January 16, 2015

MetLife Sues Regulators Over Systemic-Risk Designation

MetLife Inc. (MET) has filed a lawsuit seeking to overturn a U.S. finding that forces the insurer to be subject tougher oversight under the Dodd-Frank Act. This case is the first challenge of its kind by a non-bank financial firm. MetLife, which was given the systematically important financial institutions (SIFI) designation by the U.S. Financial Stability Oversight Council (FSOC), is opposing the label, which earmarks it as “too big to fail.”

In a statement, MetLife said that the label is “premature,” and that it doesn’t consider itself an SIFI. Companies given the SIFI label are subject to tougher oversight by the Federal Reserve, including stricter leverage, capital, and liquidity requirements. Other non-banks that have been designated SIFIs include:

• American International Group (AIG)
• General Electric Co.’s finance unit
• Prudential Financial Inc. (PRU)

FSOC’s voting members include the heads of the Federal Deposit Insurance Corp., the U.S. Securities and Exchange Commission, and the Fed. Nine out of its ten voting members ruled that MetLife was an SIFI, noting the firm’s investments, size, and connections with other financial firms. As of the end of September 2014, the insurer had over $900 billion of assets and is the largest life insurance company in the U.S by that count.

Among the reasons for the designation is the worry that should customers look to cash in products during a time of financial trouble MetLife might have to get rid of bondholdings in its investment portfolio at excessively low prices. This could hurt capital markets, other companies, and investors. To win its lawsuit, the insurance company will have to demonstrate that regulators did not have reasonable cause to give it the SIFI label.

MetLife CEO and Chairman Steven Kandarian said that if the insurer were to fail it would not take any other companies with it. He is worried that more oversight over MetLife could lead to an unwarranted fat capital cushion that could raise product rates, placing it at a disadvantage compared to other insurers that don’t have to satisfy a standard that has not been decided. Kandarian thinks that subjecting the big insurers to this new standard while everyone else is left to meet a different one would raise the cost of financial protection without making the system safer.

The U.S. Treasury Department has said that it stands by its decision to mark MetLife as too big to fail.

In a separate case, a policyholder is suing MetLife, accusing the insurer of taking part in practices that place the country’s economic health at risk. According to Andrew Yale, the insurance giant is taking part in behavior that places the “financial future” of its "policyholders, their beneficiaries, and the public” in financial peril.

He wants the return of life insurance premiums that MetLife policyholders have bought since 2009. Yale filed a similar complaint against AXA Life Insurance Co. last year. Axa has said the claim has no merit.

The SSEK Partners Group is an institutional investor fraud law firm.

MetLife Suit Sets Up Battle Over Regulation, The Wall Street Journal, January 14, 2015

MetLife Sued Over ‘Shadow Insurance’ Targeted by Regulators, Bloomberg, January 12, 2015

Dodd-Frank Act

More Blog Posts:
SEC Accuses Canadian Man of Fraudulent Trading Scam, Use of “Layering” Strategy, Stockbroker Fraud Blog, January 15, 2015

JPMorgan Suspends Forex Trader for Alleged Disclosures Involving Royal Bank of Scotland-Related Activities, Institutional Investor Securities Blog, January 14, 2015
MetLife Securities Broker Charged with Stealing from 9/11 Victim’s Widow, Stockbroker Fraud Blog, October 15, 2007

January 14, 2015

JPMorgan Suspends Forex Trader for Alleged Disclosures Involving Royal Bank of Scotland-Related Activities

Bloomberg is reporting that according to a source, JPMorgan Chase & Co. (JPM) has suspended currency dealer Gordon Andrew for alleged wrongdoing involving his work at Royal Bank of Scotland Group Plc. (RBS). According to The Wall Street Journal, people familiar with the matter say that the firm discovered evidence that Andrew disclosed trading data to employees of other banks. The forex trader does a lot of work converting huge amounts of euros into pounds at benchmark rates related to subsidies that the EU pays to British farmers every year.

Andrew began working for JPMorgan in October 2012 after Richard Usher, an RBS colleague, also switched to the firm. Usher was JPMorgan’s chief currency dealer in London until 2013 when he was put on leave during a global probe into foreign exchange market manipulation. He left the firm the following year. Regulators in the U.K. and the U.S. have since fined JPMorgan $1 billion related to the rigging probe. RBS was ordered to pay a $634 million fine.

Today, the WSJ reported that the probes into currency market manipulation have led to new signs of possible wrongdoing. Sources tell the newspaper that JPMorgan has even put aside another $900 million to cover investigation-related costs as well as legal bills. Meantime, broker-dealer Tullett Prebon PLC (TLPR) has started an internal review into its currency market practices. One of its brokers was allegedly referred to as a trade conduit in one chat room. That broker still works for the firm. In 2014, British fraud prosecutors charged an ex-Tullet broker with assisting other bank traders in manipulating trades.

Citigroup (C) has also suspended or let go of a number of sales members and foreign-exchange traders in the wake of the probe. UBS (UBS) is also under investigation, as is HSBC (HSBC).

The U.S. Justice Department is trying to determine whether the latter’s sales team sent out market-moving data to Moore Capital Management LLC, which is a hedge fund, about an upcoming trade related to a big corporate acquisition. The government has been looking at whether hedge fund clients were tipped by bank employees about big foreign-exchange trades that the firms were planning, as well as “spoofing,” which involves brokers and traders turning in bogus trading information to shift the market or cause confusion.

The probes by the US and British governments are looking into possible improprieties in the forex-market. Already, banks have admitted to having employees that tried to manipulate certain areas of the currency market, with six banks settling the allegations for $4.3 billion. Aside from JPMorgan and RBS, firms that have also settled include UBS, HSBC, Citigroup, and Bank of America (BAC).

If you believe that your investment losses are because of securities fraud, contact The SSEK Partners Group today.

JPMorgan Currency Trader Said to Be Suspended for Actions at RBS, Bloomberg, January 14, 2014

Forex Probe Finds New Signs of Potential Wrongdoing, The Wall Street Journal, January 14, 2015

More Blog Posts:
Investment Adviser News: Barred Representative is Now a Finance Coach, Bellingham Man Gets Prison Term for Bilking Seniors, Stockbroker Fraud Blog, January 13, 2015

BATS Global Market Settles Stock Exchange-Related Claims Involving High-Frequency Traders for $14M, Institutional Investor Securities Blog, January 13, 2015

Beneficiaries of Puerto Rico Trust File Securities Fraud Lawsuit Seeking Over $4.5M From UBS Financial Services
, Stockbroker Fraud Blog, January 5, 2015

January 13, 2015

BATS Global Market Settles Stock Exchange-Related Claims Involving High-Frequency Traders for $14M

The U.S. Securities and Exchange Commission is charging BATS Global Markets Inc. $14 million to resolve claims that two of the exchanges that the company purchased last year did not disclose important information to investors about the way the markets work. The settlement resolves the regulator’s probe into the way Direct Edge Holdings LLC gave certain high-speed traders the upper hand over others by withholding details about certain orders. Direct Edge and BATS merged together in 2014.

Order types are the directions investors use to trade on exchanges. High-frequency traders will often use complex versions of order types to compete in today’s fast markets. In 2009, Direct Edge offered up a number of new order types after talking with two high-frequency trading firms. However, what it purportedly did not do was properly disclose to the pubic the way the order types worked.

In the SEC order, the agency notes that one trading firm, whose name was not disclosed, told Direct Edge that if it introduced a certain order type, the firm would up the number of orders by over four million more.

The probe was began after Haim Bodek, an ex-high-frequency trader, filed a whistleblower lawsuit a few years back. Bodek claimed that certain order types, include the Hide Not Slide, which is from Direct Edge, gave certain investors the advantage.

As the person to file the whistleblower complaint over this matter, Bodek is entitled to a percentage of the recovery. By settling, BATS is not denying or admitting to the SEC allegations.

The SSEK Partners Group is an institutional investor fraud law firm. We also represent high net worth individuals.

BATS to Pay $14 Million to Settle Direct Edge Order-Type Case, The Wall Street Journal, January 12, 2015

BATS faces record penalty for Direct Edge legacy practices
, Kansas City Business Journal, January 12, 2015

More Blog Posts:
Investment Adviser News: Barred Representative is Now a Finance Coach, Bellingham Man Gets Prison Term for Bilking Seniors, Stockbroker Fraud Blog, January 13, 2015

Hanson McClain Sues Investment Adviser, Ameriprise Financial Services Over Client Information, Institutional Investor Securities Blog, January 12, 2015

Beneficiaries of Puerto Rico Trust File Securities Fraud Lawsuit Seeking Over $4.5M From UBS Financial Services
, Stockbroker Fraud Blog, January 5, 2015

January 12, 2015

Hanson McClain Sues Investment Adviser, Ameriprise Financial Services Over Client Information

Registered investment adviser Hanson McClain is suing Ameriprise Financial Services Inc. (AMP) and Thomas Chandler for purportedly taking confidential client data and soliciting its customers. The investment adviser says that not only is this a contract breach but also it violates California law. Chandler was formerly an investment adviser for Hanson McClain, which has about $1.6 billion in assets under management.

Hanson McClain submitted its complaint in September, just days after Chandler departed. In November, the court allowed a preliminary injunction barring Ameriprise and Chandler from getting in touch with the clients under dispute and ordering them to give back certain documents until the case is resolved. In December, the RIA submitted an amended complaint requesting a permanent injunction barring Chandler from soliciting clients. Hanson McClain wants compensatory damages as well as the return of its clients’ information.

The firm says that Chandler took the data from its servers, moving the information to a personal email account. The data allegedly includes account numbers, names, net worth, and other pertinent information for clients whose total net worth is around $540,000. Hanson McClain also claims that Chandler asked for the emails of its “platinum” clients and then connected with them via LinkedIn. The RIA contends that Ameriprise and one of its branch managers worked with Chandler to take the information.

As for Chandler he has said that he is allowed to let his clients know if he has moved. He maintains that he did not solicit business from these clients or request that they move their accounts to follow him.

Under the Broker Protocol advisers are allowed to take some client contact data when they change firms. However, while Ameriprise agreed to the protocol, Hanson McClain has not.

If you suspect securities fraud, contact our investment adviser fraud law firm today.

Hanson McClain sues former adviser and Ameriprise, InvestmentNews, January 12, 2015

More Blog Posts:
Beneficiaries of Puerto Rico Trust File Securities Fraud Lawsuit Seeking Over $4.5M From UBS Financial Services, Stockbroker Fraud Blog, January 5, 2015

JPMorgan to Pay $500M to Resolve Mortgage Settlement Involving Bear Stearns, Says Source, Institutional Investor Securities Blog, January 10, 2015

Credit Suisse Ordered to Face $10B Mortgage-Backed Securities Fraud Lawsuit by NY AG
, Institutional Investor Securities Blog, December 26, 2014

January 10, 2015

JPMorgan to Pay $500M to Resolve Mortgage Settlement Involving Bear Stearns, Says Source

Reuters and Bloomberg are reporting that according to person familiar with the case, JPMorgan Chase (JPM) has consented in principal to resolve a class action case related to Bear Stearns’ sale of $17.58B of faulty mortgage securities for $500 million. JPMorgan purchased Bear Stearns in 2008.

The agreement settles claims that Bear Stearns violated federal securities laws when, from May 2006 to April 2007. it sold certificates backed by over 47,000 primarily subprime and low documentation “Alt-A” mortgages in over a dozen offerings. Almost all certificates were eventually reduced to “junk” status even though 92% of them had been given “trip-A” ratings previously.

The plaintiffs, led by the New Jersey Carpenters Health Fund and, the Public Employees’ Retirement System of Mississippi, claim that offering documents included misleading and false statements about underwriting guidelines that Bear’s EMC Mortgage unit and other lenders used, as well as inaccuracies related to associated property appraisals. According to the lawsuit, because of the omissions and false statements, the class bought certificates that were a lot risker than what they were represented as and unequal in quality to other investments that received the same credit rating.

Even though the plaintiffs have not accused Bear Sterns of fraud, but they want to hold the firm negligent and liable for the losses that they sustained. Both parties intend to seek preliminary approval of the settlement by early next month.

JPMorgan helped rescue the beleaguered Bear Stearns during the financial crisis after the Federal Reserve consented to take charge of a $30 billion portfolio that contained mortgage-linked Bear Stearns assets. In 2012, NY Attorney General Eric Schneiderman filed a securities lawsuit against JPMorgan accusing Bear Stearns businesses of fooling investors about the faulty loans backing securities, resulting in significant losses.

Last year, JPMorgan settled the case for $13 billion, which resolved claims on a federal and state level. $713 million went to New York.

In September, in another class action securities case, a federal judge said that JPMorgan would have to face the complaint by investors accusing the bank of misleading them about the safety of $10 billion of mortgage-backed securities that it sold prior to the economic crisis. U.S. District Judge Paul Oetken in Manhattan certified a class action regarding the firm’s liability but not regarding damages.

The lead plaintiffs in that case are Institutional investors Construction Laborers Pension Trust for Southern California and Laborers Pension Trust Fund for Northern California. The class is made of investors prior to 3/23/09 who put money into certificates issued from nine JPMorgan-crated trusts for an April 2007 offering. The plaintiffs also are accusing JPMorgan of misleading investors about the loans underlying the certificates.

In other JPMorgan news, the financial firm was recently reprimanded by the Monetary Authority of Singapore because its branch there allowed to representatives to give advice on structured deposits without getting the required authorization. Such recommendations reportedly were given multiple times between November 2010 and January 2013.

JPMorgan Chase to settle class action suit, pay $500 million, The Washington Post, January 9, 2014

JPMorgan Said to Pay $500 Million to End Mortgage-Bond Suit, Bloomberg, January 9, 2015

JPMorgan ‘Reprimanded’ by Singapore Regulator for Violating Rule, Bloomberg, January 9, 2015

More Blog Posts:
SEC Sanctions UBS, Charles Swab, Oppenheimer, & 10 Other Firms For Improper Sales of Puerto Rico Junk Bonds, Stockbroker Fraud Blog, November 3, 2014

$13B JPMorgan Chase Mortgage Settlement Was Not Sufficient, Says Whistleblower, Institutional Investor Securities Blog, November 15, 2014

Credit Suisse Ordered to Face $10B Mortgage-Backed Securities Fraud Lawsuit by NY AG, Institutional Investor Securities Blog, December 26, 2014

January 9, 2015

Alternative Fund Manager Faces SEC Case, Criminal Charges Alleging $16M Fraud Involving Fake Loans and GL Beyond Income Fund

The U.S. Securities and Exchange Commission has filed a civil case against alternative fund manager Daniel Thibeault accusing him of taking some $16 million in assets from the GL Beyond Income Fund (GLBFX). Thibeault was arrested on securities fraud charges over the same matter last month.

According to the SEC, Thibeault took out faked loans using Taft Financial Services, which is an intermediary that he allegedly controlled, to steal money from the funds. The purported securities scam is said to have begun in 2013, after the GL fund started losing money. The Commission says that in certain cases documents for the loans that were withdrawn via Taft are missing or had errors in them, including inaccurate birth dates for borrowers.

The regulator’s complaint also names GL Investment Services, which Thibeault indirectly owns. The registered investment adviser, which had about $130 million in assets from approximately 700 clients, is accused of advising customers to put money in the GL fund.

The SEC wants disgorgement, civil penalties, and ill-gotten gains. It also has named Thibeault’s wife Shawnet, who is has part ownership in GL. The Commission says that Shawnet benefited when GL took fund money to pay $20,000 on her husband’s credit card.

GL Beyond Income Fund is a mutual fund that claims to invest in consumer loans to individuals that it thinks are not as susceptible as most people to economic turmoil: dentists, doctors, lawyers, business owners, and others. In January 2014, the Fund reported that it had about $31 million of net assets.

According to prosecutors, Thibeault compelled the Fund to acquire or put out a number of fake loans to people that never asked for one and ultimately didn’t receive a loan. He also is accused of falsifying or causing the falsification of documents regarding these fake loans.

If convicted, he could end up serving up to twenty years behind bars pay a $5 million fine.

Alternative Funds
“Alt fund” refers to mutual funds that employ strategies usually used for hedge funds. The approach is meant to incur positive returns when the market is down or flat.

The GL Beyond Income fund is a “non-traditional fixed income” fund that holds high-yield personal/consumer loans with variable rates. That this fund happens to be an interval fund means that typically investors may only exit out at certain points in time and even then only a limited amout of holdings can be redeemed at once.

If you suspect your losses are because of securities fraud do not hesitate to contact our securities lawyers right away. The SSEK Partners Group represents high net worth individuals and institutional investors.

Harvard-Trained Mutual Fund Manager Charged with Securities Fraud, FBI, December 12, 2014

SEC sues alts fund manager Daniel Thibeault for fraud, InvestmentNews, January 9, 2015

Fraud charge exposes the wild world of ‘alternative’ funds, MarketWatch, December 22, 2014

More Blog Posts:
BlackRock Buys Part of UBS Puerto Rico’s Mutual Fund Operations, Say Sources, Stockbroker Fraud Blog, November 4, 2014

SEC Examines Municipal Advisers and Alternative Mutual Funds, Reviews “Wrap-Fee” Accounts, Stockbroker Fraud Blog, August 20, 2014

SEC Working on Mutual Fund Regulations, Conducts Dark Pool Probes, Enacts New Exchange Rules, Institutional Investor Securities Blog, November 20, 2014

January 7, 2015

Ambac Files Mortgage Bond Lawsuit Against Bank of America

Ambac Assurance filed a mortgage bond lawsuit against Bank of America (BAC) for what it claims were losses of hundreds of millions of dollars from insuring over $1.6B of securities. The holding company says that the loans were at least partially backed by high-risk mortgages from the bank’s Countrywide Home Loans unit.

According to the mortgage bond lawsuit, Ambac contends that Countrywide lied about the quality of its underwriting of loans that were backing the securities, which were issued in several transactions over a two-year period prior to the acquisition of the unit by Bank of America in 2008. The holding company said that it could be facing potential claims greater than $600 million. It claims that the loan pools backing the certificates it insured have lost billions of dollars. Ambac said that if it had known Countrywide lied it would have never guaranteed payments.

This is not the first time that Ambac has sued Bank of America Corp. In 2010, the company filed a $16.7 billion mortgage-backed securities case against the bank. In that securities case, Ambac claimed that Countrywide fraudulently persuaded Ambac to insure bonds with loans that were not properly made.

According to Ambac, 97% of 6,533 loans it looked at across 12 Countrywide-sponsored securitizations failed to conform with the underwriting guidelines of the lender and a lot of loans were issued to borrowers who were unlikely to be able to satisfy their payment duties. The Countrywide-sponsored home loan pools were made between 2004 to 2006.

If you suspect that you were the victim of fraud, contact our securities attorneys at The SSEK Partners Group today.

Ambac sues Bank of America over Countrywide mortgage bonds, Reuters, December 31, 2014

Ambac Sues Bank of America Over Countrywide Bonds, Bloomberg, September 29, 2010

More Blog Posts:
$500M MBS Settlement Reached Between Countrywide and Investors, Stockbroker Fraud Blog, May 10, 2013

Bank of New York Mellon Corp. Must Contend with Pension Fund Claims Over Countrywide Mortgage-Backed Securities, Institutional Investor Securities Blog, April 10, 2012

January 5, 2015

Morgan Stanley Fires Wealth Management Group Employee For Stealing Client Data

Morgan Stanley (MS) has let go of Galen Marsh, a 30-year-old financial adviser in its wealth management group, for stealing client information and allegedly making some of the data that he took available online. Some 350,000 of the brokerage firm’s 3.5 million wirehouse clients were affected. About 900 clients’ account names and numbers were briefly posted on the Internet.

Morgan Stanley discovered that Marsh had downloaded the client data, including account numbers, names, states of residence, and asset values. In a statement, the firm said that there is no proof of any financial loss sustained by the clients whose information was stolen. (Social security numbers and account passwords were not taken.)

The firm says it is notifying the clients who were affected. It has also reached out to regulators and law enforcement.

Meantime, Marsh’s attorney has said that the financial adviser is sorry for his behavior and never intended to sell the information that he took. The lawyer also said that Marsh was not the one who published the information online nor did he share the data with anyone or make a profit.

Marsh became a Morgan Stanley employee in 2008. Prior to joining the firm, he worked at Bear Stearns Cos. (BSC).

Even if no money has been lost to date related to Marsh’s actions, a breach of data still occurred. Morgan Stanley is giving account holders who were affected new account number and has put into place measures to monitor fraud and enhance security on the accounts.

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

Morgan Stanley Fires Employee Over Client-Data Leak, The Wall Street Journal, January 5, 2015

Fired Morgan Stanley Adviser Didn’t Sell Data, Lawyer Says, Bloomberg, January 5, 2015

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

Morgan Stanley Must Pay Connecticut Regulators $5M for Supervisory Violations, Stockbroker Fraud Blog, June 18, 2014

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

December 30, 2014

Avon, Bruker Corp. Face FCPA Charges by the SEC

The Securities and Exchange Commission is charging Avon Products Inc. with Foreign Corrupt Practices Act violations. The regulator claims that the global beauty products company did not put into place controls that could have allowed it to detect and stop gifts and payments made to Chinese government officials. To settle the SEC charges, as well as a parallel case brought by the U.S. Justice Department, Avon entities have consented to pay $135M.

According to the SEC, Avon’s Chinese subsidiary made $8 million of payments in gifts, money, travel, and entertainment to obtain access to government officials involved in direct selling regulations in China. Avon wanted to be the first to test the regulations and in 2006 it was the first to obtain a direct selling business license in that country. Improper payments were purportedly made by the company to prevent negative news stories and fines that could have affected its image. Such payments allegedly included paid travel within China or to Europe or the US, expensive designer gifts, and corporate box tickets to the China Open.

The improper payments allegedly happened from 2004 to 2008. After discovering the possible FCPA issues at the Chinese subsidiary in 2015 and looking further into the matter, no reforms were made. It wasn’t until 2008 that a full internal probe was conducted and only after a whistleblower sent Avon’s CEO a letter.

The SEC says that company’s records and books did not accurately record the purpose of the payments that were made to the Chinese officials. Some payments were even allegedly concealed and disguised.

Also accused of FCPA violations that benefited Chinese officials is Bruker Corporation, which is based in Massachusetts. The regulator claims that the scientific instruments global manufacturer gave government officials from the East Asian nation improper payments and non-business related travel in order to win business.

Per an SEC probe, Bruker did not have the proper internal controls to stop and detect nearly $230K in improper payments issued out of its offices in China, where they were falsely documents in records and books as real business and marketing costs. The payments allowed Bruker to achieve close to $1.7 million in profits from sales contracts with Chinese government-owned entities.

The allegedly improper payments included over $111,000 to government officials under numerous collaboration agreements. These deals were dependent upon state-owned entities providing research on Bruker products or using the company’s products in demonstrating labs. Also, there were reimbursements made to Chinese government officials for leisure trips to the U.S., Italy, the Czech Republic, Switzerland, Norway, Germany, France, and Sweden, as well as other inappropriate payments.

It was Bruker that self-reported its own misconduct, cooperating with the SEC probe. It eventually consenting to pay about $2.4 million to resolve the SEC charges.

Securities Fraud
Our securities lawyers represent individuals and high net worth individuals seeking to recover their financial fraud losses. Contact The SSEK Partners Group today.

Read the SEC Complaint Against Avon (PDF)

Read the Order for the Bruker Case (PDF)

Spotlight on Foreign Corrupt Practices Act, SEC

More Blog Posts:
Fifth Circuit To Hear Appeal Over Whether Dodd Frank’s Whistleblower Statute Covers Informants that Report FCPA Violations, Stockbroker Fraud Blog, April 12, 2013

Institutional Investment Fraud and The Courts: District Court Won’t Stay Derivatives Case Alleging FCPA Violations, Control Person Claims Against Over Revenue Bond Purchases Can Proceed, Ex-Hedge Fund Manager Gets Enhanced Securities Fraud Sentence, Institutional Investor Securities Blog, March 27, 2013

Securities Law Roundup: Ex-Morgan Stanley’s SEC Settlement Over Alleged FCPA Violations Gets Court Approval, Corruption Probe Into Wal-Mart’s Mexico Activities Continue, and Sentry Global Securities Principal Gets 20-Years for Pump-and-Dump Scam, Stockbroker Fraud Blog, May 24, 2012

December 29, 2014

Standard & Poor’s on the Verge of Civil Settlement Over Real-Estate Bond Ratings, Reports WSJ

According to The Wall Street Journal, Standard & Poor’s Ratings Services is close to arriving at a securities settlement with regulators over the way they graded real-estate bonds. The agreement would resolve claims by the U.S. Securities and Exchange Commission, Massachusetts Attorney General Martha Coakley, and New York Attorney General Eric Schneiderman.

The proposed deal is over six commercial real estate bond ratings issued by the credit rater in 2011. In July of that year, S & P withdrew a preliminary rating on a $1.5 billion security comprised of commercial real-estate loans. The decision made debt issuers and investors very angry. (The deal was later partially overhauled and eventually went to market.)

S & P discovered discrepancies in the way its ratings methodology applied for commercial real estate deals. However, it said the incongruence was not outside what is considered an acceptable range. Still, investigators were compelled to look at the withdrawn rating and other deals from that period.

Any settlement reached may result in a suspension for S & P from certain ratings deals—conduit deals, in particular. The credit rater may also be ordered to pay a fine of at least $60 million, which is what its parent company McGraw Hill Financial Inc. took as an accounting charge for third quarter earnings in the wake of these ongoing discussions with regulators.

Lawmakers and others have accused credit rating agencies of playing a big part in causing the 2008 economic crisis. They say that to win business, these companies put out positive ratings for mortgage bonds that eventually failed. Aside from this case, S & P is also dealing with cases brought by pension funds and states. It is also the defendant in a $5 billion lawsuit filed by the U.S. Department of Justice.

Our bond fraud lawyers represent investors seeking to recoup their investment losses.

S&P Nears Settlement on Real-Estate Bond Ratings, The Wall Street Journal, December 25, 2014

U.S. Confident Its $5 Billion S&P Lawsuit Was Not Retaliation, Business Insider, August 25, 2014

More Blog Posts:
OppenheimerFunds Increases Its Exposure to Puerto Rico Debt Despite Downgrade by Moody’s, S & P, and Fitch to Junk Status, Stockbroker Fraud Blog, February 14, 2014

Attorney Generals Want Securities Cases Against Standard Poor’s To Go Back to State Courts, Institutional Investor Securities Blog, August 21, 2013

US Justice Department Sues Standard and Poor's Over Allegedly Fraudulent Ratings of Collateralized Debt Obligations, Stockbroker Fraud Blog, February 5, 2013

December 26, 2014

Credit Suisse Ordered to Face $10B Mortgage-Backed Securities Fraud Lawsuit by NY AG

A New York State Supreme Court justice says that Credit Suisse Group AG (CSGN) must face a $10 billion securities lawsuit accusing the bank of mortgage-backed securities fraud. Justice Marcy Friedman refused to dismiss the case, saying that a trial will take place. She said that the state has shown that the Swiss financial institution may have engaged in misconduct.

New York sued Credit Suisse in 2012, accusing it of misrepresenting the risks involved in investing in mortgage-backed securities. The bank tried to claim that the state missed the three-year deadline it had for filing such a claim. NY, however, countered that it had six years to pursue its claim.

The state’s Attorney General, Eric Schneiderman, has been going after banks while helping beleaguered homeowners and trying to keep the number of foreclosures from going up. His office has used the Martin Act, which is the NY’s anti-fraud statute to make its cases. Under that law, it is illegal for sellers to make false promises about the securities they are selling. Schneiderman contends that Credit Suisse told investors that the mortgage securities were safe even though the bank knew that the residential loans backing them had “”pervasive flaws.”

In a similar case filed by the NY AG, JPMorgan Chase & Co. (JPM) agreed to a $13B MBS fraud settlement in 2013. $613M of that went to the state. Earlier this year, Citigroup (C) consented to pay $7 billion to resolve similar claims made by NY, other states, and the federal government. Not long after Bank of America (BAC) reached a $17 billion civil settlement, also with a number of state regulators, including Schneiderman’s office, and federal prosecutors.

New York's Top Cop Scores as Credit Suisse Faces $10 Billion Mortgage Fraud Suit
, Bloomberg, December 26, 2014

New York General Business Law article 23-A

JPMorgan agrees $13 billion settlement with U.S. over bad mortgages, Reuters, November 19, 2014

Citigroup to Pay $7 Billion in Mortgage Probe, The Wall Street Journal, July 14, 2014

Bank of America to Pay $16.65 Billion in Historic Justice Department Settlement for Financial Fraud Leading up to and During the Financial Crisis, Justice.gov, August 21, 2014

More Blog Posts:
Whistleblower Earns $57M Payout in Second Lawsuit Against Bank of America, Institutional Investor Securities Blog, December 17, 2014

Ex-California Insurer Charged with Running $11M Ponzi Scam, Stockbroker Fraud Blog, December 8, 2014

Morgan Stanley Fined $4M by the SEC for Market Access Rule Violation, Institutional Investor Securities Blog, December 11, 2014

December 24, 2014

MF Global Holdings Ordered to Pay $100M Settlement to CFTC

The U.S. Commodity Futures Trading Commission is fining MF Global Holdings Ltd. $100 million to settle allegations that the firm participated in wrongdoing that led to its own demise. In addition to the fine, the futures brokerage is responsible for giving back $1.212 billion in client funds that its MF Global Inc. was told to return last year. The company was also told to pay a $100 million penalty.

The consent order, which has just been entered by the U.S. District Court for the Southern District of New York’s Judge Victor Marrero, stems from a CFTC amended complaint charging MF Global Holdings and other defendants with unlawfully using customer money. As part of the settlement, the firm has admitted to the allegations related to its liability, which are related to its agents’ acts and omissions that were named in the complaint and order.

The CFTC said that MF Global Holdings, which ran the operations of MF Global Inc., was accountable for the latter’s unlawful use of segregated customer funds during the final week of October 2011. The Complaint accused MF Global Holdings of being responsible for its unit’s failure to notify the agency right away when it became aware of (or should have known) about the deficiencies that were arising in customer accounts, submission of false statements that did not show these deficiencies in reports to the CFTC, and its use of customer money for investments not allowed in securities that were very liquid or not readily marketable.

The settlement does not resolve the CFTC’s case against former MF Global CFO Corzine and ex-Assistant Treasurer Edith O’ Brien.

MF Global collapsed, declaring bankruptcy in October 2011 after it placed big bets on European-issued bonds that failed. Over $1 billion in customer money was found to be missing. It wasn’t until later that it was discovered that these funds were used to pay for MF Global Holdings’ operations.

Federal Court in New York Orders MF Global Holdings Ltd. to Pay $1.212 Billion in Restitution for Unlawful Use of Customer Funds and Imposes a $100 Million Penalty, CFTC, December 24, 2014

MF Global Holdings to pay $100 million fine in CFTC settlement, Reuters, December 24, 2014

More Blog Posts:
Ex-Edward Jones is Criminally Charged with Bilking Disabled Woman of Over $160K, Stockbroker Fraud Blog, December 22, 2014

Credit Suisse Ordered to Pay $40M Verdict to Highland Capital, Institutional Investor Securities Blog, December 19, 2014
Regulators Also At Fault in MF Global Debacle, Says House Report, Stockbroker Fraud Blog, November 16, 2012

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