October 14, 2014

Barclays to Pay $20M To Settle Libor Manipulation

Barclays PLC (BARC) has consented to pay $20 million to settle complaints over the manipulation of the London interbank offered rate benchmark. As part of the accord, the bank will cooperate with a group of Eurodollar-futures traders that have filed lawsuits against other banks over Libor manipulation.

The deal resolves claims by firms and individuals that traded in Eurollar futures contracts and options on exchanges that were Libor based from 1/1/05 to 5/31/10. Now, a district court judge in Manhattan must approve the settlement.

This is the first settlement reached in the U.S. antitrust litigation involving investments linked to Libor. In addition to paying the $20 million, Barclays will help traders with their claims against other banks. This will include giving documents and information and other support to the plaintiffs so that they can bolsters their cases.

Authorities around the world have been looking into claims that over a dozen banks modified the submissions for establishing Libor and other benchmarks to make money from bets on interest-rate derivatives or cause their finances look more robust. In 2012, U.K. and U.S. authorities fined Barclays $469 million related to benchmark rate manipulation.

Bank of America Corp. (BAC), JPMorgan Chase & Co. (JPM), and Citigroup (C) are some of the other banks that were sued over allegedly manipulating Libor.

Meantime, regulators are trying to reach a settlement over rate-rigging allegations made against Deutsche Bank AG (DBK). According to The New York Times, U.S. prosecutors are considering whether to get the bank to plead guilty to interest-rate rigging.

Also under investigation of suspected wrongdoing related to currency manipulation are UBS (UBS), JPMorgan Chase, Barclays (BARC), Citigroup, and several other banks. Past resolved cases against these firms could be opened up if any misconduct was discovered that potentially violated earlier settlements related to interest rate manipulation.

Meantime, in the United Kingdom, the Financial Conduct Authority may be close to reaching settlements with JPMorgan, Citigroup, HSBC (HSBC) the Royal Bank of Scotland, and UBS. The agreement could potentially be a collective one.

U.S. May Press Deutsche Bank for Guilty Plea on Libor, NYT Says, Bloomberg, October 6, 2014

Barclays to pay $20 million to settle U.S. class action over Libor, Reuters, October 8, 2014


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

Virginia Files $1.15B Securities Lawsuit Against Citigroup, Credit Suisse, JPMorgan Chase, and Other Big Banks, Institutional Investor Securities Blog, September 27, 2014

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

October 11, 2014

Credit Suisse, Goldman Sachs, JPMorgan, and 16 Other Banks Agree to Swaps Contract Modifications to Assist Failed Firms

JPMorgan Chase & Co. (JPM), HSBC Holdings Plc (HSBA), Goldman Sachs Group Inc. (GS), Credit Suisse (CS), and fourteen other big banks have agreed to changes that will be made to swaps contracts. The modifications are designed to assist in the unwinding of firms that have failed.

Under the plan, which was announced by the International Swaps and Derivatives Association, banks’ counterparties that are in resolution proceedings will postpone contract termination rights and collateral demands. According to ISDA CEO Scott O’Malia, the industry initiative seeks to deal with the too-big-to-fail issue while lowing systemic risks.

Regulators have pressed for a pause in swaps collateral collection. They believe this could allow banks the time they need to recapitalize and prevent the panic that ensued after Lehman Brothers Holdings Inc. failed in 2008. Regulators can then move the assets of a failing firm, as well as its other obligations, into a “bridge” company so that derivatives contracts won’t need to be unwound and asset sales won't have to be conducted when the company is in trouble. Delaying when firms can terminate swaps after a company gets into trouble prevents assets from disappearing and payments from being sent out in disorderly, too swift fashion as a bank is dismantled.

After Lehman’s bankruptcy filing, it still had tens of thousands of individual derivative positions. Trading partners tried to close out swaps trades with the firm right away, even demanding their collateral back. Because of this, billions of dollars of swap-termination payments were issued.

Current U.S. bankruptcy laws exempt swaps and other derivatives from the stay that prevents creditors of a firm that has failed from collecting on what they are owed right away. Banks’ swap counterparties, however, have been able to move fast to grab collateral.

ISDA has changed the language in a standard swaps contract following concerns from U.S. regulators that close-out derivatives transactions could slow resolution efforts. The changes allow banks to get involved in overseas resolution regimes that might only have been applicable to domestic trades.

The deal with the banks stretches out delays or stays to 90% of what is outstanding of notional value of derivatives. The firms have agreed in principal to wait up to 48 hours before canceling derivatives contracts and collecting payments from firms that are in trouble.

Establishing a credible plan to unwind failed banks could get rid of the impression that governments will rescue firms if they become too big too fail.

The other banks that have consented to this agreement:
· Bank of America (BAC)
· UBS AG (UBSN)
· Bank of Tokyo-Mitsubishi UFJ
· Sumitomo Mutsui Financial Group Inc.
· Societe Generale SA (GLE)
· Barclays Plc (BARC)
· Royal Bank of Scotland Group Plc
· BNP Paribas SA (BNP)
· Nomura Holdings Inc.
· Citigroup Inc. (C)
· Mizuho Financial Group. Inc.
· Credit Agricole SA (CA)
· Morgan Stanley (MS)
· Deutsche Bank AG (DBK)

The Wall Street Journal says that under the agreement, firms are agreeing to forfeit certain rights that exist with their current contracts.

Banks Back Swap Contracts That Could Help Unwind Too-Big-to-Fail, Bloomberg, October 11, 2014

Banks Ink Swaps Deal With U.S. Regulators
, The Wall Street Journal, October 12, 2014

International Swaps and Derivatives Association


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Securities Fraud: Ex-Ameriprise Adviser to Pay $3M for Ponzi Scam, Four Insurance Agents Allegedly Defrauded Senior Investors, and Trading in Nine Penny Stocks is Suspended, Stockbroker Fraud Blog, October 8, 2014

As SEC Examines Private-Equity Consultant Salaries, Blackstone Stops Monitoring Fees, Institutional Investor Securities Blog, October 8, 2014

Private Equity Firms, Including Blackstone, Settle ‘Club Deals’ Case with $325M Settlement, Stockbroker Fraud Blog, August 9, 2014

October 10, 2014

SEC Panel Recommends Changes to Accredited Investor Definition

The SEC Investor Advisory Committee (IAC) is recommending that the agency to make substantial revision to who should be considered a sophisticated investor. This could change who can get involved in private placements as investors.

Currently, there are about 8.5 million accredited investors. The Dodd-Frank Act obligates the SEC to reexamine the accredited-investor definition every four years.

At the moment, accredited investor standard only allows individuals who make a minimum of $200K or have a net worth of $1M—the value of their primary residence not included—to invest in private placement purchases. If a couple’s net worth is $300K together, they may qualify too.

Now, the SEC panel is saying that such criteria for private placement investments merely oversimplifies the process of determining whether an individual has enough money and liquidity to handle the possible risks involved in private offerings. The IAC said that the existing thresholds fail to provide enough protection for investors, whose net worth may have been determined by illiquid holdings or retirement funds. Many retirees regularly depend on their investments to cover their living expenses every month, so those monies can fluctuate.

The committee wants the Commission to get rid of these thresholds. Instead, it wants a sophisticated investor to have had substantial education, professional credentials, and experience in investing. A financial-sophistication test is another method the IAC is suggesting. The committee also doesn’t think that retirement accounts should be included when factoring whether an investor meets the $1 million wealth threshold, were that to remain in place.

The IAC said that if the regulator decides to keep the standards for net worth and income, then the SEC should only allow investors of private placements to put in a certain percentage of their assets or funds. The committee wants third parties, rather than securities issuers, to verify accredited investor status. It also wants the non-accredited investors in private offerings that were recommended by a purchaser representative to get more robust protections.

Aside from the net worth and income thresholds that are criteria for individual accredited investors, federal securities laws also defines accredited investors as:

· A bank, insurer, business development firm, registered investment company or small business investment company

· An employee benefit plan if its assets are over $5 million or its investment decisions are handled by a bank, registered investment adviser, or insurer.

· An executive officer, director, or general partner of the company that is selling the securities.

· A charitable organization, partnership, or corporation with assets above $5 million.

· A business in which all equity owners are accredited investors.

· A trust that was not set up to acquire the securities offered and has assets above $5 million.

The SSEK Partners Group is a securities fraud law firm that helps high net worth individuals and institutional investors to recoup their losses.

Accredited-investor definition revamp backed by SEC panel, Investment News, October 9, 2014

SEC Panel Urges Update of ‘Accredited Investor’ Standard, CFO, October 13, 2014

The Dodd-Frank Act (PDF)

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FINRA Bars Former Raymond James Adviser for Elder Financial Fraud, Charges SWS Over Variable Annuity Supervision, Stockbroker Fraud Blog, October 7, 2014

October 8, 2014

As SEC Examines Private-Equity Consultant Salaries, Blackstone Stops Monitoring Fees

According to The Wall Street Journal, the operating partners of private equity firms, are coming under closer scrutiny. These professionals are typically retained when acquiring a company with the intention of enhancing its operations.

These operating partners are usually listed with full-time employees. Regulators are worried that buyout firms are not providing private equity fund investors enough information about the way these consultants are compensated.

The firm usually doesn’t pay its operating partners. Instead, their salary usually comes from the company they are advising or the investors of the buyout firm. However, the WSJ’s examination of regulator filings regarding 80 private equity companies found that only about fifty percent of them disclosed where the money paid to operating partners comes from.

Meantime, Blackstone Group (BX) LP has decided to stop charging extra consulting fees when taking or selling public companies. This could save fund investors millions of dollars. The changes come in the wake of criticism from a senior SEC official about the practice.

These consulting payments are also known as monitoring fees. Private equity firms get into contracts with companies they purchase and they are paid these fees for years. If the company is sold or goes public before the contract is up, then the remaining fees are accelerated via a lump sum payment for services that won’t have to be rendered. Now, Blackstone will no longer collect these fees.

The SEC is looking at whether buyout firms garner hidden fees at cost to investors and without their permission or proper disclosure.

The SSEK Partners Group works with high net worth individual investors and institutional clients to recover their securities fraud losses.

Heightened Regulatory Scrutiny Makes Blackstone Halt Some Transaction Fees, The New York Times, October 8, 2014

Private-Equity Consultants Face SEC Scrutiny, The Wall Street Journal, October 8, 2014


More Blog Posts:
T.J. Malone’s Lincolnshire Management Settles with SEC for $2.3M Over Purportedly Improper Allocations That Cost Its Funds, Institutional Investor Securities Blog, September 23, 2014

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

Private Equity Firms, Including Blackstone, Settle ‘Club Deals’ Case with $325M Settlement
, Stockbroker Fraud Blog, August 9, 2014

October 7, 2014

Rabobank Groep NV Suspends Currencies Traders, British Banker Pleads Guilty in Libor Probe

In London, Rabobank Groep NV (RABN.UL) has suspended two senior currencies traders in the wake of an internal probe into the bank’s forex business. Chris Twort and Gary Andrews were placed on leave of absence after their names were discovered in chat rooms along with a currencies trader from another bank who was also suspended.

Last year, the Dutch bank paid $979.5 million to resolve investigations related to attempts to manipulate the London interbank offered rate. Other banks that have paid to settle Libor rigging charges include ICAP (IAP), Royal Bank of Scotland (RBS), UBS (UBS), and JPMorgan (JPM).

Meantime, according to the Serious Fraud Office in London, a banker who works for a top British bank agreed to plea guilty to the criminal charge of conspiracy to defraud related to the agency’s probe into Libor manipulation. This individual is the first to plead guilty to manipulation charges of the rate in the United Kingdom. SFO has charged 12 men with the manipulation of Libor.

Eleven people have been charged in the United States. Several of them have pleading not guilty. Two ex- Rabobank Groep NV traders, Takayuki Yagami and Paul Robson entered guilty pleas to conspiracy-related charges in 2013.

It was in 2012 that the SFO and the Financial Services Authority found that traders at numerous banks had intentionally rigged the Libor rate to make the institution’s credit quality look better. This allowed the bank to keep their profits artificially inflated.

Britain secures first guilty plea in rate rigging probe
, Reuters, October 7, 2014

Banker Pleads Guilty in U.K. Libor Case, The Wall Street Journal, October 7, 2014


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

Detroit Becomes Largest US City to File Bankruptcy Protection, Institutional Investor Securities Blog, July 18, 2013

New Hampshire Investment Adviser Focus Capital Wealth Management Accused of Elder Financial Fraud to Pay Exchange Traded Fund Victims $2.4M, Stockbroker Fraud Blog, March 14, 2013

September 30, 2014

Citigroup Inc. Must Turn Over Bank Records Over Banamex Unit to Oklahoma Pension Fund

A judge has ordered Citigroup Inc. (C) to give over certain internal records to the Oklahoma Firefighters Pension and Retirement System related to the bank’s Banamex unit. The pension fund is a Citigroup shareholder.

Earlier this year, Citigroup revealed that its retail bank in Mexico City had been deceived in an accounting fraud involving Oceanografia, an oil-services company. Meantime, federal prosecutors have also been looking into whether Banamex USA did enough to protect itself so that customers couldn’t use it to launder money. Now, the U.S. Department of Justice and the Securities and Exchange Commission are examining Banamex USA and Banamex.

The Oklahoma fund submitted a complaint earlier this year asking to be able to look into whether Citigroup board members and executives had violated their fiduciary duty to shareholders related to the loan fraud scandal involving the Mexican unit. In its complaint, the pension fund alleged that Citigroup’s officers and directors may have known of the risks or existence of illegal activities and fraud but ignored them, as well as the likely civil and criminal penalties that could result.

Citigroup has since responded, contending that the Oklahoma fund did not demonstrate credible grounds for inferring the alleged wrongdoing and mismanagement. The bank said that it acted right away to remedy the problems at Banamex once they were identified.

Although Judge Abigail LeGrow ordered Citigroup to hand over certain bank records to the Oklahoma fund, she did not rule on whether the bank or its executives engaged in wrongdoing. However, she said that the issues stemming from the Banamex claims did have consequences.

Contact our securities lawyers if you suspect institutional investor fraud.

Citigroup Ordered to Turn Over Banamex Records, The Wall Street Journal, October 1, 2014

Citigroup ordered to turn over Banamex files to pension fund, Bloomberg, October 1, 2014


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

Judge Rakoff Approves Citigroup’s $285M Mortgage Securities Fraud Deal with the SEC, Institutional Investor Securities Blog, August 5, 2014

September 29, 2014

Shareholder’s $40B Class Action Securities Lawsuit Over AIG Bailout Goes to Trial

The trial over whether the U.S. government unlawfully seized a majority stake in American International Group Inc. (AIG) during the bailout has started. The securities case was brought by Starr International Co., which is the charitable and investment firm helmed by former AIG CEO Maurice R. Greenberg. Starr was the insurer’s biggest shareholder when the company became a ward of the government at the height of the economic crisis.

The lawsuit, now a class action case, claims that government violated the rights of shareholders to receive fair compensation under the U.S. Constitution. Some 300,000 AIG stockholders from 2008 and 2009, including AIG employees, large mutual fund companies, and retirees, would be entitled to any award issued to Starr. Greenberg wants about $40 billion in compensation over the government takeover and the high interest rates the U.S. charged for the loans. AIG is not one of the plaintiffs.

The insurance giant got into financial trouble in the wake of the financial crisis mostly because of sales of an insurance of the unregulated variety to banks and others, which was intended to mitigate debt exposure risks. The government loaned AIG $85 billion in 2008 to keep it from falling into bankruptcy. In opening statements, Kenneth Dintzer, a lawyer for the U.S., noted that the insurance company’ shareholders hugely benefitted from the efforts made to stabilize AIG. The government maintains that it had to bailout AIG to keep the world economy from collapsing.

Now, AIG shareholders hold an approximately 20% stake in the insurance giant. If AIG had filed for bankruptcy, shareholders might have gotten nothing. The government’s assistance ultimately reached $184.6 million, which AIG has paid back. The insurer's net income from the latest quarter was $3 billion.

This week, during the first day of trial, Greenberg’s lawyer David Boies contended that the Federal Reserve exceeded its authority when it issued the rescue loans and took controlling ownership of the insurer. He noted that the loan terms issued to AIG were stricter than the terms given to banks.

For example, Federal Reserve Bank of New York not only demanded equity from AIG but also charged 14% interest to borrow. This is a lot more than what big banks paid. (Citigroup (C) and Morgan Stanley (MS) were given bailout loans with rates of under 4% without having to give up equity.)

Some of these financial firms were later accused of fraudulent misrepresentation in their mortgage-securities business and have since paid huge settlements.

At issue is whether it was legal for the government to take $35 billion in AIG shares and pay just $500,000. Under the U.S. Constitutions’ Fifth Amendment, private property cannot be taken for public use without fair compensation. Also up for argument is whether the government could condition its initial $85 billion loan on an equity stake in the insurance company. Starr’s legal team claims that under the Federal Reserve Act the government could not insist on a company stake as an exchange for the loan.

AIG Bailout by U.S. Was ‘Extortion,’ Greenberg Lawyer Says, Bloomberg, September 29, 2014

Trial in $40 Billion Lawsuit Against AIG Bailout Begins, The Wall Street Journal, September 29, 2014


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Stakeholders With $55M Securities Fraud Case Against Government Over AIG Bailout Get Class Action Certification, Institutional Investor Securities Blog, March 19, 2013

New York Fed Bailed Out Bank of America Over Mortgage-Backed Securities Sold to AIG, Institutional Investor Securities Blog, February 20, 2013

McGraw Hills, Moody’s, & Standard & Poor’s Can’t Be Held Liable by Ohio Pension Funds for Allegedly Flawed MBS Ratings, Affirms Sixth Circuit, Stockbroker Fraud Blog, December 20, 2012

September 28, 2014

Bank America to Pay $7.65M to SEC Over $4B Capital Error

Bank of America Corp. (BAC) will pay a $7.75 million penalty to settle U.S. Securities and Exchange Commission charges alleging violations of civil securities laws involving record keeping and internal controls. The case is over the $4 billion capital error that the bank disclosed earlier in the year.

In April, Bank of America said that it had been miscalculating certain capital levels since 2009. By the end of last year the error was over $4.3 billion. The violations took place after the firm took on a huge portfolio that included structured notes when it acquired Merrill Lynch.

The SEC says that when Bank of America acquired Merrill Lynch it permissibly recorded the notes it inherited at a discount to par. Bank of America then should have realized losses on the notes while they matured and deducted them for purposes of figuring out and reporting regulatory capital.

The regulator says that by the time 90% of the notes had matured as of March of this year, the bank still hadn’t subtracted the realized losses from its regulatory capital.

Bank of America was the one that discovered the mistake and notified regulators. Because of the error it had to resubmit stress-test plans to the Federal Reserve.

Aside from the penalty, Bank of America must cease and desist from causing or committing violations of specific sections of the Securities Exchange Act of 1934.

SEC Charges Bank of America With Securities Laws Violations in Connection With Regulatory Capital Overstatements, SEC.gov, September 29, 2014

The SEC Order (PDF)


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Bank of America Settles Mortgage Bond Claims with FHFA for $9.3B, Institutional Investor Securities Blog, March 29, 2014

September 27, 2014

Virginia Files $1.15B Securities Lawsuit Against Citigroup, Credit Suisse, JPMorgan Chase, and Other Big Banks

The state of Virginia is suing 13 of the biggest banks in the U.S. for $1.15 billion. The state’s Attorney General Mark R. Herring claims that they misled the Virginia Retirement System about the quality of bonds in residential mortgages. The retirement fund bought the mortgage bonds between 2004 and 2010.

The defendants include Citigroup (C), JPMorgan Chase (JPM), Credit Suisse AG (CS), Bank of America Corp. (BAC), Goldman Sachs Group Inc. (GS), Morgan Stanley (MS), Deutsche Bank (DB), RBS Securities (RBS), HSBC Holdings Inc. (HSBC), Barclays Group (BARC), Countrywide Securities, Merrill Lynch, Pierce, Fenner & Smith Inc., and WAMU Capital (WAMUQ). According to Herring, nearly 40% of the 785,000 mortgages backing the 220 securities that the retirement fund bought were misrepresented as at lower risk of default than they actually were. When the Virginia Retirement System ended up having to sell the securities, it lost $383 million.

The mortgage bond fraud claims are based on allegations from Integra REC, which is a financial modeling firm and the identified whistleblower in this fraud case. Herring’s office wants each bank to pay $5,000 or greater per violation. As a whistleblower, Integra could get 15-25% of any recovery for its whistleblower claims.

In the last year, state attorneys general, the U.S. Justice Department, and other federal agencies have arrived at large settlements with several of the big banks over residential mortgage securities fraud charges.

Virginia sues 13 big banks, claiming mortgage securities fraud, The Washington Post, September 16, 2014

Virginia sues 13 banks for $1 billion over alleged mortgage bond fraud, Reuters, September 16, 2014


More Blog Posts:

SEC Investigates Pimco Exchange-Traded Fund for Artificial Inflation, Institutional Investor Securities Blog, September 25, 2014


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

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

September 25, 2014

SEC Investigates Pimco Exchange-Traded Fund for Artificial Inflation

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

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

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

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

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

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

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

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

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

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


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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


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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

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