July 18, 2014

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

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

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

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

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

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

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

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

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

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

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

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


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

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

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

July 17, 2014

Barclays and Deutsche Bank Under Scrutiny Over Barrier Options Transactions

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

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

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

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

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

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

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

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

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

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

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

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

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


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

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

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

July 14, 2014

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

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

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

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

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

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

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

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

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

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

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

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

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


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

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

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

July 10, 2014

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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

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

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

July 9, 2014

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

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

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

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

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

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

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

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

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

Morningstar/Barron's Survey


More Blog Posts:

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

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

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

July 7, 2014

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

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

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


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

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

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

SEC Regulation 506 of Regulation D


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

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

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

July 3, 2014

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

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

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

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

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

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

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

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


More Blog Posts:

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

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

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

July 2, 2014

US Supreme Court Will Hear Appeal Over Libor Antitrust Claims

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

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

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

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

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

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

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

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

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

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

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


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

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

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

July 1, 2014

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

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

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

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

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

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

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

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

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

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

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

June 30, 2014

BNP Pleads Guilty to Criminal Charges Over Sanctions Violations, Pays $8.8B Fine

BNP Paribas SA (BNP) has pleaded guilty to criminal U.S. charges that it violated sanctions. As part of the plea deal, the bank will pay an $8.8 billion fine.

According to the allegations, BNP processed funds involving Cuba, Iran and Sudan. The bank pleaded guilty to conspiracy, falsifying bank records, and conspiring to violate the International Emergency Economic Powers Act. It will not be allowed to clear U.S. dollars for up to a year. This suspension is significant, since dollar clearing is key to doing business with international clients.

With the BNP case, authorities are making it clear that no bank is immune from criminal charges. The probe revolved around its commodity-trade finance enterprises in Geneva, Switzerland and Paris, France. Unauthorized dollar payments were made for oil companies to entities in Iran and Sudan.

The New York Department of Financial Services said that over $190 billion in transactions that occurred between 2002 and 2012 involved the bank giving dollar-clearing services to Iranian, Sudanese, and Cuban parties. Documents indicate that BNP knowingly hid these transactions under high-level management’s orders. The concealments occurred to avoid detection by investigators.

The probe and negotiations were so significant that high-level government officials in the U.S. and France, including President Francois Hollande, became involved in negotiations. Earlier this month, Hollande noted that issuing a huge penalty against BNP would hurt not just the bank but perhaps even the entire financial system in Europe. France’s central bank also stepped in, contending that BNP never violated European or French law with its actions. The U.S., however, said that it had jurisdiction because dollars were used in the transactions involving the sanctioned nations.

In the wake of the probe, BNP parted ways with 13 employees. New York's regulatory had called for individuals to be held accountable. In total, 45 BNP employees were disciplined. Those who were not let go were demoted, given warnings, or experienced salary cuts. None of these individuals, however, are facing criminal charges

Still under investigation over possible sanctions violations are Credit Agricole S (ACA) and Societe Generale SA (GLE). Since Barack Obama has been president, 21 other banks have collectively been fined $4.9 billion for transactions involving sanctioned nations.

Prosecutors believe that BNP deserved a more severe penalty than the other entities because its wrongdoing was much more egregious and the bank failed to cooperate fully with the investigation. BNP’s nearly $9 billion penalty is the biggest fine ever for violation of U.S. economic sanctions. Issuing a statement, BNP chief executive Jean-Laurent Bonafe chief said that the bank regretted the misconduct, which resulted in the settlement. BNP has since redesigned its compliance measures.

BNP Paribas Pleads Guilty in Sanctions Case, The New York Times, June 30, 2014

BNP Paribas Draws Record Fine for 'Tour de Fraud', The Wall Street Journal, June 30, 2014

BNP to Pay Almost $9 Billion in U.S. Sanctions Plea Deal, Bloomberg, June 30, 2014


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

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

U.S. Supreme Court Issues Ruling in Halliburton Case Involving Fraud-On-The-Market Theory, Class Action Securities Cases, Stockbroker Fraud Blog, June 28, 2014

June 25, 2014

SEC Stops Fraudulent Bond Offering by Chicago Suburb

The SEC has gotten an emergency court order against the city of Harvey. The order puts an end to a bond offering that the Chicago, Illinois suburb was promoting. Also named in the order is Joseph T. Letke, the city’s controller.

The regulator contends that Harvey and Letke allegedly took part in a securities scam to use proceeds from the bonds for undisclosed, improper uses. The bond offerings were supposed to pay for a new Holiday Inn. Instead, officials purportedly took at least $1.7M of the proceeds to cover operational costs for the city. With the temporary order, Harvey is not allowed to sell or offer any bonds through the middle of July.

Per the SEC complaint, Harvey’s bond offerings from ’08-’11 were limited obligations bonds. The bond offerings had to be used for their intended purpose. Also the money that was raised needed to go toward the construction of the hotel. This is because funds that were supposed to pay back the bonds came from tax revenues that would be impacted by the progress and funding of the project. News reports reveal that the proposed Holiday Inn hotel and conference center have yet to be finished, with the hotel’s facade appearing gutted in certain places.

The agency also says that offering documents included statements that were materially misleading about the risks and purposes of new limited obligations bonds that were to be issued just last week. Letke is accused of getting about $269,000 in undisclosed payments from the bond proceeds. The SEC is alleging that the city and Letke violated the Securities Act of 1933, the Securities Exchange Act of 1934 and Rule 10b-5.

At The SSEK Partners, our bond fraud lawyers represent institutional investors and high net worth individual investors in recouping their losses. Contact our securities law firm today.

Read the SEC Complaint (PDF)

SEC accuses City of Harvey, comptroller of fraud, Chicago Sun-Times, June 25, 2014

Securities Act of 1933 (PDF)

Securities Exchange Act of 1934, Cornell.edu


More Blog Posts:

SEC Chairman Mary Jo White Wants Reforms Made to Bond Market, Stockbroker Fraud Blog, June 23, 2014

Pennsylvania Private Equity Firm Settles SEC Charges Over “Pay to Play” Violations Related to Political Campaign Contributions, Institutional Investor Securities Blog, June 23, 2014

Puerto Rico-Based Doral Financial Expected to Default on Over $150M in Muni Bonds, Stockbroker Fraud Blog, May 12, 2014

June 24, 2014

FINRA Arbitration Panel Orders Stifel Nicolaus to Pay $2.7M to Ex-Head Trader

A Financial Industry Arbitration Panel says that Stifel Financial Corp. (SF), the brokerage unit of Stifel Nicolaus, must pay $2.7 million to, Sean Horrigan. Stifel’s ex-head trader claims that the brokerage firm defamed him and withheld his bonus without just cause. Now, the panel is holding the broker-dealer liable.

Horrigan was fired from Stifel in 2012. According to his lawyer, his termination happened several weeks after he overheard a phone call in which a manager insulted his wife to a salesperson. Horrigan’s wife was also employed at Stifel at the time. After the incident, he reacted emotionally. It was after trading hours. The firm then demoted him before letting him go just weeks prior to giving him his bonus for 2011.

Stifel contended that Horrigan was not entitled to get that money because on the day that the bonuses were issued he no longer worked for the firm. His attorney, however, says that unless an industry professional signs a contract mandating that an employee has to be employed on bonus payout day, he/she is still entitled to that money.

The brokerage firm wrote in his dismissal paperwork that the ex-head trader behaved in a manner that was “detrimental to management and co-workers.” This information was included in his form U5, which states the “reason for termination.” Form U5s have to be sent to the Central Registration Depository.

The FINRA panel found that the language used to describe Horrigan’s termination was defamatory. Its members recommended that the verbiage "was not in parity with management's new strategy” be used instead.

The panel decided that Stifel was liable and would have to pay Horrigan $1.9 million plus interest in compensatory damages, and over 5,800 in Stifel, Nicolaus, and Co., Inc. stock (or the cash equivalent).

Compensation disputes involving financial firms and their employees are not uncommon. Recently, ex-Goldman Sachs Inc. (GS) trader Deeb Salem said he wants the firm to pay him significantly more than the $8.25 million bonus he received for his work in 2010. Salem says that he helped the bank make over $7 billion that year. The former Goldman Sachs trader contends that the bonus he should have gotten was unfairly docked due to a written warning regarding a 2007 self-evaluation.

A FINRA arbitration panel rejected Salem’s claims. Now, his lawyer has filed a petition in New York State Supreme Court. Salem wants $16.5 million in deferred compensation from Goldman Sachs.


FINRA Withdraws Proposal Ordering Brokers To Reveal Big Bonuses
In other news regarding broker bonuses, FINRA has withdrawn a proposal that would obligate brokers to tell clients about any substantial bonuses they received for switching to another firm. The move comes in the wake of criticism from the brokerage industry that the rule would be too expensive to implement.

The SRO intends to revise its proposal. It believes that customers should know about any financial incentives their representative got to switch firms and whether it will cost them for following the adviser or if their holdings will be impacted.

Stifel Nicolaus to pay 'defamed' trader more than $2.7 mlm, Reuters, May 12, 2014

A Young Ex-Goldman Trader Thinks His $8.25 Million Bonus Was Too Low, Business Trader, June 19, 2014

Finra Withdraws Proposal Requiring Brokers to Disclose Big Recruitment Bonuses, Wall Street Journal, June 23, 2014


More Blog Posts:
SEC Chairman Mary Jo White Wants Reforms Made to Bond Market, Stockbroker Fraud Blog, June 23, 2014

Pennsylvania Private Equity Firm Settles SEC Charges Over “Pay to Play” Violations Related to Political Campaign Contributions, Institutional Investor Securities Blog, June 23, 2013

Ex-ArthroCare CEO and CFO Convicted in Texas Securities Fraud Case, Stockbroker Fraud Blog, June 11, 2014

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