement that resulted are tied to the financial services reform bill. Kotz also noted that it does not appear that any agency person leaked any information about the ongoing investigation to the press before the case was filed last April. The SEC says that the IG’s report reaffirms that the complaint against Goldman was based only on the merits.

That said, Kotz did find that SEC staff failed to fully comply with the administrative requirement that they do everything possible to make sure that defendants not find out about any action against them through the media. Kotz notes that this, along with the failure to notify NYSE Reg[ulation] before filing the action and the fact that the action was filed during market hours caused the securities market to become more volatile that day. Goldman had settled the SEC’s charges related to its marketing of synthetic collateralized debt obligation connected to certain subprime mortgage-backed securities in 2007 on the same day that the Senate approved the financial reform bill.

Last April, several Republican congressman insinuated that politics may have been involved because the announcement of the case came at the same time that Democrats were pressing for financial regulatory reform. SEC Chairman Mary Schapiro denied the allegation.

Earlier this month, Rep. Darrell Issa (R-Calif.) wrote Schapiro asking to see an unredacted copy of the internal investigative report by the IG. Issa is the one who had pressed Kotz to examine the decision-making process behind the Goldman settlement. Issa's spokesperson says the lawmaker is concerned that the SEC can redact parts of its IG reports before the public and Congress can see them. However, at a Senate Banking Committee last month, Kotz, said that the SEC redacts information because the data could impact the capital markets.


Related Web Resources:
SEC Investigation Finds No Evidence Politics Drove Goldman Suit, MMC-News, October 21, 2010

Goldman Settles With S.E.C. for $550 Million, The New York Times, July 15, 2010

SEC's Inspector General to Investigate Timing of Suit Against Goldman Sachs, Fox News, April 25, 2010

General H. David Kotz, SEC


Continue reading "Goldman Sach’s $550 Million Securities Fraud Settlement Not Tied to Financial Reform Bill, Says SEC IG" »

October 7, 2010

Goldman Sachs International Fined $27M by UK’s FSA for Not Reporting SEC Investigation into Abacus 2007-AC1 Synthetic Collateralized Debt Obligation

Goldman Sachs International has been ordered by the United Kingdom’s Financial Services Authority to pay $27 million. The FSA says that Goldman failed to notify it about the US Securities and Exchange Commission’s probe into the investment bank’s marketing of the Abacus 2007-AC1 synthetic collateralized debt obligation, a derivative product tied to subprime mortgages.

Goldman Sachs and Co. has settled the SEC’s case for a record $550 million dollars. However, even though Goldman knew for months in advance that SEC charges were likely, the investment bank did not notify regulators, shareholders, or clients.

FSA’s Enforcement and Financial Crime Managing Director Margaret Cole says that while GSI didn’t intentionally hide the information, it became obvious that the investment firm’s reporting systems and controls were defective and that this was why its ability to communicate with FSA was well below the level of communication expected. Cole says that large institutions need to remember that their reporting obligations to the FSA must stay a priority.

FSA contends that Goldman was in breach of FSA Principle 2, which says that a firm has to “conduct its business with due skill, care, and diligence,” FSA Principle 3, which talks about a firm’s responsibility to “organize and control its affairs responsibly and effectively, with adequate risk management systems,” and FSA Principle 11, which stresses a firm’s responsibility to disclose to the FSA that “of which it would reasonably expect notice.”

For example, Fabrice Tourre, a Goldman vice president that worked on the Abacus team and who became an FSA-approved person after he was transferred to GSI in London, was later slapped with SEC civil charges. Along with Goldman, the SEC accused Tourre of alleged misrepresentations and material omissions in the way the derivatives product was marketed and structured.

Cole notes that FSA was disappointed that even though senior members of GSI in London were aware that Tourre had received a Wells Notice that SEC charges were likely, they did not take into account the regulatory implications that this could have for the investment firm. Because of the failure to notify, Tourre ended up staying in the UK and continued to perform at a “controlled function for several months without further enquiry or challenge.”

Because FSA did not find that GSI purposely withheld information, the investment bank received a discount on the fine, reducing it from $38.5 million to the current amount.

Securities fraud lawsuits and investigations have followed in the wake of the SEC’s case against Goldman.

Related Web Resources:
FSA fines Goldman Sachs £17.5 million, Reuters, September 9, 2010

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

Continue reading "Goldman Sachs International Fined $27M by UK’s FSA for Not Reporting SEC Investigation into Abacus 2007-AC1 Synthetic Collateralized Debt Obligation" »

September 14, 2010

Allegations Against Goldman Sachs in $56M Securities Fraud Lawsuit Meet Morrison Standard, Says Australian Hedge Fund

Basis Yield Alpha Fund says that its $56 million securities fraud lawsuit against Goldman Sachs Group Inc. should go to trial. The Australian hedge fund contends that its securities complaint, which accuses the investment bank of inflating certain collateralized debt obligations’ value, meet the standard recently articulated by the US Supreme Court in Morrison v. National Australia Bank. Goldman, however, contends that the transactions and securities under dispute do not meet the Morrison standard.

In the Supreme Court's ruling, The judges limited Section 10(b) of the 1934 Securities Exchange Act’s extraterritorial reach by determining that the law was applicable only to transactions involving securities that took place in the United States or were listed on US exchanges. Following the decision, a district court ordered Goldman and Basis to use Morrison for determining whether there is grounds to drop the case. Goldman submitted its motion to dismiss and noted that the securities in the CDOs were not included on any US exchange list and that the underlying agreements were subject to English law and executed in Australia.

Meantime, Basis is arguing that its case is a “quintessential” securities fraud case involving a US sales transaction. The Australian hedge fund, which invested $42 million in “Timberwolf,” an AAA-rated tranche, and $36 million in an AA-rated tranche of CDOs, maintains that the CDO assembled mortgage-backed securities in Timberwolf came from the subprime real estate market in the US and was a New York sales transaction from beginning to end. The hedge fund was forced into insolvency when after investing in Timberwolf the CDOs value dropped dramatically and the fund sustained over $50 million in losses.

Basis contends that Goldman’s effort to make the transaction an Australian one that is not subject to federal securities laws has no legal or factual basis. It argues that adopting Goldman’s theory would nullify US securities law whenever a US seller committed securities fraud when effecting the sale of a security to a foreign buyer.


Related Web Resources:
Basis Yield Alpha Fund v Goldman Sachs Complaint, Scribd

Timberwolf Lawsuit: Goldman Sachs Sued By Australian Hedge Fund Over 'Sh--ty Deal, Huffington Post, June 9, 2009

Read the Supreme Court Ruling (PDF)

Continue reading "Allegations Against Goldman Sachs in $56M Securities Fraud Lawsuit Meet Morrison Standard, Says Australian Hedge Fund " »

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