September 25, 2014

SEC Investigates Pimco Exchange-Traded Fund for Artificial Inflation

The Securities and Exchange Commission is looking at whether Pacific Investment Management Co, artificially upped the returns of a fund that targeted smaller investors. At issue is the way the $3.6B Pimco Total Return ETF (BOND) purchased investments at a discount but depended on higher valuations for the investments when the fund worked out its holdings’ value soon after. This type of move could make it appear as if the fund made rapid gains when it was actually just availing of the variations in how certain investments are valued.

According to The Wall Street Journal, sources familiar with the probe say that SEC investigators have already interviewed firm owner Bill Gross. The regulator could be looking at whether investors ended up with inaccurate data about the performance of the fund. If so, this could be a breach of securities law, even if the wrongdoing wasn't intentional.

While the probe has been going on for at least a year, it seems to have recently escalated. Other Pimco executives have also been interviewed.

The WSJ reports that the investments involved appear to be small quantities of mortgage securities that are priced low because of their size and due to the fact that backers are typically small institutions. After Pimco would buy the investments, it would designate high valuations assigned by outside pricing companies, in part because a bigger mortgage bond pool would be used to compare them with. This type of action would create an instant gain on the bond. If this were done enough times, then the ETF’s early results could have gotten a boost.

It is not clear whether the alleged activity did inflate the ETF’s results. However, the fund made big gains early on, bringing in more investors. Within six months the funds had acquired $2.4 billion.

In other Pimco news, the firm is dealing with a bevy of investor withdrawals from its $222 billion Total Return Fund, which Gross manages, because of poor returns. Morningstar reports that since May of last year, they’ve taken out over $65 million from the fund. Investors are also withdrawing their funds from other Pimco mutual funds.

Pimco is an Allianz SE (ALV.XE) unit. Allianz is the biggest insurance company in Germany.

Our exchange-traded fund fraud lawyers work with investors in recouping their losses. Contact our institutional investor fraud law firm today.

Pimco ETF Draws Probe by SEC, The Wall Street Journal, September 23, 2014

SEC's investigation into Pimco could ripple through ETF, fixed income markets, Investment News, September 24 2014


More Blog Posts:
SEC To Examine Exchange Traded-Fund Regulation Again, Stockbroker Blog Fraud, March 22, 2014

Stifel, Nicolaus & Century Securities Must Pay More than $1M Over Inverse and Leveraged ETF Sales, Stockbroker Fraud Blog, January 14, 2014

Barclays to Pay $15M SEC Settlement Over Compliance Failures Following Lehman Brothers Acquisition, Pays $61.7M Fine to U.K.'s FCA Over Client Asset Issues, Institutional Investor Securities Blog, September 24, 2014

September 24, 2014

Barclays to Pay $15M SEC Settlement Over Compliance Failures Following Lehman Brothers Acquisition, Pays $61.7M Fine to U.K.'s FCA Over Client Asset Issues

Barclays Capital Inc. (BARC) has consented to pay $15 million to the U.S. Securities and Exchange Commission to resolve civil charges claiming that it did not make sure the financial institution was in proper compliance with securities laws and its own rules after acquiring Lehman Brothers' advisory division. According to the regulator, the firm did not adopt and execute written procedures and policies or keep up the needed records and books to stop certain violations.

For example, says the SEC, Barclays executed over 1,500 principal transactions with advisory client accounts but did not seek the necessary written disclosures and get the requisite customer consent. It also made money and charged fees and commissions that were not consistent with disclosures for 2,785 advisory client accounts, underreported assets under management by $754 million when amending its Form ADV a few years ago, and violated the Advisers Act’s custody provisions.

The violations caused clients to lose about $472,000 and pay more than they should have, while Barclays made additional revenue that was greater than $3.1 million. Barclays has since paid back or credited $3.8 million plus interest to customers who were affected. It also consented to remedial action and will retain a compliance consultant to perform an internal review.

Meantime, across the Atlantic, the U.K. Financial Conduct Authority also fined Barclays PLC. The amount is $61.7 million for not safeguarding client assets at the bank.

According to the British regulator, About 16.5 billion pounds in client assets were placed at risk between 11/07 and 1/12 due to poor arrangements between the bank and external custodians that were retained to deal with client trades and settlement.

Barclays accepts the FCA’s findings but maintains that it didn’t make money from these issues and customers did not sustain losses. A bank spokesperson said that Barclays identified and self-reported the matters that led to the FCA’s findings and it has since improved systems to resolve such problems and make sure the necessary processes are implemented.

The British regulator’s fine comes four months after the FCA fined it 26 million pounds for control failings over settling gold prices. The bank also put aside over $1.6 billion pounds for customers that were sold insurance they didn’t require or interest-rate swaps that led to losses.

Also in the UK, Barclays settled a lawsuit by client CF Partners LLP accusing it of offering advice on a takeover bid then buying carbon-trading firm Tricorona AB for itself. The resolution was reached after a judge ruled that the bank wrongly used confidential information to make its purchase.

The SSEK Partners Group is a securities law firm. Contact us today to find out if you have a fraud case.

Barclays Fined Twice in One Day for Compliance Failures, Bloomberg, September 23, 2014

Read the SEC Order
(PDF)

Barclays Fined $62 Million by U.K.'s FCA, The Wall Street Journal, September 23, 2013


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

Barclays to Pay $3.75M FINRA Fine for E-mail Retention and Record Preservation Violations, Stockbroker Fraud Blog, December 30, 2014

Securities Lawsuit Accuses Deutsche Bank, JPMorgan Chase, Credit Suisse, and Other Banks of Manipulating ISDAfix, Institutional Investor Securities Blog, September 4, 2014

September 23, 2014

T.J. Malone’s Lincolnshire Management Settles with SEC for $2.3M Over Purportedly Improper Allocations That Cost Its Funds

Lincolnshire Management has consented to pay $2.3 million to the Securities and Exchange Commission to settle charges alleging improper expense allocations involving two of its funds’ investments in the same company. The New York-based private equity firm, which is run by businessman T.J. Maloney, claims to oversee $1.7 billion.

Lincolnshire acquired PCS Inc. via its debut fund. Several years later it acquired Computer Technology Solutions with the intention of merging the two. However, reports Forbes.com, the first fund ran out of money, so Lincolnshire used its second fund to pay for the acquisition.

Commingling investments can be precarious, especially as each fund had a slightly different investor base. Because of this, the firm created expense allocation policies that were paid directly to it. This meant that each company’s allocation would be determined by the percentage of respective contributions to the total revenue of the overall revenue. However, the policies were never put in writing, which sometimes led to misallocations.

According to the SEC’s administrative order, Lincolnshire regarded Computer Technology Solutions and Peripheral Computer Support as one company that belonged to both funds. However, contends the regulator, from 2005 to 2013, the private equity firm directed more of the costs on the latter, which hurt the Lincolnshire fund that owned the company.

The agency is accusing Lincolnshire Management of breaching its fiduciary duty to the private equity funds when it properly benefited one over the other by misallocating the costs. The private equity firm is settling the SEC charges without denying or admitting to the alleged wrongdoing.

Previously in 2011, investors sued the Lincolnshire Management, claiming it got around paying them distributions by wrongfully taking out expenses and fees and interest related to a $99 million legal victory obtained by Lincolnshire portfolio entities. The trustee of the Acconci Trust claims that Maloney and the firm stole millions from the Lincolnshire Equity fund, with Maloney keeping $7.6 million from the judgment against Cendant Corp. Investors of the Lincolnshire Fund had expected an approximately $60 million distribution but received just $45 million.

Maloney sent investors a letter explaining that the firm and he were charging litigation costs and interest. The Acconci Trust also accused Lincolnshire of self-dealing. That securities fraud case has yet to be resolved.

The SEC has been looking into conflicts of interest and hidden fees at private equity funds. Due to the big fees that may be involved, disputes may arise between private equity firms and their clients.

Our securities lawyers represent high net worth individuals and institutions seeking to recover their securities fraud losses. Contact The SSEK Partners Group today to request your free case consultation. One of our private equity fund fraud attorneys can help you explore your legal options.

T.J. Maloney's Private Equity Firm Pays $2.3 Million To Settle SEC Charges, Forbes, September 22, 2014

SEC Charges New York-Based Private Equity Fund Adviser With Misallocation Of Portfolio Company Expenses, SEC.gov, September 22, 2014

Read the SEC Order (PDF)


More Blog Posts:
SEC to Dismiss Lawsuit Against SIPC Over Payments to Stanford Ponzi Scam Victims, Stockbroker Fraud Blog, September 11, 2014

Regulator Adjust Liquidity Rule for Big Banks, Institutional Investor Securities Blog, September 16, 2014

FINRA Fines Minneapolis Broker-Dealer $1M for Inadequate Supervision of Penny Stocks, Stockbroker Fraud Blog, September 13, 2014

September 20, 2014

SEC News: Regulator to Review Rule Change on New Hire Background Checks, Prepares Mutual Fund Regulations, and is Defendant of Oxfam America Lawsuit

FINRA Sends Background Check for New Hires Rule to the SEC
The Financial Industry Regulatory Authority is moving ahead with a rule change that would mandate that broker-dealers do a better job of vetting new hires. The SRO sent a rule to the Securities and Exchange Commission that would obligate brokers to implement written procedures to confirm the accuracy of information provided in an applicant’s U4 form.

Already, firms must review applicants for jobs. However, under the new rule, they would have to look into their public records.

FINRA says that because a lot of firms already have a system for background checks the rule shouldn’t be too expensive to implement. Some, however, feel that this could prove costly for smaller and medium-sized broker-dealers, who would likely have to hire a third-party provider.

Meantime, FINRA is going to review all financial public records in a one-time sweep to make sure its BrokerCheck database of representatives is current. There are about 630,000 brokers registered with the agency.

The SEC has 90 days to approve the rule change after the Federal Register publishes it. Meantime, it is soliciting public comment.

SEC Prepares Rules to Enhance Oversight of Mutual Funds, Hedge Funds
The SEC is in the process of developing new rules to improve oversight of firms, including mutual funds and hedge funds, as part of its attempt to obtain greater insight into whether the asset management industry presents any risk to the financial system. The requirements are likely to compel asset managers to provide regulators with more information about their mutual-fund portfolio holdings and require stress tests on funds to assess how well they would do in the event of economic turmoil.

The SEC is worried that derivatives are being used by certain mutual funds to enhance their returns. Officials are also interested in restricting the hedge fund-like tactics of alternative mutual funds, which include trading futures contracts and betting certain stocks against other stocks.

The potential rules would not be unlike the requirements placed on large financial institutions that regulators think might present a risk, should the economic or financial systems collapse. According to The Wall Street Journal, asset managers might have to limit using derivatives in the mutual funds bought by small investors. Firms would have to implement policies to manage certain product risks.

Oxfam Sues SEC to Incite Changes to Dodd-Frank Enforcement
Oxfam America wants the SEC to hurry its enforcement of certain Dodd-Frank Wall Street Reform and Consumer Protection Act provisions that impact oil companies and their disclosure of overseas payments. The international development charity filed its lawsuit in federal court.

OxFam says that the agency needs to speed up the finalization of a rule related to public disclosure of payments that companies, registered with the SEC, make to governments in return for mining and drilling rights. Until the rule is finalized the SEC can’t enforce it.

The SSEK Partners Group is a securities law firm. Contact our financial fraud lawyers today so that we can help you explore your legal options.

Oxfam America sues federal Securities and Exchange Commission to spur changes in Dodd-Frank enforcement, Business Journal, September 19, 2014

Rule proposal for new hire background checks moving to SEC, InvestmentNews, Septemer 18, 2014

SEC Preps Mutual Fund Rules, The Wall Street Journal, September 7, 2014


More Blog Posts:
SEC Files Charges in $4.5M Houston-Based Pump-and-Dump Scam, Stockbroker Fraud Blog, August 18, 2014

Securities Lawsuit Accuses Deutsche Bank, JPMorgan Chase, Credit Suisse, and Other Banks of Manipulating ISDAfix, Institutional Investor Securities Blog, September 4, 2014

SEC Charges Immigration Attorneys with Securities Fraud Involving EB-5 Immigration investor Program, Stockbroker Fraud Blog, September 4, 2014

September 19, 2014

Fed to Charge U.S. Banks with More Stringent Capital Surcharge

The Federal Reserve intends to impose a capital surge on the largest U.S. banks to lower the risks that come with certain financial firms that are still “too big to fail.” The requirement will require these institutions to maintain bigger cushions against possible losses.

Fed Governor Daniel Tarullo gave testimony about this planned surcharge in front of a Senate Banking Committee hearing earlier this month. The Fed also reportedly intends to penalize banks that depend too much on volatile types of short-term funding.

Ever since the 2008 economic crisis, banks have increased their capital and must abide by new rules. The Wall Street Journal reports that according to Federal Financial Analytics’ examination of six U.S. banks, between 2007 and 2013 these firms upped their capital by $29.07 billion.

Meantime, Fed officials have yet to determine an exact range for this planned surcharge. Although up to 4.5% for certain banks could be imposed, Tarullo noted that the surcharge levels for certain systematically important financial institutions likely would increase “noticeably” but not necessarily for all banks.

The planned surcharge increase is just one of the latest initiatives by Washington to enhance the banking system and make sure that large Wall Street firms are better to able to protect themselves in the event of losses. Also this month, the Fed passed a rule requiring big banks to keep enough liquidity assets in place in the event of another economic meltdown.

Financial institutions that have at least $250 billion in assets or $10 billion in foreign exposure have to retain enough easy-to-sell securities and cash to stay in business for 30 days if there is a credit crisis. Smaller intuitions that have at least $50 billion in assets have to keep 30% less liquid assets. Bank of America (BAC), Citigroup (C), JPMorgan Chase (JPM), and twelve other big banks would have to meet this requirement, along with twenty smaller banks.


Fed to Hit Biggest U.S. Banks With Tougher Capital Surcharge
, The Wall Street Journal, September 9, 2014

Fed requires banks to amp up crisis protection, USA Today, September 23, 2014


More Blog Posts:
Morgan Stanley to Pay a $280,000 Fine to CFTC for Records and Supervision Failures Involving SureInvestment and $35M Ponzi Scam, Stockbroker Fraud Blog, September 16, 2014

Regulators Adjust Liquidity Rule for Big Banks, Institutional Investor Securities Blog, September 16, 2014

FINRA Fines Minneapolis Broker-Dealer $1M for Inadequate Supervision of Penny Stocks, Stockbroker Fraud Blog, September 13, 2014

September 16, 2014

Regulators Adjust Liquidity Rule for Big Banks

A new rule adopted by U.S. banks will require over thirty of the largest banks, including Citigroup (C) and JPMorgan Chase (JPM), to add another $100 billion in cash or cash-like investments to what they currently hold to make sure that the firms don’t run out of money in a crisis. Previous expectations were for the banks to raise around $200 billion to satisfy the rule’s requirements. However, regulators have since reduced that number.

The liquidity rule is supposed to protect the financial system and the economy during times of stress in the market so that the same issues that led to the failures of Bear Stearns and Lehman Brothers during the 2008 economic meltdown don’t happen. The regulation mandates that firms have enough safe assets to cover 100% of their net cash outflows for 30 days when there is economic turmoil. With the final liquidity ratio banks, with assets between $50 billion and $250 billion will calculate their positions monthly instead of daily. They have until January 1, 2016 to comply with the rule.

According to The Wall Street Journal, The Clearing House, a trade group that represents banks, has expressed approval of the changes to the final rule. U.S. officials have said the liquidity coverage ratio creates a good balance between economic growth and financial stability. For now, municipal debt securities will not be considered safe, “high-quality liquid assets” that can go toward a bank’s compliance. Meantime, however, some people have expressed worry that when the markets and the economy are good the rule could impede banks from investing or lending.

Both the Federal Deposit Insurance Corp and the Fed board unanimously approved the rule. Meantime, Fed officials are also developing three other rules. One targets the funding of banks for periods longer than thirty days. The other is a capital requirement that would make it more costly for banks to depend on volatile kinds of short-term funding. The third is a requirement for banks and other financial market participants to retain minimum amounts of collateral on the margin when short-term funding transactions are involved.

The SSEK Partners Group represents institutional investors and high net worth individual investors in recouping their securities fraud losses.

U.S. Regulators Tweak Final Liquidity Rule for Large Banks, The Wall Street Journal, September 3, 2014

U.S. senator criticizes muni treatment in bank liquidity rules, Reuters, September 16, 2014


More Blog Posts:
FINRA Fines Minneapolis Broker-Dealer $1M for Inadequate Supervision of Penny Stocks, Stockbroker Fraud Blog, September 13, 2014

Government Probe of Height Securities Into Possible Insider Trading Expands to Hedge Funds, Institutional Investor Securities Blog, September 10, 2014

Securities Lawsuit Accuses Deutsche Bank, JPMorgan Chase, Credit Suisse, and Other Banks of Manipulating ISDAfix, Institutional Investor Securities Blog, September 4, 2014

September 12, 2014

FINRA Headlines: SRO Considers Revised Broker Bonus Plan, To Discuss Potential Dark Pool Rules, May Instigate Civil Action Against Wells Fargo, &Warns Investors About Frontier Markets

FINRA to Revive Proposal Mandating that Brokers Disclose Recruitment Incentives
The Financial Industry Regulatory Authority has decided to revive a proposal that would obligate brokers to notify clients of any incentives they received for being recruited by another firm. The self-regulatory organization had withdrawn the rule in June after getting over 180 comment letters.

Now, however, according to the agenda for FINRA’s next board meeting, the SRO intends to look at a revised recruitment practices policy that would make the recruiting firms delineate their compensation packages to clients who are thinking of moving their assets from the a broker’s previous firm to the financial representative’s new firm.

Also during the meeting, the SRO intends to look into possible rule-making initiatives for alternative trading systems, including dark pools that would enhance their transparency.

Wells Fargo May Be Subject to FINRA Action Over Anti-Money Laundering Allegations
Recently, Wells Fargo Advisors received a Wells Notice warning of possible FINRA action over alleged anti-money laundering policy-related failures. The notice, issued in July, indicated that the SRO intended to recommend disciplinary action for the firm’s purported failure to put into place procedures and policies designed to achieve Bank Secrecy Act compliance. The company is also accused of not putting into place regulations allowing it to identify and report suspect activity.

The probe involves a specific Wells Fargo Advisors branch office. Also, in 2010, Wachovia Corp., which Wells Fargo had acquired, paid $160 million to resolve charges alleging that it had laundered drug money from Mexico.

FINRA Issues Alert Warning Investors About Frontier Markets
This week, the SRO put out an alert encouraging investors and their financial advisors to consider the pluses and minuses of investing in frontier markets, such as Argentina, Lebanon, Slovenia, Vietnam, and Nigeria. According to INRA's senior vice president for investor education, investors looking to make higher returns in frontier funds should know that greater risks are typically also involved.

“Frontier market” usually refers to nations that are less developed than emerging markets, such as China, Russia, and Brazil. Their regulatory, legal, and financial accounting infrastructures may be weaker, and there also may be political instability. The SRO is recommending that investors know the risks involved in each market, including currency and political risks, watch for changes in index components, take into consideration fees and costs, which tend to be higher with frontier funds than emerging market ones, and look at a fund’s performance history.

Our FINRA arbitration lawyers represent investors in getting their money back. We work with high net worth individuals and institutional clients. Contact The SSEK Partners Group today.

FINRA Issues New Investor Alert, Frontier Funds—Travel With Care, FINRA, September 11, 2014

Wells Fargo facing possible Finra action over anti-money-laundering failures, Wells Fargo, September 8, 2014

FINRA Mulls Revised Broker Bonus Plan
, ThinkAdvisor, September 12, 2014

Regulators Weighing New Rules for Private Trading Venues, Wall Street Journal, September 10, 2014


More Blog Posts:
Citigroup Global Markets Fined $1.85M By FINRA, Must Pay $638K Restitution Over Non-Convertible Preferred Securities Transaction Valuations, Stockbroker Fraud Blog, August 27, 2014

Securities Regulations News: SEC Looks to Delay Principal Trading Rules, FINRA Adds More Time to REIT Price Changes and 2nd Circuit Says Dodd-Frank’s Whistleblower Protections Don’t Apply Overseas, Stockbroker Fraud Blog, August 22, 2014

FINRA Claims Wedbush Securities Engaged in Supervisory and Anti-Money Laundering Violations, Institutional Investor Securities Blog, FINRA

September 10, 2014

Government Probe of Height Securities Into Possible Insider Trading Expands to Hedge Funds

The U.S. Securities and Exchange Commission is looking into whether anyone from the government illegally leaked to Wall Street traders that there was going to be a change in health-care policy. In 2013, The Wall Street Journal reported that just before the government announced news that was favorable to companies in regards to Medicare payments, health-insurance stocks rose. Investigators want to know whether insider trading was involved.

The stock rise, linked to the announcement that the Centers for Medicare and Medicaid Services would reverse its direction on intended funding cuts for private insurance plans, may have been spurred by an email sent by a Height Securities, a Washington-based policy research firm. The alert appears to have been partially based on information that an ex-congressional health-care aide, who is now lobbyist, gave to the firm.

Sources tell The WSJ that the SEC now possesses evidence of over 20 phone calls, instant messages, and emails between investors and Height Securities analysts from the time the email alert was issued to when the market closed. The exchanges involved the hedge funds Citadel LLC, Visium Asset Management LLC, Viking Global Investors LP, and Point72 Asset Management LP, which was previously called SAC Capital Advisors.

It wouldn’t necessarily have been illegal for investors and Height Securities employees to discuss the note. However, investors could be liable if they knew or should have known the information was obtained illegally—if, in fact, it was obtained illegally—which would violate insider trading rules.

For now, investigators have not said that any alleged wrongdoing occurred. They are, however, trying to find out whether Washington’s habit of issuing tips about policy changes for investors goes against insider trading laws.

The SEC can file civil charges if it can prove that an investor made a trade because of nonpublic, material data that was procured in a manner that violated a duty. Charges can also be brought if an investor acted recklessly in disregarding a “substantial risk” that there might be insider information involved in a trade.


Washington Trading Probe Broadens to Hedge Funds, The Wall Street Journal, September 10, 2014

SEC subpoenas ‘political intelligence’ firms in a case of leaked information, The Washington Post, May 1, 2013


More Blog Posts:

Mortgage Transfers to Nonbanks Get Closer Regulator Scrutiny, Stockbroker Fraud Blog, September 9, 2014

CFTC Notifies Justice Department of Criminal Rate Rigging, Looks at Possible Swaps Loophole, Institutional Investor Securities Blog, September 9, 2014

Securities Lawsuit Accuses Deutsche Bank, JPMorgan Chase, Credit Suisse, and Other Banks of Manipulating ISDAfix, Institutional Investor Securities Blog, September 2, 2014

September 9, 2014

CFTC Notifies Justice Department of Criminal Rate Rigging, Looks at Possible Swaps Loophole

The U.S. Commodities Trading Commission has notified the Department of Justice that there is evidence of criminal conduct related to the alleged manipulation of ISDAfix. The regulator had sent subpoenas to the biggest banks in the world in 2012 to find out if the benchmark, used to establish rates for trillions of dollars of financial products and track prices on interest-rate swaps, was rigged. The CFTC, however, can only file civil charges.

Benchmarks are integral to global finance. They help lenders determine what to charge borrowers and pension funds to figure out future obligations, among other uses. Regulators have been investigating claims that banks and brokers seeking to profit helped manipulate certain benchmarks, while investors lost out in the process.

Last week, the Alaska Electrical Pension Fund sued thirteen banks, including UBS (UBS), Citigroup (C), and Bank of America (BAC), and brokerage firm ICAP Plc (IAP) claiming they worked together to rig ISDAfix. UK securities regulators are also looking into the claims.

It was Bloomberg that first reported that CFTC had discovered evidence that big banks had told ICAP brokers to sell or buy as many interest-rate swaps as needed to manipulate ISDAfix to a predetermined level. This would allow banks to make money on swaptions with clients wanting to hedge against moves in interest rates. The ISDAfix rate establishes swaptions prices. However, the Dodd-Frank Act does not allow traders to intentionally intervene in transactions that establish settlement prices.

In other CFTC news, The Wall Street Journal is reporting that the regulator intends to more closely examine U.S. banks that are moving their trading operations abroad to purportedly avoid having to contend with the agency’s rules. Citigroup Inc., JPMorgan Chase and Co. (JPM), Goldman Sachs Group (GS), and Bank of America Corp. (BAC) are among the banks that have terminated their policy of guaranteeing certain swaps that were put out by foreign affiliates, which cuts their ties with the U.S. parent.

Swaps are contracts involving two parties that have consented to trade payments according to fluctuations in benchmarks, such as interest rates. Because of the banks actions, any liabilities for these swaps now fall only with the offshore outfit. However, without the connection to the U.S. parent, contracts won’t be subject to U.S. jurisdiction and the tighter rules established by the Dodd-Frank Act, which includes the requirement that contracts traded over the phone have to be publicly traded on U.S. electronic platforms.

Banks have said this new practice is good for the country because it moves trading activities that might be risky abroad. And while it was U.S. regulators that paved the way for this by mandating that swaps involving firms with no financial ties to the U.S. could get around the rules, now the CFTC is worried that this has created a loophole for banks that exchange swaps in jurisdictions that are not as regulated.

EX-CFTC Gary Gensler has called this the “London loophole,” which he has linked to JPMorgan’s $6 million London whale trading loss. The agency is coordinating its review efforts with the Office of the Comptroller of the Currency, the Securities and Exchange Commission, the Federal Deposit Insurance Corp., and the Federal Reserve.

Our defective swaps fraud lawyers represent investors in recouping their losses. Contact The SSEK Partners Group today.

CFTC Said to Alert Justice Department of Criminal Rate Rigging, Bloomberg, September 8, 2014

CFTC to Scrutinize Swaps Loophole, The Wall Street Journal, September 5, 2014

Agencies Seek Comment on Swap Margin Requirements, CFTC, September 3, 2014


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

Securities Lawsuit Accuses Deutsche Bank, JPMorgan Chase, Credit Suisse, and Other Banks of Manipulating ISDAfix, Institutional Investor Securities Blog, September 2, 2014

SEC Charges Immigration Attorneys with Securities Fraud Involving EB-5 Immigration investor Program, Stockbroker Fraud Blog, September 4, 2014

September 4, 2014

Securities Lawsuit Accuses Deutsche Bank, JPMorgan Chase, Credit Suisse, and Other Banks of Manipulating ISDAfix

The Alaska Electrical Pension Fund is suing several banks for allegedly conspiring to manipulate ISDAfix, which is the benchmark for establishing the rates for interest rate derivatives and other financial instruments in the $710 trillion derivatives market. The pension fund contends that the banks worked together to set the benchmark at artificial levels so that they could manipulate investor payments in the derivative. The Alaska fund says that this impacted financial instruments valued at trillions of dollars.

The defendants are:

Bank of America Corp. (BAC)
Deutsche Bank (DB),
• BNP Paribas SA (BNP)
Citigroup (C)
• Nomura Holdings Inc. (NMR)
Wells Fargo & Co. (WFC)
Credit Suisse (CS)
JPMorgan Chase & Co. (JPM)
• HSBC Holdings Plc. (HSBA)
Goldman Sachs Group (GS)
• Royal Bank of Scotland Group Plc (RBS)
• Barclays Plc (BARC)
UBS AG (UBS)

The banks are accused of using electronic chat rooms and other private means to communicate and colluding with one another by submitting the same rate quotes. The manipulation was allegedly intended to keep the ISDAfix rate “artificially low” until they would reverse its direction once the reference point was established.

The Alaska fund said the rigging was an attempt by the banks to make money on swaptions with clients looking to hedge against interest rate fluctuations. The defendants purportedly wanted to modify the swaps’ value because the ISDAfix rate determines other derivatives’ prices, which are used by firms, such as the fund. The rigging allegedly occurred via rapid trades just before the rate was established. ICAP, a British broker-dealer, was then compelled to delay the trades until the banks shifted the rate. Meantime, the brokerage firm, which is also a defendant in this lawsuit, would post a rate that did not accurately show the market activity.

The Alaska fund is adamant that the submission of identical numbers by the banks when they reported price quotes to establish ISDAfix could not have occurred without the financial institutions working together, which it believes occurred almost daily for over three years through 2012. It wants to represent every investor that participated in interest rate derivative transactions linked to ISDAfix between 01/06 through 01/14. The Alaska fund wants unspecified damages, which, under U.S. antitrust law, could be tripled.

Investors and companies utilize ISDAfix to price structured debt securities, commercial real estate mortgages, and other swap transactions. At The SSEK Partners Group, our securities lawyers represent pension funds and other institutional investors that have been the victim of financial fraud and are seeking to recoup their losses. Your case consultation with us is a free, no obligation session. We can help you determine whether you have grounds for a securities claim or lawsuit. If we decide to work together, legal fees would only come from any financial recovery.

An Alaska pension fund sues banks over rate manipulation allegations, Reuters, September 4, 2014

Barclays, BofA, Citigroup Sued for ISDAfix Manipulation, Bloomberg, September 4, 2014


More Blog Posts:
Lloyds Banking Group to Pay $370M Fine Over Libor Manipulation, Institutional Investor Securities Blog, July 29, 2014

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

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

September 3, 2014

US Banks May Need $644B in Collateral Under Revised Swaps Rules

The revised rules for non-cleared swaps could require banks to have $644 billion in collateral to offset risks involved in swaps trading among themselves. The Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency, and the Federal Reserve adopted a proposal for collateral requirements for swaps traded between firms, manufacturers, banks, and others this week. However, the Securities and Exchange Commission and the Commodity Futures Trading Commission still have to vote on the regulations.

The proposal seeks to lower risk and improve transparency by mandating that swaps be guaranteed at central clearinghouses and are traded on platforms. It also looks to limit the effect on global liquidity and smaller companies, as well as free end-users from requirements.

Ever since the 2008 economic crisis, when unregulated trades played a part in the financial meltdown, regulators have wanted to enhance oversight of the global swaps market. Under the proposed rules, banks would need to finance collateral and hold custody accounts that might not be as profitable as other uses they could engage in instead.

For swaps that aren’t cleared and are traded between sellers and buyers, regulators are proposing standards for mandating that banks and clients trade collateral to keep risks from rising. The OCC, six-foreign-bank branches, and the regulator for nine national banks would supervise approximately 80% of the swaps market that would be affected. These banks would likely have to contend with over $650 million in administrative expenses to get the system ramped up, as well as another $149 million a year to be in compliance.

The proposal regulation also would determine the amount of collateral required to lower market risks for swaps that are traded directly between Goldman Sachs Group Inc. (GS), JPMorgan Chose & Co. (JPM), BP Plc (PB/)—these would not be clearinghouse guaranteed-trades.

To assist end-users, regulators did pull back from an idea that would mandate for banks to compel non-financial firms to post collateral if they went over certain creditworthiness thresholds. Instead, banks will have to collect collateral based on their assessment of clients’ risks.

The revised proposal limits how much in assets can be tied up in collateral. For examples, firms would not be required to post the first $65 million of collateral spurred by trades. The Federal Reserve estimates that U.S. banks and clients would need around $30 billion in initial margin to offset trade risks.

Also under the revised proposal, firms wouldn’t be required to post the first $65 million of collateral that their trades prompt. They would have to broaden the kinds of assets eligible to be considered collateral.

If you suspect that you have been the victim of swaps securities fraud, contact The SSEK Partners Group today. Your initial case consultation is a no obligation, free consultation.

U.S. Regulators Tighten Swaps Collateral Regulations, Bloomberg, September 3, 2014

Swaps Collateral Rule Eases Impact on Nonfinancials
, CFO, September 4, 2014


More Blog Posts:
“Substituted Compliance” Should Regulate Cross-Border Swaps, Says SEC Chairman Elisse Walter, Institutional Investor Securities Blog, April 3, 2013

SEC May Propose New Swaps Margins & Title VII Rules, Institutional Investor Securities Blog, November 11, 2013

Ex-Morgan Stanley Trader to Settle SEC Unauthorized Swaps Trading Claims for $150,000, Stockbroker Fraud Blog, June 13, 2011

September 2, 2014

Texas-Based Halliburton Settles Oil Spill Lawsuit for $1.1B

Halliburton Co. (HAL) has consented to pay $1.1 billion to settle most of the lawsuits related to the massive 2010 oil spill in the Gulf of Mexico. A court must still approve the deal, which covers claims for punitive damages that were filed by the commercial fishing industry and others impacted by the spill.

BP P.c (BP) Spill victims accused Halliburton, which is based in Houston, Texas, of defective cementing on the Macondo well prior to the spill. Halliburton blamed BP Plc., which was operating the rig. This is Halliburton’s most significant payout related to the spill to date.

The oil spill occurred when there was an explosion on the Deepwater Horizon drilling rig. Eleven workers died and millions of oil barrels poured out into the gulf. Hundreds of lawsuits against Halliburton, BP, and Transocean Ltd, (RIG) which owned the rig ,soon followed.


Already, BP has paid over $28 billion in settlements. In 2013, Transocean paid $1.4 billion in settlements.

The Halliburton settlement will be put placed in a trust until all appeals are settled. However, the certain number of claimants have to agree to it or the company can cancel ideal. Still, the agreement will not resolve a number of lawsuits filed by certain U.S. states against Halliburton.

Meantime, the company, Transocean Ltd. and BP are defendants in an upcoming nonjury trial over whether they were at fault. They are accused of acting with gross negligence and setting back the development of deep-water resources by years. The decision could establish the scope of future payments for the three of them.

According to investigators, deficient cementing directly played a part in the well blowout. Halliburton has countered, saying the cement mix was made according to BP’s specifications and that the latter and Transocean were the ones who did not test the cement’s integrity. All three companies deny that they were grossly negligence.

If BP is found negligent, it could face up to $18 billion in penalties under the Clean Water Act. Anadarko Petroleum Corp. (APC), which owned a 25% stake in the well, could also be found liable under the act. In July, Anadarko offered to settle with the U.S. Justice Department for $90 million.

Our Texas securities fraud lawyers at The SSEK Partners Group represents high net worth individuals and institutional investors. Contact us today to ask for your free case consultation.

Halliburton to Settle Deepwater Horizon Claims for $1.1 Billion, The Wall Street Journal, September 2, 2014

Halliburton to pay $1.1 billion to settle gulf oil spill lawsuits, The Washington Post, September 2, 2014


More Blog Posts:
Supreme Court to Hear Texas-Based Halliburton’s Class Action Securities Fraud Case Again, Stockbroker Fraud Blog, November 18, 2013

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

Just Because Supreme Court’s Rulings in Amgen and Halliburton Give Defendants Less Tools to Beat Weak Class Certifications But Doesn’t Mean Plaintiffs Can Rest Easy, Institutional Investor Securities Blog, April 27, 2013

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