March 23, 2015

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

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

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

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

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

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

Read the Consent Order (PDF)

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

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

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

March 21, 2015

US Prosecutors May Revoke Currency Rigging Settlements

According to, U.S. prosecutors are thinking about revoking settlements in currency manipulation settlements that were agreed upon years ago and going after banks for manipulating interest rates. The Department of Justice is looking at whether banks violated the earlier deals that resolved those investigations, which stipulated that they would not break the law. If the government finds that banks did in fact commit crimes after the earlier settlements were reached it would be able to revoke those deals.

It has been a common practice for the DOJ to offer deferred prosecution and non-prosecution settlements in probes involving a number of matters, including market manipulation and violations of sanctions. Banks admit responsibility while cooperating with the investigation.

To rescind such a deal would be unprecedented. Among the banks that have settled probes over London interbank offered rate, also known as Libor, are Royal Bank of Scotland Group Plc (RBS), Barclays Plc (BARC), and UBS Group AG (UBS).

The DOJ has continued to look into alleged currency benchmark manipulation and may be seeking guilty pleas from some banks, in addition to imposing penalties. Some guilty pleas would be related to traders from the different banks that worked together to fix currency benchmarks. There is also the probe into whether banks deceived clients about currency transaction prices, a source told Bloomberg. The government is currently working on arriving at deals with Barclays, JPMorgan Chase & Co. (JPM), Citigroup (C), UBS, and RBS.

According to The Wall Street Journal, Barclays and Citigroup are expected to soon settle a currency-rigging lawsuit by institutional investors who contend that the banks manipulated forex-rates. Sources tell the newspaper that they could pay up to $800 million total. Among the plaintiffs are investment funds and pension funds.

J.P. Morgan and UBS have already settled their part in the same case. UBS resolved the allegations for $135 million, while JPMorgan settled for $99.5 million. The two banks consented to cooperate and promised to give the investors’ securities lawyers any information they needed to go after the other banks.

U.S. May Revoke Settlement Agreements in Currency-Rigging Probes, Bloomberg, March 17, 2015

Citigroup, Barclays Close to Settling Forex Lawsuit With Private Investors, The Wall Street Journal, March 17, 2015

Swiss Bank UBS Settles Currency-Rigging Claims for $135M, ABC News, Mrach 13, 2015

More Blog Posts:
Brookeville Capital Partners Ordered by FINRA to Pay $1.5M for Private Placement Fraud, Stockbroker Fraud Blog, March 12, 2015

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

HTG Capital Partners Files High-Frequency Trading Lawsuit Alleging That It Was the Victim of Spoofing, Institutional Investor Securities Blog, March 17, 2015

March 19, 2015

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

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

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

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

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

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

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

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

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

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

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

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

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

JPMorgan, Goldman Sachs, Bank of New York Mellon, Charles Schwab Disclose Market, Stockbroker Fraud Blog, February 7, 2013

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

March 17, 2015

HTG Capital Partners Files High-Frequency Trading Lawsuit Alleging That It Was the Victim of Spoofing

The Chicago high-frequency trading firm HTG Capital Partners is suing rival traders, claiming that “John Doe defendants” engaged in spoofing to manipulate the market. The illegal practice was outlawed in 2010 under the Dodd-Frank Act. Spoofing involves attempting to deceive market participants into thinking large orders for futures contracts are being made to get others to make trades.

The practice may involve a trader making large orders for selling or buying and then canceling the orders right away and doing the opposite. However, the fake bids and offers make it appear as if prices are moving. This lets trading algorithms take advantage of the slit-second changes that occur. Those who are spoofed end up selling for less or buying for more than they wanted.

HTG is seeking $100,000 in damages and wants CME Group, the derivatives exchange where the alleged spoofing occurred, to identify the defendants. High-frequency trading provides the cloak of anonymity. CME, which owns the New York Mercantile exchange and the Chicago Mercantile Exchange, is the largest futures market in the world.

The plaintiff firm claims that it experienced an “unmistakable pattern” of “build-ups, cancels and flips” that went on repeatedly for more than twenty moths. HTG contends that CME let close to 7,000 spoofing instances occur in less than two years—and this does not include other times that the firm may not have identified. It is alleging wrongdoing through August 2014, which was when CME implement its new rules.

Last year, CME put out new rules that prohibited “disruptive trading practices,” including spoofing. Not long after, the Commodity Future s Trading Commission ordered the exchange to come up with strategies to better identify and deal with spoofing.

In August, HTG filed an arbitration claim accusing Allston Trading LLC, also a high-frequency trading firm, of manipulating prices. This also purportedly occurred on a CME exchange. The claimant contended that Allston displayed a pattern of canceling offers and bids to deceive other traders into moving prices in a way that favored Allston. A spokesperson for Allston disputes the claims.

Last year, the U.S. Department of Justice filed criminal charges against Michael Coscia for spoofing. He was accused of making orders that he intended to cancel to artificially drive prices up or down so he could trade. Coscia, who ran the high frequency trading firm Panther Energy Trading, settled civil charges with the CFTC in 2013 by paying a $2.8 million penalty and disgorgement and a $900,000 penalty to Britain’s Financial Conduct Authority. According to the indictment, Coscia’s trading strategy made close to $1.6 million in profit and he allegedly engaged in thousands of trades.

SSEK Partners is an institutional investor fraud law firm.

High-Frequency Trading Lawsuit: Algorithmic Traders Sue Other 'Flash Boys' Over 'Spoofing', Institutional Investor Securities Blog
, International Business Times, March 16, 2015

Spoofing “ a New Crime With a Catchy Name
, NY Times, October 16, 2014

More Blog Posts:
SEC Claims Investment Adviser Paid for Fraud Settlement With Client Monies, Stockbroker Fraud Blog, February 10, 2015

Nomura Holdings Goes to Court in FHFA Mortgage Case Alleging that Freddie Mac and Fannie Mae Were Misled, Institutional Investor Securities Blog, March 13, 2015

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

March 16, 2015

CNL Lifestyle Properties REIT Dips in Value, May Sell Ski Resorts

Even though the commercial real estate industry has recently rallied, shares of the nontraded real estate investment trust CNL Lifestyle Properties Inc. continue to plummet. According to the nontraded REIT’s filing with the SEC, as of the end of 2014 its board of directors approved a $5.20/share valuation—that’s a 24% decline from a year before when the share valuation had been modified to $6.85/share. Launched more than 10 years ago, CNL Lifestyle Properties original price was $10/per share.

Now the nontraded REIT has retained investment bank Jefferies LLC (JEF) to look at whether it makes sense to sell more of its properties or list on an exchange. Already, CNL Lifestyle Properties reached a deal in December to sell its senior housing assets portfolio to the Senior Housing Properties Trust for $790M. Proceeds from the sale will go toward paying debt, and possibly to shareholder distributions or strategic costs for enhancing properties in the CNL Lifestyle Properties portfolio.

The nontraded REIT is also considering whether to sell over a dozen ski resorts located all over the United States. Collectively, the properties are worth hundreds of millions of dollars. CNL Financial Group’s senior managing director, quoted on, has said that the company is also looking at its theme parks and marinas as it explores its options.

For the last several years, the Financial Industry Regulatory Authority has intensified its probe into the way nontraded-REITs have been marketed and recommended to customers. Many investors were not properly advised of the illiquidity risks involved or of the REITs underlying financial condition. Some even bought non-traded REITs under the misunderstanding that stock prices would stay constant and they would be guaranteed steady income.

If you suspect that your financial representative made inappropriate recommendations or failed to warn you about the risks or misrepresented aspects of your investment, please contact our REIT fraud law firm today.

CNL Lifestyle Properties REIT suffers another sharp drop in value, InvestmentNews, March 12, 2015

16 Ski Resorts Worth Hundreds of Millions Could Be Sold, ABC News, March 15, 2015

More Blog Posts:
Net Asset Value of Tony Thompson's Former Nontraded REIT Strategic Realty Trust Plunges, Stockbroker Fraud Blog, July 22, 2014

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

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

March 13, 2015

Nomura Holdings Goes to Court in FHFA Mortgage Case Alleging that Freddie Mac and Fannie Mae Were Misled

Nomura Holdings (NMR), one of 18 financial institutions (including Goldman Sachs (GS), Deutsche Bank (DB), Bank of America (BAC), and J.P. Morgan (JPM)) that was sued by the Federal Housing Finance Agency for allegedly misleading Freddie Mac (FMCC) and Fannie Mae (FNMA) about the risks of mortgage-backed securities leading up to the financial crisis, is getting ready to go to court next week after refusing to settle with the government. The Japanese bank contends that not only did the two mortgage giants go looking for mortgage pools, but also they sought to make sure that certain of these mortgages would allow them to meet the Department of Housing and Urban Development’s affordable housing goals.

According to Nomura’s legal team, when choosing the loans as part of the loan groups that would support the tranches they planned on buying, Fannie and Freddie “carefully analyzed loan-level data” to make sure that the loan pools behind their certificates contained “as many goal-qualifying loans as possible.” This would suggest that while a lot of investors were trying to avoid risky loans to individuals that had low credit scores, Freddie and Fannie were doing the opposite by looking for high risk loans while making money with fat interest-rate yields—meaning they knew the risks they were taking on.

In other Nomura-related news, one of its ex-traders, Matthew Katke, has entered a guilty plea for conspiracy to commit securities fraud following a federal indictment against him. Katke traded in collateralized loan obligations and misled customers.

Regulators have been examining transactions involving corporate loan and mortgage-backed debt more closely ever since Jesse Litvak, a former trader of Jefferies Group LLC (JEF), was convicted of securities fraud. He is accused to lying about what he was charging clients. Litvak is appealing his conviction.)

Related to the probe, Nomura has put other traders on leave, and according to sources , reports Bloomberg, JPMorgan and Royal Bank of Scotland (RBS) have also reportedly suspended traders.

The Bank That Won’t Buckle, The Wall Street Journal, March 8, 2015

Nomura Said to Suspend Ex-RBS Debt Trader Amid Market Scrutiny, Bloomberg, March 11, 2015

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

Brookeville Capital Partners Ordered by FINRA to Pay $1.5M for Private Placement Fraud, Stockbroker Fraud Blog, March 12, 2015

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

March 11, 2015

Ex-Nomura, RBS Trader Enters Guilty Plea to Bond Fraud

Matthew Katke, formerly of Royal Bank of Scotland Group Plc (RBS) and Nomura Holdings (NMR) has pleaded guilty to conspiracy to commit securities fraud for his involvement in a multi-million dollar bond scam to bilk customers. As part of his deal he will cooperate with prosecutors into its investigation of mortgage-linked bonds and collateralized debt obligations.

Katke traded securities that were backed collateralized loan obligations, which are high-yield corporate debt. The charge is related to activities he engaged in while at RBS. Prosecutors say that Katke and co-conspirators made misrepresentations to get customers to pay prices that were inflated and sellers to say yes to deflated bond prices. The scam took place from around 2008 to June 2014.

Court documents say that Katke and co-conspirators sought to profits on bond trades through the false statements they gave customers. They misrepresented the prices that RBS had paid to get a bond or what it was asking to sell it. They also misled clients about whether a bond was from RBS’s inventory or a third party. RBS is cooperating with the probe.

As part of the agreement to cooperate with the U.S. government, Katke may have to testify in grand jury proceedings or trials as regulators continue to look at transactions involving debt backed by corporate loans and mortgages. He also faces up to five years behind bars.

Last year, ex-Jefferies Group LLC (JEF) trader Jesse Litvak was convicted of securities fraud for misrepresenting facts to clients. He has appealed.

As part of Katke’s deal, if Litvak wins his appeal, he too can withdraw his plea.

Collateralized Loan Obligations
CLOs pool corporate loans that are high-yield and portions them into securities of different risks and returns. The equity trench, which is the lowest unrated portion, offers both the greatest risks and possibilities of the highest returns because the inventors are the first to see their payouts lowered when the loans backing the collateralized loan obligation default.

Ex-RBS Debt Trader Pleads Guilty in Deepening Bond Probe
, Bloomberg, March 11, 2015

Former RBS trader pleads guilty in U.S. to cheating customers, Reuters, March 11, 2015

More Blog Posts:

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

Appellate Court Says Charles Schwab & Co. Must Face Financial Advisory Firm’s Lawsuit Over Mortgage Debt Involving Bond Funds, Institutional Investor Securities Blog, March 9, 2015

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

March 9, 2015

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

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

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

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

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

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

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

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

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

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

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

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

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

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

March 6, 2015

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

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

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

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

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

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

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

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

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

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

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

March 5, 2015

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

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

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

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

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

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

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

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

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

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

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

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

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

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

February 28, 2015

SEC Examines The Way Companies Deal with Whistleblowers

The U.S. Securities and Exchange Commission is looking at whether companies are stifling corporate whistleblowers. The regulator has submitted letters to companies to request a number of documents, including employment contracts, nondisclosure agreements, confidentiality deals, and settlement agreements entered into since the Dodd-Frank Act became law. SEC officials are worried that there has been a backlash against whistleblowers.

Some of the documents come with clauses that get in the way of an employee notifying the government about wrongdoing at the company, as well as about other securities law violations. Firms may even demand that employees give up their rights to benefits from government investigations, which takes away the incentive that is provided by the SEC whistleblower program.

Under the SEC whistleblower program, tipsters may be entitled to receive 10-30% of penalties collected if the information provided results in an enforcement action that brings in sanctions of over $1 million. In 2014, the regulator looked at over 3,600 tips about possible securities law violations. The number of tips has gone up in recent years. The Dodd-Frank Act bars companies from getting in the way of employees submitting such tips.

The SEC also is interested in documents regarding corporate training about confidentiality, as well as those dealing with whistleblowing. They want to see lists of employees that have been fired.

Last year a number of Democrats in the U.S. House of Representatives issued a letter to the SEC pressing the regulator to stop non-disclosure agreements from keeping whistleblowers silent. Often these agreements will contain language that covers more than the proprietary information that is traditionally protected.

On February 6, the SEC submitted an amicus brief notifying the United States Court of Appeals for the Second Circuit that the Dodd-Frank Act’s whistleblower protections cover persons who reported any wrongdoing to their company before they notify the SEC. The brief was in support of appellant Daniel Berman, an ex-employee at Neo@Ogilvy LLC. He was let go after notifying his supervisors.

Since Berman didn’t tell the SEC about the alleged wrongdoing until several months after he was fired, the lower court said that he was not protected under the anti-retaliation provisions of the Dodd-Frank Act. The Commission, however, asserted that Section 21F was added to the Securities Exchange Act of 1934 to make sure individuals who notified an employer about violations first were not undermined. It argued that any other interpretation would weaken its authority to go after employees that retaliate against whistleblowers. The Commission is asking for deference to its interpretation since it is the agency tasked with administering the Dodd-Frank Act.

Companies are not allowed to retaliate against a whistleblower. Unfortunately, that is not always what happens and someone who comes forward may encounter harassment on the job, lost opportunities at work, termination, or career ruin.

This week, New York Attorney General Eric Schneiderman said he would propose legislation that would protect and reward employees that report information about illegal activity in the financial services, insurance, and banking industries. Currently, there is no such law protecting whistleblowers or providing them with incentives in New York.

The bill, known as the Financial Frauds Whistleblower Act, would compensate whistleblowers that voluntarily report fraud. Tips that lead to over $1million in settlement proceeds or penalties would result in compensation for the tipster. The whistleblower’s information would be kept confidential and any employer that retaliates would be breaking the law.

Our SEC whistleblower lawyers are here to help your clients by protecting their rights and ensuring that they get the recovery they are owed.

SEC Probes Companies’ Treatment of Whistleblowers, The Wall Street Journal, February 25, 2015

The SEC's Amicus Brief (PDF)

A.G. Schneiderman Proposes Bill To Reward And Protect Whistleblowers Who Report Financial Crimes, AG.NY.Gov, February 26, 2015

More Blog Posts:
Whistleblower Earns $57M Payout in Second Lawsuit Against Bank of America, Institutional Investor Securities Blog, December 17, 2014
SEC News: Regulator Grants $30M Whistleblower Award and Charges Washington Investment Advisory Firm $600K for Undisclosed Principal Transaction, False Advertising, Stockbroker Fraud Blog, September 23, 2014

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

February 27, 2015

Judge Temporarily Blocks Meredith Whitney Fund From Making Investor Payouts in the Wake of BlueCrest Capital Opportunities Lawsuit

New York State Supreme Court Justice Jeffrey K. Oing says that he is temporarily stopping Meredith Whitney’s American Revival Fund from making investor payouts until there is a hearing about the securities lawsuit filed against the fund by BlueCrest Capital Opportunities Ltd. The plaintiff, a BlueCrest Capital Management affiliates, contends that Whitney’s fund did not honor its request to give back its now $46 million investment.

BlueCrest Capital Management, owned by billionaire Michael Platt, is Whitney’s largest investor. Now, its affiliate wants its stake back in the American Revival Fund. BlueCrest Capital Opportunities Ltd. filed its lawsuit in Bermuda at the end of last year. It was Platt who helped Whitney start her firm, Kenbelle Capital.

According to data gathered by, 2014 saw institutional investors getting involved in hedge funds and the largest players, with the funds on average returning approximately 2% over the first 11 months. Whitney’s fund, however, was down for most of that time. Her CFO and co-founder left and BlueCrest sought to get out not long after investing. BlueCrest maintains that a Kenbelle executive accepted the redemption request at first but no payment was made at the expected date.

The institutional investor lawsuit contends that American Revival violated agreements and it wants not just its stake back, but also unspecified costs and additional relief.

Contact the SSEK Partners Group today.

Meredith Whitney Says Lawsuit Is an Attempt to Destroy Her Fund, Bloomberg, February 25, 2015

Meredith Whitney Is Reportedly Getting Sued By A Hedge Fund That Made A Big Bet On Her, Business Insider, December 24, 2014

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