July 18, 2014

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

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

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

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

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

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

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

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

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

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

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

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


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

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

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

July 17, 2014

Barclays and Deutsche Bank Under Scrutiny Over Barrier Options Transactions

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

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

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

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

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

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

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

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

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

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

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

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

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


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

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

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

July 14, 2014

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

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

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

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

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

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

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

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

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

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

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

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

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


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

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

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

June 21, 2014

Bank of America Must Face SEC and Department of Justice RMBS Fraud Lawsuits, Seeks Meeting with US Attorney General

In North Carolina, U.S. District Judge Max O. Cogburn Jr. said that Bank of America Corp. (BAC) would have to face government two residential mortgage-backed securities lawsuits. The Securities and Exchange Commission and the Department of Justice contend that the bank misled investors about the quality of loans tied to $850 million in RMBS.

Bank of America wanted the cases dismissed. It argued that the investors, both financial institutions, never sued the bank.

Judge Cogburn, however, found that the SEC’s lawsuit properly laid out that the bank lied about the mortgages’ projected health in its RMBS fraud case. With the DOJ’s case, he gave the department 30 days to revise its securities lawsuit. He found that the Justice Department did not properly state its argument, which was that bank documents included false statements while leaving out key facts.

According to both plaintiffs, Bank of America failed to let investors know in preliminary documents that the majority of its mortgages were obtained via wholesale markets that bank executives did not think very highly off. The bank is also accused of not submitting the flawed documents to the Commission.

The DOJ invoked a law that lets the government punish for acts that are too old to be covered under other laws and also push for bigger awards. The government claims that as the lender Bank of America made it seem as if its bonds were backed by prime loans that had staff approval when really the riskiest loans came from external brokers.

Meantime, Bank of America continues to battle other claims related to mortgage securities. This week, bank officials asked for a meeting between its top executives and U.S. Attorney General Erica Holder to talk about a potential multibillion-dollar settlement over mortgage-backed securities. At issue is the way the bank handled MBSs leading up to the financial crisis. Bank of America is expected to pay at least $12 billion to settle civil investigations brought by the DOJ and a number of states.

However, there is one securities case that just took a positive turn in Bank of America’s favor. On Thursday, U.S. District Judge Barbara Rothstein vacated her order from last year that dismissed the bank’s case against the Federal Deposit Insurance Corp.

Bank of America is suing FDIC over $1.7 billion in client losses related to a mortgage-fraud scam at former lender Taylor Bean & Whitaker Mortgage Corp. The fraud took place from 2002 through 2009 when Taylor Bean Chairman Lee Farkas sold over $1.5 billion in bogus mortgage loans to Colonial Bank while diverting over $1.5 billion from Ocala funding.

Bank of America claims that when assessing Colonial Bank's receivership funds the FDIC did not follow procedures. Judge Rothstein has now withdrawn her earlier finding that there are sufficient assets in Colonial Bank’s receivership to pay general unsecured creditors.

Our RMBS fraud law firm represents institutional investors and high net worth individuals. Contact The SSEK Partners Group today.

Bank of America Requests Meeting With Attorney General, The Wall Street Journal, June 20, 2014

BofA FDIC Suit for $1.7 Billion Investor Losses Revived, Bloomberg, June 20, 2014

BofA must face mortgage-securities fraud lawsuits, Crains New York, June 20, 2014


More Blog Posts:
Massachusetts Files Lawsuit Against Fannie Mae, Freddie Mac, and FHFA, Stockbroker Fraud Blog, June 2, 2014

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

FINRA Orders Merrill Lynch to Repay $89M in Restitution, $8M Fine for Excessive Mutual Fund Fees for Charities, Retirement Accounts, Institutional Investor Securities Blog, June 17, 2014

May 15, 2014

Prudential’s RMBS Lawsuit Against Bank of America Survives Motion to Dismiss

Prudential Insurance Co.’s (PRU) residential mortgage-backed securities lawsuit against Bank of America (BAC) made it through a motion to dismiss with most of the claims made intact. The insurance company is accusing BofA of selling it $2 billion in bogus RMBS.

Prudential contends that based on its own analysis of close to 21,000 of the mortgage loans backing the RMBS certificates, they don’t see a match up with the representations that the bank and Merrill Lynch made about the certificates. Several subsidiaries are also making similar claims against BofA and its Merrill Lynch entities.

Prudential says that Merrill and Lynch and Bank of America abided by underwriting guidelines that established the rules to determine whether to securitize or grant a particular loan. However, the insurer says that while the other two said they would only exempt loans with compensating factors, they granted loan exceptions repeatedly even when these factors didn’t exist. In its securities fraud case, Prudential contends that if exceptions were given when compensating factors were lacking, then that the quality of the collateral behind the certificates was badly compromised.

In his decision, U.S. District Judge Stanley R. Chesler partially granted bank of America’s motion to dismiss the RMBS case due to a failure to make a valid relief claim. He also threw out the fraud claims. However, Chesler left in the majority of other claims, including those involving equitable fraud, underwriting abandonment theory, and common law fraud.

In another RMBS fraud lawsuit, Bank of America agreed to pay up to $950 million to resolve claims by the Financial Guaranty Insurance Co. and a group of investors. Financial Guaranty will get $584 million because it backstopped the securities and was forced to make good on the bond payments when the mortgages went bad.

The bond insurer sued both Countrywide Financial and BofA after the latter acquired Countrywide in 2009. Financial Guaranty claims that the mortgage giant fraudulently induced it to cover its RMBS transactions when it misrepresented the quality of the assets behind them. The insurance company contends that when the economy tanked, mortgage delinquencies went up, and securitization was compromised, it was left accountable for hundreds of millions of dollars in liabilities.

Prudential's $2B RMBS Suit Against BofA Mostly Survives, Law360, April 17, 2014

BofA Reaches $950 Million Deal on FGIC-Backed Bonds, Bloomberg, April 16, 2014


More Blog Posts:
JPMorgan Will Pay $614M to US Government Over Mortgage Fraud Lawsuit, Stockbroker Fraud Blog, February 8, 2014

New Jersey Files Securities Lawsuit Against Credit Suisse Over $10B in MBS Sales, Stockbroker Fraud Blog, December 20, 2013

April 24, 2014

U.S. Wants Bank of America to Pay Over $13B Over Residential Mortgage-Backed Securities

Bloomberg is reporting that U.S. prosecutors want Bank of America Corp. (BAC) to settle state and federal investigations into the lender’s sale of home loan-backed bonds leading up to the 2008 financial crisis by paying over $13 billion. The bank is one of at least eight financial institutions that the Department of Justice and state attorneys general are investigating for misleading investors about the quality of the loans that were backing mortgages just as housing prices fell.

A lot of Bank of America’s loans came from its purchase of Countrywide Financial Corp., a subprime lender, and Merrill Lynch & Co., which packaged a lot of the loans into bonds.
If there ends up being no deal, the government could sue the bank.

A settlement of more than $13 billion would be even larger than the $13 billion global settlement reached with JPMorgan Chase (JPM) over similar claims (including a $4 billion agreement with the Federal Housing Finance Agency). Included in that deal was resolution over loans the firm took over when it bought Bear Stearns Cos. and Washington Mutual Inc.
(WAMUQ)

Already, claims against Bank of America over mortgages related to the financial crisis have cost it at least $50 million to resolve. Just last month, the bank agreed to settle claims made by the FHFA for $9.5 billion. That case was related to mortgage-backed securities that it sold to Freddie Mac (FMCC) and Fannie Mae (FNMA) prior to the economic crisis.

In its latest first quarter, Bank of America disclosed to investors that not not only did it sustain a $276 million loss but also it paid $6 billion in legal costs related to the financial crisis. Other big mortgage cases against the bank are still pending.

Our RMBS fraud lawyers represent institutional clients and high net worth investors. Contact The SSEK Partners Group today.

U.S. Said to Ask BofA for More Than $13 Billion Over RMBS, Bloomberg, April 24, 2014

Bank of America, Weighed by Legal Costs, Posts Loss, NY Times, April 16, 2014

Fannie, Freddie, FHFA settle MBS lawsuit with BofA, Housing Wire, March 26, 2014


More Blog Posts:
Bank of America, Its Ex-CEO To Pay $25M to Settle Securities Case with NY Over Merrill Lynch Deal, Stockbroker Fraud Blog, March 31, 2013

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

Bank of America’s $8.5B Mortgage Bond Settlement Gets Court Approval, Institutional Investor Securities Blog, January 31, 2014

March 22, 2014

Credit Suisse to Pay $885M To Settle RMBS Fraud Lawsuit with FHFA, Continues to Face Allegations It Hid US Accounts from Internal Revenue Service

Credit Suisse (CS) will pay $885 million to resolve securities allegations related to the sale of approximately $16.6B in residential mortgage-backed securities that it made to Freddie Mac (FMCC) and Fannie Mae (FNMA) prior to the financial crisis. The RMBS settlement is with the Federal Housing Finance Agency, which oversees both government-controlled financing companies. It closes the books on two lawsuits.

The mortgage cases accused Credit Suisse of making misrepresentations when selling the RMBS to the two companies. Because the deal was reached prior to Credit Suisse submitting its financial results for 2013, the Swiss bank says it will take a related $312 million charge for last year, as well as post a loss for the most recent fourth quarter.

In other Credit Suisse news, one of the firm’s ex-bankers has pleaded guilty in federal court to assisting US clients so that they could avoid paying taxes to the IRS. Andreas Bachmann is one of seven employees at the firm indicted on a criminal charge that he helped Americans conceal assets of about $4 billion.

Since agreeing to work with prosecutors, Bachmann has implicated his superiors at Credit Suisse by saying that they allowed US law and a deal between the firm and the IRS (to withhold and pay taxes on the accounts of clients that are US citizens) to be violated. Bachmann claims that when he spoke about the practices internally, an executive told him to make sure he wasn’t caught. Also, in his statements of fact, Bachmann said that compliance workers at Credit Suisse did not act to make sure compliance was taking place per a prohibition made in a deal with the IRS that its bankers were prohibited from talking about investments in US securities.

Bachman said that of his 100 clients, at least 25 of them were based in the US. He contends that that the IRS wasn’t notified about many of the US accounts and sham structures were used to hide who actually owned them.

The ex-Credit Suisse banker’s plea comes after a Senate subcommittee issued a report finding that the firm helped 22,000 Americans conceal up to $10 billion from the IRS.

Ex-Credit Suisse Banker Bachmann Admits Guilt in Tax Case, Bloomberg, March 12, 2014

Credit Suisse Settles Mortgage Litigation for $885 Million, The Wall Street Journal, March 21, 2014


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

JPMorgan Will Pay $614M to US Government Over Mortgage Fraud Lawsuit, Stockbroker Fraud Blog, February 8, 2014

Credit Suisse Officials Accused of Telling Staff to Ignore Due Diligence Standards, Accept Questionable Loans Involving, Institutional Investor Securities Blog, March 11, 2014

February 21, 2014

Judge Reject’s AIG’s Bid to Delay $8.5B Billion Mortgage Backed-Securities Settlement with Bank of America Corp. “Hostage”

Less than three weeks after a judge approved the $8.5 billion mortgage securities settlement between Bank of America Corp. (BAC) and investors, another judge has rejected insurance giant American International Group’s (AG) efforts to delay the deal over its objections that loan modifications were not included in the agreement. Supporters of the mortgage-backed securities deal had accused the insurer of holding the deal “hostage.”

AIG is one of the investors in the over 500 mortgage securities trusts involved in this case. In total there are 22 institutional investors, including BlackRock Financial Management Inc. (BLK), Goldman Sachs Asset Management LP, ING Capital LLC, and Invesco Advisers, Inc.

The insurance giant opposes the settlement and contends that it isn’t convinced that the agreement will offer enough compensation for the losses sustained. AIG and other objectors are also worried that the ruling could result in additional securities lawsuits related to modified loan claims.

New York State Supreme Court Justice Barbara Kapnick, the judge that approved the MBS settlement, decided not to include the claims that are arguing that the bank was obligated to buy back modified loans because she believed that Bank of New York Mellon Corp. (BK), the trustee, did not evaluate them properly.

It was nearly three years ago in June 2011 that Bank of America agreed to resolve investor claims over their purchase of $174 billion of MBS that were issued by Countrywide Financial prior to the US crisis. The investors claimed that Countrywide, which Bank of America acquired in 2008, misrepresented the underlying home mortgages’ quality. Their investments eventually failed.


Now, Justice Saliann Scarpulla, who took over the securities case from Kapnick, is refusing to delay entry of the judgment. She said objectors could make an appeal if they wanted but that it was not for her to stay the case. AIG says it will appeal.

The insurer and Bank of America have yet to resolve another mortgage securities case, also filed in 2011 for over $10 billion. In that MBS fraud lawsuit, AIG says it was cheated when the bank sold it $28 billion of overvalued residential mortgage-backed securities between 2005 and 2007.

Bank of America has denied the accusations. It alleges that AIG acted “recklessly” by pursuing investments that touted high returns The bank believes that the insurer is sophisticated enough to have known about the risks it was getting into.

The SSEK Partners Group
Nearly six years after the financial crisis, our mortgage-backed securities lawyers are continuing to work with investors who sustained losses from the 2008 economic crisis because of negligence or carelessness on the part of a brokerage firm, broker, investment adviser, and others. Contact the SSEK Partners Group today. We would be happy to offer you a free, no obligation case assessment. We represent institutional investors and high net worth individuals.


Judge Refuses AIG Bid to Delay Bank of America $8.5B Settlement, Insurance Journal, February 19, 2014

AIG holding BofA $8.5 billion settlement 'hostage,' investors say, Reuters, February 18, 2014

AIG Sues Bank Of America For More Than $10B Over Mortgage Securities, Huffington Post, August 8, 2011

February 19, 2014

Lehman Brothers Holdings’ $767M Mortgage Settlement to Freddie Mac is Approved by Judge

A judge in US bankruptcy court has approved the $767 million mortgage securities settlement reached between Lehman Brothers Holdings Inc. and Freddie Mac (FMCC). The deal involves a $1.2 billion claim over two loans made by the mortgage giant to Lehman prior to its collapse in 2008.

As part of the accord, Freddie will provide loan data to the failed investment bank so that Lehman can go after mortgage originators over alleged misrepresentations. Lehman will pay the $767 million in a one-time transaction.

Its bankruptcy was a main trigger to the 2008 global economic crisis. According to Matthew Cantor, chief general counsel of the unwinding estate, the bank has already paid creditors $60 billion, with more payouts.

This settlement comes less than a month after Lehman settled with Fannie Mae (FNMA) over that mortgage firm’s $18.9 billion mortgage-backed securities claim, also related to MBS and mortgage loans that the bank sold to the mortgage giant before the 2008 crisis. Under that deal, Fannie Mae is to get general unsecured claim of $2.15 billion against the estate of the holding company.

Per the terms of Lehman’s Chapter 11 payment plan, Fannie is also getting $537.5 million. This should free up around $5 billion for creditors. Also, Lehman will be able to pay another $400 million as part of among its distribution to creditors. The settlement resolves its dispute with Fannie, which has held Lehman accountable for the loans.

Please contact our securities lawyers at The SSEK Partners Group today if you are an institutional investor or high net worth investor that suspects you may have been the victim of mortgage fraud.

Lehman settles with Freddie Mac over $1.2 billion claim, Reuters, February 13, 2014

Lehman Reaches Deal With Fannie Mae Over Mortgages, The Wall Street Journal, January 23, 2014


More Blog Posts:
UBS to Pay Fannie Mae and Freddie Mac $885M to Settle RMBS Lawsuit, Institutional Investor Securities Blog, July 27, 2013

Fannie Mae Sues UBS, Bank of America, Credit Suisse, JPMorgan Chase, Citigroup, & Deutsche Bank, & Others for $800M Over Libor, Institutional Investor Securities Blog, December 14, 2013

Hedge Funds Interested in Upcoming Puerto Rico Bond Offering Want The Territory to Borrow Money To Last Two Years, Stockbroker Fraud Blog, February 17, 2014


February 10, 2014

$13B MBS Fraud Settlement Between JPMorgan and the US is Under Dispute in New Securities Lawsuit

Better Markets, a non-profit group, is suing the US Department of Justice to block the $13 billion mortgage-backed securities settlement reached between the federal government and JP Morgan Chase (JPM). The group wants the deal to undergo judicial review.

The settlement resolves DOJ mortgage bond claims with a$2 billion civil penalty and includes $4 billion of consumer relief, another $4 billion to settle claims related to Freddie Mac and Fannie Mae, and another $1.4 billion to settle a National Credit Union Administration-instigated securities case. JPMorgan sold the mortgage bonds in question in the years heading into the housing market collapse. The loans that were involved lost value or defaulted when the bubble burst.

As part of the agreement, the firm acknowledged that it made “serious misrepresentations” about the MBS to investors. While the deal doesn’t release bank from criminal liability, it grants civil immunity for its purported actions. Now, Better Markets, which describes itself as a “Wall Street” watchdog, is saying that the record settlement between the US government and JP Morgan was “unlawful” because a court did not review the deal.

According to Better Markets CEO Dennis Kelleher, the DOJ served as “investigator, prosecutor, judge, juror, sentencer and collector” when negotiating the securities settlement and he wonders whether the payment is sufficient to offset the harm suffered by the economy. His group also claims that the government agency and U.S. Attorney General Eric Holder have a “conflict of interest” and are using the $13 billion deal to repair their “reputations.”

In other JPMorgan-related news, the Securities and Exchange Commission says two of the bank’s former traders that are accused of concealing over $2 billion in losses involving wrong-way derivatives bets don’t have the right to see evidence gathered by the government because they are fugitives. Julien Grout and Javier Martin-Artajo have yet to show up in this country to face civil and criminal claims and should therefore not be granted evidence or be able to question witnesses in the regulator’s case. Martin-Artajo, who oversaw the synthetic portfolio’s trading strategy, now resides in Spain. Grout, who worked under him as a trader, now lives in France.

The office of Manhattan U.S. Attorney Preet Bharara is accusing the two men of securities fraud related to trades by Bruno Iksil, who was central to the London Whale debacle. The SEC says the ex-JPMorgan employees sought to improve portfolio performance to gain approval at work.

At the SSEK Partners Group, our mortgage-backed securities lawyers represent high net worth clients and institutional investors. Your initial case assessment is a no obligation, free consultation.

Feds sued over $13B deal with JPMorgan Chase, CBS News, February 10, 2014

Ex-JPMorgan Traders Not Entitled to Evidence, SEC Says, Bloomberg, February 10, 2014

Better Markets Inc. v. U.S. Department of Justice

JPMorgan agrees to $13 billion mortgage settlement, CNN, November 19, 2013


More Blog Posts:

JPMorgan Will Pay $614M to US Government Over Mortgage Fraud Lawsuit, Stockbroker Fraud Blog, February 8, 2014

FDIC Sued by JPMorgan Chase in $1B Securities Case Involving Washington Mutual Purchase & Mortgage-Backed Securities, Institutional Investor Securities Blog, December 23, 2013

J.P. Morgan’s $13B Residential Mortgage-Backed Securities Deal with the DOJ Stumbles Into Obstacles, Stockbroker Fraud Blog, October 28, 2013

February 4, 2014

Morgan Stanley to Pay $1.25B in Mortgage-Backed Securities Lawsuit by FHFA

Morgan Stanley (MS) will pay $1.25 billion to the Federal Housing Finance Agency to resolve the latter’s securities fraud lawsuit accusing the firm of selling mortgage bonds to Freddie Mac (FMCC) and Fannie Mae without apprising them of the risks. A lot of the loan involved in this MBS lawsuit against Morgan Stanley came from subprime lenders, such as IndyMac and New Century. The loans were packaged into bonds.

The brokerage firm, which sold $10.58 billion in mortgage-backed securities that were issued between September 2005 and September 2007, is the eighth financial firm to settle with FHFA over the more than $200 billion in securities that came with offering materials that purportedly misled the two government-backed lenders about the quality of the loans behind their investments. FHFA sued 18 financial institutions asking for unspecified damages in 2011.

To date, the government agency has collected about $9.1 billion. Recent settlers include Deutsche Bank AG (DB), which is paying $1.93 billion and JP Morgan Chase (JPM), which settled for $4 billion. Among those that have yet to settle with FHFA is Bank of America Corp. (BAC), which is being sued, along with two of its firms—Merrill Lynch & Co. (MER) and Countrywide Financial Corp.—for over more than $57.4 billion in securities. FHFA wants at least $6 billion from them.

Although Freddie and Fannie don’t issue loans directly, they buy mortgages from banks and then sell the securities to investors while giving them guarantees. The two of them also bought securities that were privately issued as investments during the housing boom.
Unfortunately, as mortgage losses went up, the US Treasury was forced to rescue them with over $150 billion in infusions.

Contact our MBS fraud lawyers at The SSEK Partners today and ask for your free case consultation to help you determine whether you have a securities case.

Morgan Stanley To Pay $1.25 Billion in Mortgage-Backed Case, The Wall Street Journal, February 4, 2014

Morgan Stanley Reaches $1.25 Billion Mortgage Settlement, NY Times, February 4, 2014

Federal Housing Finance Agency


More Blog Posts:
New Jersey Files Securities Lawsuit Against Credit Suisse Over $10B in MBS Sales, Stockbroker Fraud Blog, December 20, 2013

J.P. Morgan’s $13B Residential Mortgage-Backed Securities Deal with the DOJ Stumbles Into Obstacles, October 28, 2013

Goldman Sachs Must Contend with Proposed Class-Action CDO Lawsuit, Institutional Investor Securities Blog, January 22, 2014

January 22, 2014

Goldman Sachs Must Contend with Proposed Class-Action CDO Lawsuit

U.S. District Judge Victor Marrero says that Goldman Sachs Group Inc. (GS) must face a proposed class action securities case accusing it of defrauding customers that purchased specific collateralized debt obligations at the beginning of the financial crisis. The lead plaintiff, Dodona I LLC, contends that the firm created two Hudson CDOs that were backed by residential mortgage backed-securities even though Goldman knew that subprime mortgages were doing badly.

The hedge fund claims that Goldman tried to offset its prime risk, even betting that subprime mortgages and the securities constructed around them would lose value—essentially making the CDOs to lower its own subprime exposure and simultaneously shorting them at cost to investors. Dodona purchased $4 million of Hudson CDOs.

Meantime, Goldman said that the proposed class action case should be dropped and that instead, Hudson CDO claims should be made independently. The bank said that the current case has too many conflicts and differences. Judge Marrero, however, disagreed with the bank.

Marrero said he is not convinced that the differences within this case are different from any other class action securities case. He also noted that subclasses could be created later if needed.

Throughout the US, our CDO fraud lawyers represent institutional investors that have lost money stemming from the way financial firms handled their investments leading up to and during the financial crisis. Please contact The SSEK Partners Group today.

Goldman to Institute Computer Messaging Ban
In other Goldman news, the firm reportedly intends to bar traders from using computer-messaging services to better protect proprietary information. Instant messaging created by Yahoo (YHOO), Bloomberg LP, AOL Inc. (AOL), Pivot Inc. and other third-party providers will no longer be allowed. Instead, traders will only be able to communicate over Goldman approved chat systems, including Blackberry’s (BB.T) Enterprise IM and Microsoft’s (MSFT) Lync.

The firm wants to keep information from internal exchanges to be filtered and sent externally. According to the Wall Street Journal, this plan is a sign of the growing distrust of messaging-service technology and how it can make private communications about closely guarded intelligence accessible to outsiders.

This ban is to better protect data related to selling and trading securities, which is one of Goldman’s biggest moneymakers. In 2013, the firm made $15.72 billion from the selling and trading of stocks, currencies, commodities, and bonds, as well as from other trading services and commissions.

Goldman and other banks and financial firms have been in the process of reassessing their policies for electronic communications, including chat rooms, which played a big role in traders manipulating the London interbank offered rate and manipulating currency markets. Goldman, Deutsche Bank AG (DBK), Citigroup (C), and JP Morgan Chase (JPM) are just some of the banks to bar chat rooms.


Judge rules Goldman must face class-action lawsuit by investors, Reuters, January 23, 2014

Goldman Looks to Ban Some Chat Services Used by Traders, The Wall Street Journal, January 23, 2014


More Blog Posts:
FINRA NEWS: Goldman Sachs Appeals Vacating of Securities Award, Non-Customers of Brokerage Firm Can’t Compel Arbitration, & Three Governors Named To FINRA Board, Stockbroker Fraud Blog, August 21, 2013

Ex-Goldman Sachs Trader Fabrice Tourre’s Request for New Civil Trial in RMBS Fraud Case is Denied, Institutional Investor Securities Blog, January 10, 2014

Goldman Sachs Settles SEC Subprime Mortgage-CDO Related Charges for $550 Million, Stockbroker Fraud Blog, July 30, 2010

December 29, 2013

Wells Fargo Reaches $591 Million Mortgage Deal with Fannie Mae

Wells Fargo & Co. (WFC) has arrived at a $591 million mortgage settlement with Fannie Mae (FNMA). The arrangement resolves claims that the banking institution sold faulty mortgages to the government run-home loan financier and covers loans that Wells Fargo originated more than four years ago.

Fannie Mae and Freddie Mac (FMCC) were taken over by the US government five years ago as they stood poised to fail due to faulty loans they bought from Wells Fargo and other banks. The two mortgage companies had bundled the mortgages with securities.

With this deal, Wells Fargo will pay $541 million in cash to Fannie Mae while the rest will be taken care of in credits from previous buy backs.

It was just a couple of months ago that Wells Fargo settled its disputes over faulty loans it sold to Freddie Mac with an $869 million mortgage buyback deal. According to Compass Point Research and Trading LLC, between 2005 and 2008, Wells Fargo sold $345 billion of mortgages to Freddie Mac. Compass says the bank sold another $126 billion to Freddie in 2009.

Also settling with Freddie Mac today is Flagstar Bank (FBC) for $10.8M over loans it sold to the mortgage company between 2000 and 2008. That agreement comes following Flagstar and Fannie Mae settling mortgage claims for $93 million over loans the former sold to the latter between January 2000 and December 31, 2008.

Fannie Mae and Freddie Mac have been trying to get banks to repurchase these trouble loans for some time now. In light of this latest settlement with Wells Fargo, Fannie Mae has reached settlements of about $6.5 billion over loan buy backs, including a $3.6 billion deal with Bank of America Corp. (BAC) and Countrywide Financial Corp. and $968 million with Citigroup (C). Earlier this month, Deutsche Bank (DB) consented to pay $1.9 billion to the Federal Housing Finance Agency over claims that it misled Freddie and Fannie about the mortgage backed securities that the latter two purchased from the bank. http://www.securities-fraud-attorneys.com/lawyer-attorney-1835405.html

Wells Fargo agrees to $541 million loan settlement, Reuters, December 30, 2013

Flagstar settles with Fannie Mae on mortgage loans, Detroit Free Press, November 7, 2013

Wells Fargo in $869 Million Settlement With Freddie Mac, Bloomberg News, October 1, 2013


More Blog Posts:
FINRA Arbitration Panel Says Wells Fargo Must Repurchase $94M of Auction-Rate Securities from Investors, Stockbroker Fraud Blog, December 29, 2013

Credit Suisse Must Face ARS Lawsuit Over Subsidiary Brokerage’s Alleged Misconduct, Says District Court, Stockbroker Fraud Blog, January 11, 2013

RBS Securities Inc. Settles SEC’s Subprime RMBS Lawsuit for $150M, Institutional Investor Securities Blog, November 20, 2013

Continue reading "Wells Fargo Reaches $591 Million Mortgage Deal with Fannie Mae " »

November 20, 2013

RBS Securities Inc. Settles SEC’s Subprime RMBS Lawsuit for $150M

RBS Securities Inc., which is a Royal Bank of Scotland PLC. Subsidiary (RBS), has agreed to pay $150 million to settle Securities and Exchange Commission allegations that it misled investors in a $2.2 billion subprime residential mortgage-backed security offering in 2007. The money will be used to pay back investors who were harmed.

The SEC claims the RBS said that the loans backing the offering “generally” satisfied underwriting guidelines even though close to 30% of them actually were so far off from meeting them that they should not have been part of the offering. As lead underwriters, RBS (then known as Greenwich Capital Markets,) had only (and briefly) looked at a small percentage of the loans while receiving $4.4 million as the transaction’s lead underwriter.

SEC Division Enforcement co-director George Cannellos said that inadequate due diligence by RBS was involved. The Commissions also says that because RBS was in a hurry to meet a deadline established by the seller, the firm misled investors about not just the quality of the loans but also regarding their chances for repayment.

Of the $150 million that RBS will pay, $80.3 million is disgorgement, $25.2 million is prejudgment interest, and $48.2 million is a civil penalty.

Our RMBS fraud lawyers are here to help investors get back their losses. Unfortunately, many investors lost money in different types of mortgage-backed securities during the economic crisis. Often the investments were recommended by stockbrokers and financial advisers even if they were unsuitable for the client or when not enough proper due diligence was conducted to make sure the investment was a wise one. Contact The SSEK Partners Group today.

SEC Charges Royal Bank of Scotland Subsidiary with Misleading Investors in Subprime RMBS Offering, SEC, November 7, 2013

RBS unit to pay $150 million to settle U.S. SEC charges, Reuters, November 7, 2013


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US Supreme Court Hears Oral Argument on the Impact of SLUSA on the Stanford Ponzi Scams, Institutional Investor Securities Blog, October 17, 2013

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J.P. Morgan’s $13B Residential Mortgage-Backed Securities Deal with the DOJ Stumbles Into Obstacles, Stockbroker Fraud Blog, October 28, 2013

November 14, 2013

JPMorgan and Institutional Investors Agree to $4.5B Mortgage-Backed Securities Settlement

JPMorgan Chase & Co. (JPM) says it will pay $4.5 billion to investors for losses that they sustained from mortgage-backed securities that were purchased from the firm and its Bear Stearns Cos. during the economic crisis. The institutional investors include Allianz SE (AZSEY), BlackRock Inc. (BLK), Pacific Investment Management Group, MetLife Inc. (MET), Goldman Sachs Asset Management LP, Western Asset Management Co., and 16 of other known institutional entities. This is the same group that settled their MBS fraud case against Bank of America Corp. (BAC) for $8.5 billion.

The $4.5 billion will be given to 330 RMBS trusts’ trustees over investments that were sold by the two financial institutions between 2005 and 2008. A number of the trustees, including Bank of New York Mellon Corp. (BK) still have to approve the agreement, as does a court.

Still, the claims related to the Washington Mutual-sold MBS have yet to be resolved.
JPMorgan believes that Federal Deposit Insurance Corp., which seized Washington Mutual and sold it to the firm, should be responsible for covering those MBS fraud claims. Meantime, the FDIC is arguing that when JPMorgan acquired Washington Mutual it also inherited its liabilities.

Also still up for resolution is Deutsche Bank National Trust Company’s private securities lawsuit on behalf of over 100 trusts related bonds that were issued by JPMorgan, Washington Mutual (WAMUQ) and the FDIC. No one wants to agree on who should be liable after the bonds did badly. Deutsche Bank (DB), however, wants up to $10 billion for the trusts.

This latest securities fraud settlement is separate from the tentative $13 billion one reached between JPMorgan and the Justice Department over its mortgage practices leading up to the 2008 financial crisis. The firm also just settled with Freddie Mac (FMCC) and Fannie Mae (FNMA) for $5.1 million over 129 securities that the two mortgage financial companies bought from it for $33 million.

Our RMBS fraud lawyers represent institutional investors and high net worth investors. Contact The SSEK Partners Group today and ask us for your free case assessment.

JPMorgan Reaches $4.5 Billion Settlement With Investors, NY Times, November 15, 2013

J.P. Morgan Reaches $4.5 Billion Settlement With Investors, Wall Street Journal, November 15, 2013


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J.P. Morgan’s $13B Residential Mortgage-Backed Securities Deal with the DOJ Stumbles Into Obstacles, Stockbroker Fraud Blog, October 28, 2013

JPMorgan’s Admission to CFTC of “Reckless” Trading Could Lead to More Securities Fraud Cases, Institutional Investor Securities blog, November 4, 2013

Massachusetts AG Investigates JPMorgan’s Debt-Collection Practices, Stockbroker Fraud Blog, September 24, 2013

October 29, 2013

Is JPMorgan on the Verge of Settling A $5.75 Billion Mortgage-Backed Securities Case Filed by BlackRock & Neuberger Berman Group?

After its tentative $13 billion residential mortgage-backed securities settlement with the US Department of Justice, now JPMorgan Chase & Co (JPM) looks like it could be getting ready to settle yet another MBS fraud case, this time with bondholders, such as Neuberger Berman Group LLC, Allianz SE's Pacific Investment Management, and BlackRock Inc. (BLK). Investors want at least $5.75 billion dollars.

The group of over a dozen bondholders already had reached a settlement in 2011 in an $8.5 billion mortgage-backed securities case against Bank of America Corp (BAC) over similar allegations. Now, the institutional investors want restitution over bonds that JPMorgan sold—those from the firm itself and also from Washington Mutual (WAMUQ) and Bear Stearns (BSC).

JPMorgan has been settling a lot of securities cases lately. Its $13B RMBS deal with the DOJ resolves a number of matters, including Federal Housing Finance Agency claims for $4 billion. The FHFA believes that J.P. Morgan gave Fannie Mae (FNMA) and Freddie Mac (FMCC) inaccurate information about the quality of the loans they bought from the bank ahead of the decline of the economy in 2008. $5 billion of the proposed RMBS settlement is for penalties and the remaining $4 billion is for the relief of consumers.

As part of the deal a securities case filed by NY AG Eric Schneiderman against the firm over mortgage bonds that were packaged by Bear Stearns would be resolved. Schneiderman says that Bear Stearns misled investors about the quality of the loans backing the securities and was negligent over numerous other matters.

Also, JPMorgan has just agreed to pay the Commodity Futures Trading Commission $100 billion to settle securities fraud claims related to the London Whale debacle that cost the bank over $6 billion. That agreement is in addition to its deals with other US regulators and a regulator in the UK to settle similar allegations for $920 million.

If you are an investor that has sustained losses that you believe was a result of broker negligence, contact our securities law firm today.


REPORT: Another $6 Billion Settlement Looms For JP Morgan, Business Insider, October 23, 2013

JP Morgan may face new $6bn lawsuit, Belfast Telegraph, October 24, 2013


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J.P. Morgan’s $13B Residential Mortgage-Backed Securities Deal with the DOJ Stumbles Into Obstacles, Stockbroker Fraud Blog, October 28, 2013

JPMorgan to Pay $920M to Settle London Whale Debacle & $80M Over Credit-Card Practice Allegations, Institutional Investor Securities Blog, September 19, 2013

California AG Files Lawsuit Against JP Morgan Chase Alleging Debt Collection Abuse Over 100,000 Credit Card Cases, Stockbroker Fraud Blog, May 16, 2013

September 27, 2013

NCUA Sues Morgan Stanley, JPMorgan, UBS, & Other Banks Over $2.7B in Allegedly Fraudulent RMBS Sales to Credit Unions

The National Credit Union Administration has filed residential mortgage-backed securities lawsuits against JPMorgan (JPM), Morgan Stanley (MS), UBS (UBS), Royal Bank of Scotland Group (RBS), Barclays (BARC), and Credit Suisse (CS) accusing the financial firms of selling $2.7 billion of these fraudulent securities to the credit unions. The Members United Corporate Federal Credit Union and Southwest Corporate Federal Credit Union paid over $416 million for the RMBS in the case against Morgan Stanley and $1.9 billion from the other defendants. One of the credit unions contends that Wachovia (WB), Goldman Sachs (GS), Ally Securities and Wells Fargo (WFC) also defrauded it.

According to the NCUA’s RMBS fraud lawsuits, the investment banks issued misrepresentations related to the underwriting and sale of the securities. Offering documents allegedly contained false statements or omitted facts that were material. The government regulator is accusing the originators of systematically ignoring underlying guidelines in offering documents, which made the mortgage-backed securities’ risks higher than what was presented.

The MBS fraud lawsuits make claims under state and federal securities laws. Whatever is recovered will go toward the Temporary Corporate Credit Union Stabilization Fund.

Already, NCUA has settled RMBS fraud lawsuits against Bank of America (BAC), Citibank (C), Deutsche Bank (DB), and HSBC for more than $335 million.

Contact our institutional investor fraud law firm to find out whether you have grounds for securities case. Your RMBS fraud case consultation is free.

Regulator sues Morgan Stanley, eight others over faulty securities, Reuters, September 23, 2013

National Credit Union Administration Sues Wall Street Banks For Fraud In Mortgage Market, FireDogLake, September 24, 2013

More Blog Posts:
JPMorgan to Pay $920M to Settle London Whale Debacle & $80M Over Credit-Card Practice Allegations, Institutional Investor Securities Blog, September 19, 2013

Bank of America, JPMorgan Chase Among Banks Sued by Danish Pension Funds in Credit Default Swaps Lawsuit, Institutional Investor Securities Blog, August 15, 2013

SEC and DOJ Sue Bank of America Over Alleged $850M RMBS Fraud, Institutional Investor Securities Blog, August 15, 2013

September 26, 2013

JPMorgan Considers $11B Mortgage-Backed Securities Settlement

Now that US Attorney General Eric Holder has turned down JPMorgan Chase’s (JPM) offer to settle criminal and civil charges related a mortgage-backed securities probe, the financial firm is looking at a settlement of possibly $11 billion. The financial figure has gone up as talks have expanded to include additional cases with more regulators.


The MBS investigations are over residential mortgage-backed securities (RMBS) that JPMorgan, Washington Mutual (WAMUQ), and Bear Stearns (BSC) issued between 2005 and 2007. Authorities have been looking into whether JPMorgan, which the other two firms acquired during the financial crisis, misled investors of the quality of the mortgages that were backing the securities. A lot of these RMBS failed as housing prices dropped. JPMorgan says that Washington Mutual and Bear Stearns issued about 70% of these RMBS.

One possible settlement could include $4 billion in relief to consumers and a $7 billion penalty. However, according to sources familiar with the settlement talks, the two sides have not come close to agreeing on the figure and the amount could change.

JPMorgan wants any settlement to confirm that the investigations are done and there will be no additional liability related to the MBS. Aside from the expected fine, the US Justice Department may try to get JPMorgan to admit wrongdoing, which the latter might consent to so as to avoid criminal charges. However, sources say that even if a deal is reached, the issue of whether anyone should be criminally charged over the RMBS losses may not be resolved.

Also part of the settlement talks is the Federal Housing Finance Agency. FHFA wants JPMorgan to pay over $6 billion to settle claims accusing the investment bank of misleading Freddie Mac and Fannie Mae about the mortgages that they bought from the bank during the housing bubble. Meantime, NY Attorney General Eric Schneiderman, wants recovery from JPMorgan over securities that the latter bought, which were issued by Bear Stearns as that firm was failing. Schneiderman contends that investors lost $22 billion.

It was just last year that JPMorgan settled the US Securities and Exchange Commission’s MBS case for $296.6 million. However, the bank settled without denying or admitting wrongdoing.

Last week, JPMorgan settled for $920 million with regulators over the London “whale” trading investigations. That debacle cost the financial firm over $6 billion last year. JPMorgan also consented to pay $80 million for credit card practice-related claims to its sale of identity fraud protection to customers who never received these products.

The SSEK Partners Group represents high net worth individuals and institutional investors in securities arbitration, mediation, and litigation. We are here to help our clients recoup their RMBS fraud losses.

JPMorgan in talks to settle government probes for $11 billion: sources, Reuters, September 25, 2013

JPMorgan Talks Said to See Possible $11 Billion Settlement, Bloomberg, September 26, 2013


More Blog Posts:
JPMorgan to Pay $920M to Settle London Whale Debacle & $80M Over Credit-Card Practice Allegations, Institutional Investor Securities Blog, September 19, 2013

JPMorgan Could Settle “London Whale” Fiasco for $800M, Institutional Investor Securities Blog, September 17, 2013

California AG Files Lawsuit Against JP Morgan Chase Alleging Debt Collection Abuse Over 100,000 Credit Card Cases, Stockbroker Fraud Blog, May 16, 2013

September 2, 2013

NCUA Accuses Morgan Stanley Of $556M Mortgage-Backed Securities Fraud

The National Credit Union Administration is suing Morgan Stanley (MS) for mortgage-backed securities fraud. In its MBS lawsuit, the NCUA said that it misrepresented $556 million of the securities that it sold to two credit unions, Western Corporate Federal Credit Union and U.S. Central Federal Credit Union, which are now no longer in operation.

Morgan Stanley is just one of several banks, including Barclays (BCS) and Goldman Sachs (GS) to get hit by securities cases accusing them of strapping such unions with millions of dollars in beleaguered loans. The bank and its affiliates are being blamed for purportedly making misleading statements about the risks involved, as well as about the underwriting standards for originating home loan securities that sold between 2006 and 2007.

According to the regulatory agency’s MBS lawsuit, the originators were systematic about moving away from the underwriting guidelines stated in the offering documents and that the securities were headed toward failure from “inception." Because of this, contends the complaint, WesCorp and US Central suffered losses in the million dollars as the housing market collapsed and they eventually became insolvent. They both were put into conservatorship and later liquidated.

NCUA believes that it was the financial firms’ selling of faulty securities that led to the credit union industry crisis. The regulator is seeking civil penalties from Morgan Stanley.

As the receiver for credit unions that failed, NCUA has submitted numerous residential mortgage-backed securities fraud lawsuits against firms on Wall Street. Already, it has collectively settled its RMBS fraud cases against Citibank (C), Bank of America (BAC), HSBC, and Deutsche Bank (DB) for over $335 million.

NCUA sues Morgan Stanley over sale of $566 million in mortgage-backed securities, Washington Post, August 30, 2013

NCUA Sues Morgan Stanley over Sale of $566 Million in Faulty Securities, NCUA, August 30, 2031

National Credit Union Administration


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JPMorgan Found Liable in Billionaire’s Subprime Mortgage Lawsuit for Over $50M in Damages, Institutional Investor Securities Blog, August 28, 2013

August 28, 2013

JPMorgan Found Liable in Billionaire’s Subprime Mortgage Lawsuit for Over $50M in Damages

In the State Supreme Court in Manhattan, Justice Melvin Schweitzer found JPMorgan Chase (JPM) liable for breach of contract when it put high-risk subprime mortgages in an account held by investor Leonard Blavatnik. Now, the financial firm must pay the Russsian-American billionaire more than $50 million in damages--$42.5 million for the breach and 5% interest from beginning May 2008. However, JPMorgan was not found liable for negligence.

Blavatnik, who Forbes magazine says is the 44th wealthiest person in the world, filed his securities fraud case against JPMorgan in 2009. He contended that the investment bank lost over $100 million on about a $1 billion investment made by CMMF L.L.C., which is a fund that Access Industries, his company, created. He says JPMorgan promised him that the money would be invested conservatively but instead breached a 20% mortgage-backed securities limit when it misclassified securities that were backed by a subprime loans pool—ABS home-equity loans—as asset-backed instead of as MBSs.

Access, Blavatnik’s company, claims that the bank kept holding the securities even though it knew that they were not right for the portfolio. In May 2008, CMMF shut down the account.

Judge Schweitzer found the bank liable for going beyond the cap limit while rejecting the firm’s claim that it was a practice in the industry to separately classify mortgages securities and home equity loans because they don’t a carry the same risk. Regarding the negligence claim, he said that the mortgage securities were generally safe when they were purchased and that the financial firm behaved reasonably when it suggested CMMF wait instead of selling at such low prices.

Meantime, JPMorgan also is contenting with other investigations and lawsuits over the way it dealt with its mortgage business during the economic crisis of 2008.

Our MBS fraud lawyers represent investors throughout the US.

Judge Rules Against JPMorgan in Suit Over Billionaire’s Losses, The New York Times/Reuters, August 26, 2013

Billionaire Blavatnik Wins $42.5 Million JPMorgan Award, Bloomberg, August 26, 2013


More Blog Posts:
Liquidators of Bear Stearns Hedge Funds Sue S & P, Moody’s and Fitch for $1.12B, Institutional Investor Securities Blog, August 6, 2013

Former Jeffries Director Charged with Securities Fraud Crimes and Sued By SEC Over Alleged Residential Mortgage-Backed Securities, Stockbroker Fraud Blog, February 11, 2013

UBS Fails in Bid to Block $125M ARS Arbitration Case by Allina Health System, Institutional Investor Securities Blog, February 14, 2013

August 17, 2013

SEC and DOJ Sue Bank of America Over Alleged $850M RMBS Fraud

Bank of America (BAC) and two subsidiaries are now facing SEC charges for allegedly bilking investors in an residential mortgage-backed securities offering that led to close to $70M in losses and about $50 million in anticipated losses in the future. The US Department of Justice also has filed its securities lawsuit over the same allegations.

In its securities lawsuit, submitted in U.S. District Court for the Western District of North Carolina, the Securities and Exchange Commission contends that the bank, Bank of America Mortgage Securities (BOAMS) and Banc of America Securities LLC, which is now known as Merrill Lynch, Pierce, Fenner & Smith, conducted the RMBS offering, referred to as the the BOAMS 2008-A and valued at $855 million, in 2008. The securities was sold and offered as “prime securitization suitable for the majority of conservative RMBS investors.

However, according to the regulator, Bank of America misled investors about the risks and the mortgages’ underwriting quality while misrepresenting that the mortgage loans backing the RMBS were underwritten in a manner that conformed with the bank’s guidelines. In truth, claims the SEC, the loans included income statements that were not supported, appraisals that were not eligible, owner occupancy-related misrepresentations, and evidence that mortgage fraud was involved. Also, says the regulator, the ratio for original-combined-loan-to-value and debt-to-income was not calculated properly on a regular basis and, even though materially inaccurate, it was provided to the public.

The Commission believes that because there were a material number of loans that were not in compliance with the bank’s underwriting guidelines and concentration of risky wholesale loans were not proportionate, BOAMS 2008-A sustained an 8.05 percent cumulative net loss rate through June of this year, which is the greatest loss of rate of any BOAMS securitization, comparably speaking, and this violated of the Securities Act of 1933.

As for the Justice Department’s RMBS fraud case, which is also a civil suit, the government says that not only did Bank of America lie to investor about the risks, but also it made false statements after purposely not conducting appropriate due diligence and also including in the securitization high-risk mortgages of a disproportionate quantity that were originated via third party mortgage brokers.

This securities lawsuit is part of President Obama’s Financial Fraud Enforcement Task Force’s RMBS Working Group’s ongoing initiatives to target misconduct involving this section of the market. U.S. Attorney Tompkins says that now, Bank of America will have to deal with consequences arising from its alleged actions.

The SSEK Partners Group helps institutional investors and others recover their RMBS fraud losses. Contact us today to request your free case assessment. Our securities attorneys have helped thousands of investors recoup their investment losses.

SEC Charges Bank of America With Fraud in RMBS Offering, SEC, August 6, 2013

Department of Justice Sues Bank of America for Defrauding Investors in Connection with Sale of Over $850 Million of Residential Mortgage-Backed Securities, DOJ, August 6, 2013


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August 6, 2013

Liquidators of Bear Stearns Hedge Funds Sue S & P, Moody’s and Fitch for $1.12B

Liquidators are suing Moody’s Investors Service (MCO), Standard & Poor’s, and Fitch Ratings over their issuing of allegedly fraudulent and inflated ratings for the securities belonging to two offshore Bear Stearns (BSC) hedge funds. The plaintiffs are seeking $1.12 billion.

The credit raters are accused of misrepresenting their autonomy, the timeliness of their residential mortgage-backed securities (RMBS) and collateralized debt obligations (CDOs) ratings, and the quality of their models. Because of the purportedly tainted ratings for securities that were supposedly “high-grade,” the funds lost $1.12B.

The funds, which were operated by Matthew Tannin and Ralph Cioffi, failed in 2007. The US government later pursued the two men for securities fraud, but they were acquitted. They did, however, settle an SEC securities case over related allegations last year.

Just recently, a US district judge decided that the US Justice Department’s $5 billion securities fraud lawsuit against S & P could proceed. The government is accusing the credit rating agency of misrepresenting its ratings process as independent and free from influence when actually the impetus to make banks and its other clients happy got in the way of its objectivity. This supposedly caused S & P to put out AAA ratings for poor quality mortgage packages between ’04 and ’07, causing federally issued banks and credit unions to sustain huge losses.

If you think that you suffered investment losses because credit rating agencies misrepresented certain securities by giving them higher ratings than they merited, you may have reason to file a CDO lawsuit or an RMBS securities complaint. The SSEK Partners Group represents institutional investors that sustained losses because others in the securities industry were negligent or careless or committed financial fraud.

The funds involved in the liquidators' lawsuit:

• Bear Stearns High-Grade Structured Credit Strategies Enhanced Leverage (Overseas) Ltd.
• Bear Stearns High-Grade Structured Credit Strategies (Overseas)

Liquidators of failed Bear Stearns funds sue rating agencies, Reuters, July 10, 2013

Bear Stearns Fund Liquidators Sue Credit-Rating Firms, Wall Street Journal, July 10, 2013


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GAO Wants SEC to Look At Other Criteria for Who Qualifies As An Accredited Investor, Institutional Investor Securities Blog, July 31, 2013

July 29, 2013

Both Sides Rest in Ex-Goldman Sachs Bond Trader Fabrice Tourre's Trial For Alleged Mortgage-Backed Securities Fraud

In federal court, both the Securities and Exchange Commission and former Goldman Sachs Group (GS) vice president Fabrice Tourre have both rested their case in the civil trial against the bond trader. Tourre is accused of MBS fraud for his alleged involvement in a failed $1 billion investment connected to the collapse of the housing market. After the SEC finished presenting its evidence, U.S. District Judge Katherine Forrest turned down Tourre’s bid to have the securities case against him thrown out. He denies wrongdoing and says that his career is in now in shambles.

According to the regulator, Tourre purposely misled participants in the Abacus 2007-AC about the involvement of John Paulson’s hedge fund Paulson and Co. The Commission contends that Tourre concealed that Paulson helped select the portfolio of the subprime MBS underlying Abacus—a $2 billion offering linked to synthetic collateralized debt obligations. The latter then shorted the deal by betting it would fail.

The SEC’s complaint points to Tourre as primarily responsible for the CDO, which it says says he devised and prepped marketing collateral for and was in direct contact with investors. The regulator believes that by failing to disclose Paulson’s role, Tourre broke the law. They also contend that instead the bond trader instead told customers that as an Abacus investor, Paulson’s hedge fund expected the securities to go up.

Tourre also is accused of misleading ACA Capital Holdings, which Goldman retained to supervise the deal, about Paulson’s role. ACA would go on to invest in Abacus and insure it.

When the mortgage securities underlying the Abacus became toxic, its investors lost $1 billion. Meantime, the short positions by Paulson made about the same.

Testifying on his own behalf at the civil trial, Tourre told jurors that after the SEC filed its securities fraud case against him in 2010, for over a year Goldman Sachs made him take a leave of absence but kept paying his $738,000 base salary. In 2007, Tourre said, his salary and bonus was $1.7 million, which was tied to profits he made for the firm.

Goldman has already paid $550 million to settle SEC charges against it over the ABACUS 2007-AC1 debacle. The Commission accused the financial firm of misleading investors about the subprime mortgage product.

As part of settling, the financial firm admitted that its marketing materials for the subprime product had incomplete data and it made a mistake when stating that ACA chose the reference portfolio without revealing Paulson’s part in the selection process or that the latter’s interests were counter to that of the collateralized debt obligation investors.

Unfortunately, when the housing market failed, a lot investors that placed their money in subprime mortgage products suffered huge losses, many of which were a result of broker misconduct, fraud, misrepresentations, omissions, and other wrongdoing. At Shepherd Smith Edwards and Kantas, LTD, LLP, our mortgage-backed securities lawyers have been helping institutional and individual investors recoup these losses.


Fabrice Tourre tells jurors about paid leave at Goldman after SEC suit, The Washington Post, July 26, 2013

SEC fraud case against ex-Goldman trader Tourre in homestretch, Reuters, July 29, 2013

Goldman Sachs to Pay Record $550 Million to Settle SEC Charges Related to Subprime Mortgage CDO, SEC, July 15, 2010


More Blog Posts:
SEC's Antifraud Claim Against Goldman Sachs Executive Fabrice Tourre Won’t Be Reinstated, Says District Court, Institutional Investor Securities Blog, December 3, 2012

Goldman Sachs Settles SEC Subprime Mortgage-CDO Related Charges for $550 Million, Stockbroker Fraud Blog, July 30, 2012

Investor in Goldman Sachs Special Opportunities Fund 2006 to Get $2.5M FINRA Arbitration Award For Allegedly Unsuitable Investment, Stockbroker Fraud Blog, May 27, 2013

June 8, 2013

Financial Firm Roundup: Citigroup Settles $3.5B MBS Lawsuit with FHFA, JPMorgan Unit Fined $4.64M, Court Won’t Dismiss USB Whistleblower’s Action, & Ex-Goldman Sachs Executive to Pay $100K Over Pay-To-Play Scam

Citigroup (C) Settle $3.5B securities lawsuit Over MBS Sold to Freddie Mac, Fannie Mae
Citigroup has settled the $3.5 billion mortgage-backed securities filed with the Federal Housing Finance Agency. The MBS were sold to Freddie Mac and Fannie Mae and both sustained resulting losses. This is the second of 18 securities fraud cases involving FHFA suing banks last year over more than $200B in MBS losses by Fannie and Freddie. The lawsuit is FHFA v. Citigroup.

J.P. Morgan International Bank Ltd. Slapped with $4.64M Fine by UK Regulator
The UK Financial Conduct Authority says that JPMorgan unit (JPM) J.P. Morgan International Bank Ltd. must pay a $4.64 million fine for controls failures and systems involving its retail investment advice and portfolio investment services. Per the agency, financial firms that don’t maintain the proper records not only put their clients at risk of getting involved inappropriate investments, but also they don’t have a way to determine whether the proper advice was given. Fortunately, investors were not harmed despite the risk exposure.

The UK regulator says the problems went on for two years. Among the problems identified: outdated files, insufficient key client data, inadequate record system, inadequate suitability reports, and insufficient communication with clients about suitability. FCA says that it wasn’t until after it identified the problems and notified the JP Morgan unit about them that the necessary modifications were made.

Whistleblower’s Retaliation Action Against UBS Securities Can Go Ahead, Says Court
A district court judge made the decision not to dismiss ex-UBS Securities LLC (UBS) senior strategist Trevor Murray’s retaliatory action against his former employer. Murray was allegedly fired after he told his managers about possible securities law violations.

He contends that he was let go because he refused to write reports about UBS’s commercial MBS that were “more favorable to the financial firm.” Murray sued, arguing that the action violated the Dodd-Frank Act’s whistleblower protection provisions. UBS then tried arguing that Murray wasn’t a whistleblower because he didn’t tell the SEC about the alleged violation, but the judge said that a whistleblower is allowed to report alleged violations to governmental authorities and persons other than the regulator.


Former Goldman Sachs VP Consents to Pay $100K Payment SEC Pay-to-Play Action
Neil M. M. Morrison, an ex-Goldman Sachs & Co. (GS) vice president, will pay $100,000 to resolve an SEC action accusing him of taking part in an alleged pay-to-play scheme involving former Massachusetts state Treasurer Timothy Cahill’s gubernatorial campaign. The Commission said that he solicited the state’s underwriting business while “engaged” in Cahill’s campaign and that his use of the financial firm’s resources and work time are considered campaign contributions. By settling, Morrison is not admitting or denying the allegations.

Meantime, Goldman will pay approximately $12 million to settle the related proceedings against it, as well as $4.5 million to Massachusetts Attorney General Martha Coakley. Even though the firm wasn’t allowed to take part in municipal underwriting business for two years after Morrison’s alleged violations, the SEC says that Goldman still took part in 30 underwriting contracts with issuers in the state and made about $7.5 million in fees.

Citi settles U.S. suit over $3.5 billion in mortgage securities, Reuters, May 28, 2013

U.K. Regulator Fines JPMorgan Unit $4.64M For Failures in Investment Systems, Controls, Bloomberg/BNA, May 28, 2013

Internal Whistleblowing Deserves Protection, Judge Tells UBS, Law360, May 22, 2013

SEC Charges Goldman Sachs and Former Vice President in Pay-to-Play Probe Involving Contributions to Former Massachusetts State Treasurer, SEC, September 27, 2012


More Blog Posts:
FINRA Orders Wells Fargo & Banc of America’s Merrill Lynch Ordered to Pay $5.1M for Floating-Rate Bank Loan Funds Sales, Stockbroker Fraud Blog, June 4, 2013

AIG Drops RMBS Lawsuit Against New York Fed, Fights Bank of America’s $8.5B MBS Settlement, Institutional Investor Securities Blog, June 5, 2013

Two Oppenheimer Investment Advisers Settle for Over $2.8M SEC Fraud Charges Over Private Equity Fund, Institutional Investor Securities Blog, March 14, 2013

June 5, 2013

AIG Drops RMBS Lawsuit Against New York Fed, Fights Bank of America’s $8.5B MBS Settlement

American International Group (AIG) and Maiden Lane II dismissing lawsuit against the Federal Reserve Bank of New York regarding the $182.3 billion financial bailout that the insurer received during the 2008 economic crisis. In dispute was whether AIG still had the right to pursue a lawsuit over residential mortgage-backed securities losses and if the company had moved $18 billion of litigation claims to Maiden Lane, which is a New York Fed-created entity.

An AIG spokesperson said that in the wake of a recent ruling by a district judge in California that the company did not assign $7.3 billion of the claims to Maiden Lane, both are dropping their action without prejudice. This means that AIG can now pursue Bank of America (BAC) for these claims, which is what the insurer wants to do.

Bank of America had said that AIG could not sue it over the allegedly fraudulent MBS because the latter transferred that right when the New York Fed bought the instruments in question 2008. However, according to Judge Mariana R. Pfaelzer, even if the New York Fed meant for Maiden Lane II to have these claims, that intention was not made clear.

On Tuesday, in New York State Supreme Court, the insurer argued that the proposed $8.5 billion settlement reached between the bank and investors in MBS from Countrywide Financial Corp. is not enough. The judge there is trying to determine whether to approve the settlement, reached with investors who claimed that the firm had misrepresented the mortgages backing the securities.

AIG is one of a number of entities that oppose the settlement. At the hearing, one of its lawyers questioned why the settlement was merely $8.5 billion when investors initially asked for $50 billion.

AIG also is arguing that there may be a conflict of interest with those that arrived at the proposed settlement amount. The insurer is questioning whether trustee Bank of New York Mellon (BK), which does a lot of its trustee business with Bank of America, did a good enough job of researching the risks involving successor liability and investigating the loan files. Bank of NY Mellon also is the trustee for 530 trusts that are holding the securities under dispute. Another investor supporting the current proposed settlement is BlackRock Inc, which also has a strategic relationship with the bank.

Meantime, the attorney who negotiated the $8.5 billion proposed settlement between BofA 22 institutional investors says that not only is this the biggest settlement in the history of private litigation, but also it is worth almost two times as much as Countrywide, which is valued at $4.8 billion.

AIG argues against $8.5 billion settlement with BofA, Reuters, June 4, 2013

Court allows AIG to sue Bank of America for fraud, The Boston Globe, May 8, 2013


More Blog Posts:
AIG Wants to Stop Former CEO Greenberg From Naming It as a Defendant in Derivatives Lawsuit Against the US, Stockbroker Fraud Blog, April 13, 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

Bank of America Subpoenaed by Massachusetts Over Bryn Mawr CLO II Ltd. and LCM VII Ltd. CLOs that Cost Investors $150 Million, Stockbroker Fraud Blog, February 14, 2012

May 9, 2013

Standard & Poor’s Seeks Dismissal of DOJ Securities Fraud Lawsuit Over RMBS and CDO Ratings Issued During the Financial Crisis

In the U.S. District Court for the Central District of California, Standard & Poor's Financial Services LLC is asking for the dismissal of a US Department of Justice securities fraud lawsuit accusing the ratings firm of knowing that it was issuing faulty ratings to collateralized debt obligations and residential mortgage-backed securities during the financial crisis. S & P is contending that the claims are against judicial precedent and don’t establish wrongdoing.

The government sued the credit rating giant and its parent company McGraw-Hill Companies Inc. (MHP) earlier this year. It claims that S & P took part in a scheme to bilk investors by wrongly representing that its ratings for collateralized debt obligations and residential mortgage backed securities were independent and objective, purposely giving artificially high ratings to specific securities, and ignoring the risks involved. Submitted under the 1989 Financial Institutions Reform, Recovery, and Enforcement Act, this is the first federal legal action filed against a rating agency related to the economic crisis.

Now, however, S & P is arguing that the DOJ’s RMBS lawsuit does not succeed in alleging fraud. The credit rater says that it shouldn’t be blamed for not having been able to foresee the financial crisis of 2008.

S & P believes that the statements prosecutors rely upon in their case are not actionable, seeing as other courts have struck down similar challenges in past federal cases. The credit rating agency cited the example of Boca Raton Firefighters and Police Pension Fund v. Bahas, in which U.S. Court of Appeals for the Second Circuit’s decision affirmed the tossing out of a pension fund’s securities case against S & P after finding that statements about the “credibility and objectivity” of the agency’s ratings were the type of “puffery” that previously was not considered actionable.

Also, S & P claims the allegations it misled investors about its ratings’ objectivity and accuracy don’t succeed in this CDO lawsuit. Rather, they demonstrate that during what proved to be the start of an economic meltdown, there was debate within the agency about how complex financial instruments might fare moving forward.

Read the Complaint (PDF)

Boca Raton Firefighters and Police Pension Fund v. Bahash


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

Standard & Poor’s Misled Investors By Giving Synthetic Derivatives Its Highest Ratings, Rules Australian Federal Court, Institutional Investor Securities Blog, November 8, 2012

April 24, 2013

Standard Poors Wants DOJ’s Mortgage Debt Lawsuit Against It Tossed

Standard Poors is asking a judge to dismiss the US Justice Department’s securities lawsuit against it. The government claims that the largest ratings agency defrauded investors when it put out excellent ratings for some poor quality complex mortgage packages, including collateralized debt obligations, residential mortgage-backed securities, and subprime mortgage-backed securities, between 2004 and 2007. The ratings agency, however, claims that the DOJ has no case.

Per the government’s securities complaint, financial institutions lost over $5 billion on 33 CDOs because they trusted S & P’s ratings and invested in the complex debt instruments. The DOJ believes that the credit rater issued its inaccurate ratings on purpose, raising investor demand and prices until the latter crashed, triggering the global economic crisis. It argues that certain ratings were inflated based on conflicts of interest that involved making the banks that packaged the mortgage securities happy as opposed to issuing independent, objective ratings that investors could rely on.

Now, S & P is claiming that the government’s lawsuit overreaches in targeting it and fails to show that the credit rater knew what the more accurate ratings should have been, which it contends would be necessary for there to be grounds for this CDO lawsuit. In a brief submitted to the United States District Court for the Central District of California, in Los Angeles, S & P’s lawyers argue that there is no way that their client, the Treasury, the Federal Reserve, or other market participants could have predicted how severe the financial meltdown would be.

S & P is also fighting over a dozen other CDO lawsuits filed by state attorneys general that make similar securities fraud allegations. The states are generally invoking their consumer-protection statutes, which carry a lower burden of proof, and the credit rating agency is seeking to have their securities lawsuits moved to federal court.

S.&P. Seeks Dismissal of U.S. Civil Suit Over Rating of Mortgage Debt, NY Times, April 22, 2013

U.S. Sues S&P Over Ratings, The Wall Street Journal, February 5, 2013


More Blog Posts:

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

Standard & Poor’s Misled Investors By Giving Synthetic Derivatives Its Highest Ratings, Rules Australian Federal Court, Institutional Investor Securities Blog, November 8, 2012

April 18, 2013

UBS Loses Appeal to Have FHFA’s $6.4 Billion MBS Fraud Lawsuit Dismissed

The US Court of Appeals for the Second Circuit is denying UBS AG’s (UBSN) bid to dismiss the Federal Housing Finance Agency’s mortgage-backed securities lawsuit accusing the financial firm of misrepresenting the quality of the loans underlying the residential MBS that Freddie Mac and Fannie Mae bought. FHFA is the mortgage financiers’ appointed conservator.

In its appeal, UBS contended that the MBS lawsuit was filed too late under federal law. However, the 2nd circuit, affirming U.S. District Judge Denise Cote’s ruling, determined that the filing period for type of securities case was extended by the Housing and Economic Recovery Act of 2008.

The RMBS lawsuit is one of 17 FHFA cases against large financial institutions over alleged misrepresentations involving over $200 million in mortgage-backed securities. Judge Cote is presiding over 15 of these MBS lawsuits.

Late last year, the lenders, including Citigroup (C), Barclays Plc (BCS), and Bank of America Corp. (BAC), told the 2nd circuit that Cote’s ruling was not only wrong but also that it would increase their exposure to federal and state securities claims. The banks involved in the mortgage-backed securities cases before the judge recently filed a request before the appeals court arguing that Cote’s pretrial rulings establish a litigation framework that they described as “grossly inequitable, clearly erroneous.” They believe that a number of her decisions are “gravely prejudicial” and not only wrongly attempted to deny them the ability to find evidence on may possible legal defenses, but also, they are meant to pressure the banks to settle the securities lawsuits.

Meantime, Securities Industry and Financial Markets Association, which submitted a separate brief, expressed concern that Judge Cote’s decision widened the housing recovery law’s time-limit provisions over what Congress had intended for it to be and that this could lead to “arbitrary decisions” being made. However, the US Justice Department has maintained that it was the lawmakers that “reset” the statute of limitations for filing securities claim. In its briefing, the DOJ said that the Housing and Economic Recovery Act allows for the creation of the FHFA to help remedy the financial problems plaguing Freddie Mac and Fannie Mae after the housing crisis dropped the values of their MBSs.

In the US, contact our MBS fraud law firm today.

UBS Bid to Dismiss FHFA Mortgage-Bond Suit Denied, Stockbroker Fraud Blog, April 5, 2013

UBS Tries Again to Block FHFA Lawsuit, MReport
, November 27, 2012


More Blog Posts:
RMBS Lawsuit Against Deutsche Bank Can Proceed, Says District Court, Institutional Investor Securities Blog, April 4, 2013
Mortgage-Backed Securities Lawsuit Against Bank of America’s Merrill Lynch Now a Class Action Case, Stockbroker Fraud Blog, June 25, 2011

April 4, 2013

RMBS Lawsuit Against Deutsche Bank Can Proceed, Says District Court

The U.S. District Court for the Southern District of New York is refusing to throw out the shareholder securities fraud lawsuit filed against Deutsche Bank (DB) and three individuals over their alleged role in marketing residential mortgage-backed securities and mortgage-backed securities before the economic crisis. The court found that the plaintiffs, led by Building Trades United Pension Fund, the Steward International Enhanced Index Fund, and the Steward Global Equity Income Fund, provided clear allegations that omissions and misstatements were made and there had been a scam with intent to defraud.

The RMBS lawsuit accuses Deutsche Bank of putting out misleading and false statements regarding its financial health prior to the financial crisis. The plaintiffs contend that the financial firm created and sold MBS it was aware were toxic, while overstating how well it could handle risk, and did not write down fast enough the securities that had dropped in value. Because of this, claim the shareholders, the investment bank’s stock dropped 87% in under 24 months.

U.S. District Judge Katherine Forrest said that the plaintiffs did an adequate job of alleging that even as Deutsche Bank talked in public about its low risk lending standards, senior employees at the firm were given information showing the opposite. She said that there are allegations of recklessness that are “plausible.” The district court also found that the complaint adequately alleged control person and antifraud violations involving defendants Chief Executive Officer Josef Ackermann, Chief Financial Officer Anthony Di Iorio, and Chief Risk Officer Hugo Banziger, who are accused of making material misstatements about the risks involved in investing in CDOS and RMBS while knowing they were less conservative than what investors might think. Claims against defendant ex-Supervisory Board Chairman Clemens Borsig, however, were thrown out due to the plaintiffs’ failure to allege that he made an actual misstatement.

The MBS case is looking for investors that purchased Deutsche stock between January 2007 and January 2009.

Deutsche Bank must face shareholder lawsuit: judge, Chicago Tribune, March 27, 2013

IBEW Local 90 Pension Fund v. Deutsche Bank AG (PDF)


More Blog Posts:
Deutsche Bank Settles Massachusetts CDO Case for $17.5 Million, Stockbroker Fraud Blog, April 1, 2013

Barclays LIBOR Manipulation Scam Places Citigroup, Credit Suisse, Deutsche Bank, JP Morgan Chase, and UBS Under The Investigation Microscope, Institutional Investor Securities Blog, July 16, 2012

March 28, 2013

2nd Circuit Eases MBS Lawsuits by Reinstating Pension Fund’s Case Against Wells Fargo, Royal Bank of Scotland, Wachovia, & Others

The U.S. Court of Appeals for the Second Circuit has reinstated New Jersey Carpenters Health Fund v. Royal Bank of Scotland Group PLC (RBS), which also includes defendants Wells Fargo Advisors (WFC), McGraw-Hill (MHP), and a number of others. The decision will ease class action mortgage-backed securities lawsuits by investors.

Holding that the plaintiff did not satisfy pleading requirements under the Securities Act of 1933 for lawsuits, a district court had thrown out the case, which was filed by the New Jersey pension fund. The 2nd circuit, however, reversed the ruling, finding that the allegations made (that an unusually high number of mortgages involving a security had defaulted, credit rater agencies downgraded the ratings of the security after modifying how they account for inadequate underwriting, and ex-employees of the relevant underwriter vouched that underwriting standards were being systematically ignored) make a plausible claim that the security’s offering documents incorrectly stated the applicable writing standards. This would be a Securities Act of 1933 violation.

Expected to benefit from the ruling are federal credit union regulators, including the National Credit Union Administration, which has submitted a number of MBS lawsuits against financial firms and banks. Last year, NCUA filed a $3.6 billion action against JP Morgan Chase (JPM) accusing the latter’s Bear Stearns & Co. unit of employing misleading documents to sell mortgage-backed securities to four corporate credit unions that went on to fail. The credit union agency contends that the mortgage in the pools collateralizing the RMBS (residential mortgage-backed securities) did not primarily adhere to underwriting standards noted in the offering statements and the securities were much riskier than what they were represented to be. NCUA has also sued a few of the defendants that the New Jersey Carpenters Health Fund is suing, as well as Goldman Sachs Group (GS) and Barclays.

Mortgage-Backed Securities Lawsuits
According to NERA Economic Consulting, about 850 mortgage-related cases have been submitted in the US since 2007. While the earlier lawsuits concentrated on the originators, with plaintiffs placing a lot of the blame on poor underwriting and bad loans, banks that created securities from residential mortgages and got investors to buy in also were eventually named as defendants. Meantime, trustees have come into the fray as either plaintiffs or defendants. For example, some have been sued for allegedly failing to make lenders buy back the faulty mortgages underlying the securities. Some mortgage bond investors have also been named as defendants in MBS cases.

At Shepherd Smith Edwards and Kantas, LTD, LLP, our RMBS lawyers represent clients in the US, as well as investors abroad that were defrauded by a firm or financial representative based here. Your first MBS case consultation with our institutional investment fraud law firm is free.

NEW JERSEY CARPENTERS HEALTH FUND v. THE ROYAL BANK OF SCOTLAND GROUP, PLC, Leagle.com

New Jersey Carpenters v. Royal Bank of Scotland - Second Circuit, American Bar Association

Second Circuit Rules in Favor of Investors in Multibillion Dollar NovaStar MBS Class Action, Reuters/Businesswire, March 1, 2013


More Blog Posts:
Former Jeffries Director Charged with Securities Fraud Crimes and Sued By SEC Over Alleged Residential Mortgage-Backed Securities, Stockbroker Fraud Blog, February 1, 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

Morgan Keegan Settles Subprime Mortgage-Backed Securities Charges for $200M, Stockbroker Fraud Blog, June 29, 2011

February 20, 2013

New York Fed Bailed Out Bank of America Over Mortgage-Backed Securities Sold to AIG

Recently, a secret deal came to light involving the Federal Reserve Bank of New York bailing out Bank of America (BAC) that released the latter from all legal claims involving mortgage-backed securities losses that the former obtained when the government rescued American International Group (AIG) in 2008. Some believe that the bank was allowed to abscond responsibility even as AIG sought to recover $7 billion that was loss on these same MBSs.

According to The New York Times, as part of its settlement with BofA, the New York Fed obtained $43 million in a securities dispute involving two of the mortgage securities. For no compensation, the bank was released from all other legal claims.

The roots of this settlement can be traced back to 2008 when the government intervened to rescue AIG . Part of that aid involved AIG selling mortgage securities to Maiden Lane II, which the New York Fed oversees. At the time, the insurer was losing money from toxic mortgages, many of which came from BofA. AIG obtained $20.8 billion for securities valued at $39.2 billion.

In 2011, AIG sued BofA for securities fraud in attempted to obtain $10 billion in damages--$7 billion from the Maiden Lane II-related securities. Meantime, Bank of America argued that AIG had no grounds for suing it on these securities, noting that possession of the entitlement to bring a legal lawsuit against the bank had passed to Maiden Lane. New York Fed, which controlled Maiden Lane II, never brought securities claims against BofA.

However, AIG contended that under New York law, which Maiden Lain II is subject to, an entity must explicitly transfer the right to sue for fraud and that the deal between AIG and the New York Fed never specified this switch. AIG then filed a separate MBS lawsuit against Maiden Lane II in New York.

Now, AIG’s $10 billion fraud lawsuit against BofA has gone to federal court. Federal Judge Mariana R. Pfaelzer in California’s central district will rule on who is the claims’ owner.

While the New York Fed agreed in late 2011 that AIG is entitled to seek damages on instruments that it sold to Maiden Lane II, it is now aiding BofA in the latter’s legal fight against AIG, even providing a declaration that Maiden Lane II was the only one entitled to sue. Some, however, are asking why if the New York Fed meant for Maiden Lane II to possess ownership of the right to sue Bank of America it didn’t try to file its own claim for taxpayers rather than discharging the bank from liability. Meantime, the question of whether BofA should be liable for wrongdoing committed by Countrywide during economic crisis has still not been answered.

Don’t Blink, or You’ll Miss Another Bailout, The New York TImes, February 16, 2013

AIG sues NY Fed over right to


More Blog Posts:
Former Jeffries Director Charged with Securities Fraud Crimes and Sued By SEC Over Alleged Residential Mortgage-Backed Securities, Stockbroker Fraud Blog, February 11, 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

Investment Fraud Lawsuit Against BlackRock Over Exchange-Traded Funds Could Shed More Light on Securities Lending, Institutional Investor Securities Blog, February 18, 2013

February 11, 2013

JP Morgan Sued by Dexia in $1.7B MBS Lawsuit

Dexia SA (DEXB) is suing JP Morgan Chase & Co. (JPM ) for over $1.7 billion. In its mortgage-backed securities lawsuit, the Belgian-French bank contends that the loans underlying the securities that the US bank sold it were riskier than what they were represented to be.

JP Morgan and its companies, Washington Mutual (WM) and Bear Stearns Co., are accused of “egregious” fraud for allegedly making and selling mortgage bonds backed by loans that they knew were “exceptionally bad.” Dexia claims it sustained substantial losses.

According to The New York Times, there are a slew of employee interviews and internal e-mails related to this MBS lawsuit that talk about how the three firms disregarded quality controls and problems—perhaps even concealing the latter—in order to make a profit from these mortgages that were packaged into complex securities. They are accused of seeking to avail of the mortgage-backed securities demand during the housing boom even as doubts began to arise about whether or not these investments were good quality. Court filings report that JPMorgan would get mortgages from lenders that didn’t have stellar records, assigning Washington Mutual and American Home Mortgage a “poor” grade on its “internal ‘due diligence scorecard.’” The loans were then swiftly sold off to investors.

Meantime, Bear Stearns and Washington Mutual are also said to have cut back on quality controls—the latter even reducing due diligence staff by 25% for the supposed purpose of upping profits. One e-mail said that executives who protested these actions were harassed.

Also, per court documents, a 2006 analysis for JP Morgan by a third party to study home loans before they were bundled into investments determined that close to half the sample pool—about 214 loans—were “defective,” meaning that they failed to satisfy underwriting standards. Meantime, considering the size of some mortgages, the incomes of its borrowers were reportedly precariously low, and per another report that year, thousands of borrowers were late on payments. Yet, contend the documents, JP Morgan would on occasion disregard or change these critical assessments while giving certain employees, including bankers that put together the mortgages, the authority to veto or turn a blind eye to these negative reviews. JP Morgan executives at times even allegedly lowered the number of loans thought delinquent or “defective.”

All of these actions were allegedly part of a plan to raise profit. One Washington Mutual employee even revealed in a deposition that making the loan defects known would have been harmful to the financial firm. Also, because some firms did not give an accurate portrayal of their investments, this impacted the way credit ratings agencies would rate the securities.

Since the financial crisis, Dexia has been bailed out twice. Court records show that it sustained $774 million in losses on MBS, which overall cost over $22.5 billion in losses from 2005 and 2007 alone.

Related Web Resources:
E-Mails Imply JPMorgan Knew Some Mortgage Deals Were Bad, The New York TImes, February 6, 2013

JPMorgan Sued by Dexia Over $1.7 Billion in Mortgage-Backed Securities, Bloomberg, January 20, 2012


More Blog Posts:
JPMorgan, Goldman Sachs, Bank of New York Mellon, Charles Schwab Disclose Market-Based NAVs of Money Market Mutual Funds, Stockbroker Fraud Blog, February 7, 2013

Texas Securities Criminal Case Against Oil and Gas Company Executive Can Proceed, Rules Fifth Circuit, Stockbroker Fraud Blog, February 6, 2013

Morgan Keegan Founder Faces SEC Charges Over Mortgage-Backed Securities Asset Pricing in Mutual Funds, Institutional Investor Securities Blog, December 17, 2012

January 21, 2013

Large Financial Firms Roundup: Securities Fraud Suit Against Citigroup is Dismissed by 2nd Circuit, AIG Wants to File MBS-Related Cases Against Banks, & District Court Reconsiders Partial Dismiss of Class Action Against Morgan Stanley in Pension Fund Case

Second Circuit Dismisses Securities Fraud Lawsuit Against Citigroup
The U.S. Court of Appeals for the Second Circuit has affirmed the district court’s decision to throw out the securities fraud lawsuit filed by a real estate developer against Citigroup (C) and its former CEO Vikram Pandit. Sheldon H. Solow had accused both of them of allegedly making omissions and misstatements that highlighted the bank’s liquidity and capitalization while downplaying financial problems. Because of this, he contends, the financial firm’s stock price became artificially inflated and then fell when the truth about the firm’s financial health became known.

The appeals court held that while Solow, in his securities lawsuit, did an adequate job of pleading alleged misstatements and omissions about Citigroup’s liquidity, he did not succeed in showing that the statements caused his financial losses. It also dismissed his control-person claim against Pandit, saying that there was a failure to plead a primary violation by the bank.

AIG Wants to File MBS-Related Cases Against Banks
American International Group (AIG) wants to be able to assert tort and fraud claims against financial institutions that marketed and securitized mortgage-backed securities that AIG bought between 2005 and 2007. The insurance corporation wants the New York Supreme Court to declare that it owns billions of dollars in these claims. The case is American International Group v. Maiden Lane II.

Per the 23-page complaint, the Federal Reserve Bank of New York had created Maiden Lane II to give the broader financial markets and AIG stability in 2008. Maiden Lane II is the possessor of contract claims related to these securities and the New York Fed believes AIG moved the tort and fraud claims to Maiden Lane II in the asset purchase agreement that was made. AIG, however, remains adamant that it owns the claims.


District Court Reconsiders Partial Dismiss of Class Action Against Morgan Stanley in Pension Fund Case
A district court in New York says it will reconsider its partial dismissal of class action allegations accusing Morgan Stanley (MS) and a number of its affiliates of violating federal securities laws involving mortgage-backed securities sales. According to Judge Laura Taylor Swain, because the 2nd Circuit’s ruling in NECA-IBEW Health & Welfare Fund v. Goldman Sachs & Co. constituted an “intervening change of controlling law,” so warrants another look of the district court’s own earlier opinion.

According to the institutional investor plaintiffs, Morgan Stanley and affiliates sold them securities backed by home mortgage loans that had almost no value or were flawed. Investor Public Employees' Retirement System of Mississippi filed a securities complaint over its certificates purchase through one of 14 offerings by Morgan Stanley.
While the district court had partially dismissed the case in 2010 noting that MissPERS did not have standing to make claims on the other offerings from which it hadn’t bought certificates, in the wake of the Goldman ruling, plaintiffs of this case can now file an now file an amended complaint. The appeals court’s decision found that a putative lead plaintiff has class standing if having “plausibly alleged” that it experienced suffering from some actual injury because of conduct by the defendant that was “putatively illegal” and implicates the same concerns as the conduct (by the same defendants) that allegedly caused injury to the other class members.


Related Web Resources:
AIG Sues The New York Fed, Reuters/Business Insider, January 12, 2013

Federal appeals court dismisses Sheldon Solow’s lawsuit against Citigroup, The Real Deal, january 15, 2013

Intervening Change' in Law Leads Court To Reconsider Standing Question in MBS Suit, BNA/Bloomberg, January 15, 2013


More Blog Posts:
Credit Suisse Must Face ARS Lawsuit Over Subsidiary Brokerage’s Alleged Misconduct, Says District Court, Stockbroker Fraud Blog, January 11, 2013

Morgan Keegan Founder Faces SEC Charges Over Mortgage-Backed Securities Asset Pricing in Mutual Funds, Institutional Investor Securities Blog, December 17, 2012

Principals of Global Arena Capital Corp. and Berthel, Fisher & Company Financial Services, Inc. Settle FINRA Securities Allegations, Stockbroker Fraud Blog, April 6, 2012

December 17, 2012

Morgan Keegan Founder Faces SEC Charges Over Mortgage-Backed Securities Asset Pricing in Mutual Funds

The U.S. Securities and Exchange Commission has filed civil charges against Morgan Keegan founder Allen Morgan Jr. and several other former mutual fund board members for allegedly failing to supervise the managers accused of inaccurately pricing toxic mortgage-backed assets prior to the financial crisis. According to Reuters, this is a rare attempt by the regulator to hold a mutual fund’s board accountable for manager wrongdoing and it is significant. (Fund manager James Kelsoe hasconsented to pay a $500,000 penalty related to this matter and he is barred from the securities industry in perpetuity. Comptroller Joseph Thompson Weller consented to pay a $50,000 penalty.)

Last year, Morgan Keegan and Morgan Asset Management consented to pay $200 million to settle SEC subprime mortgage-backed securities fraud charges accusing them of causing the false valuations of the securities in five funds and failing to use reasonable pricing methods. (This allegedly led to “net asset values” being calculated for the funds.) The inaccurate daily NAVS would then be published and investors would buy shares at inflated prices. The funds’ value eventually declined significantly.

According to the Commission, the eight ex-board members violated laws mandating that fund directors help decide what a security’s fair value is when market quotations don’t exist. Instead of trying to figure out how fair valuation determinations work, the directors allegedly gave this task to a valuation committee but without providing “meaningful substantive guidance.”

Allen Morgan Jr., who is a Morgan Keegan cofounder, was CEO and Chairman until 2003.The seven other board members facing SEC charges include Kenneth Alderman, Mary S. Stone, W. Randall Pittman, Albert C. Johnson, James Stillman R. McFadden, Jack R. Blair, and Archie W. Willis III.

Already, Morgan Keegan is contending with over 1,000 arbitration lawsuits involving its bond funds that had invested in high risk MBS but were marketed as safe. When the subprime market collapsed, the funds lost up to 80% of their value.

Recently, Morgan Keegan and over 10,000 investors in a closed-end fund reached a $62 class million settlement. Lion Fund LP, the lead plaintiff and a Texas hedge fund, claimed that it had made a $2.1 million investment.

Morgan Keegan is owned by Raymond James (RJF), which bought the firm from Regions Financial Corporation. Other securities lawsuits still pending against it also involve conventional and open-ended funds.

Unfortunately, too many people and entities sustained huge losses because the risks of a number of types of securities leading up to the global crisis and the housing bubble’s implosion were downplayed by financial firms and their representatives. At Shepherd Smith Edwards and Kantars, our subprime mortgage-backed securities lawyers represent investors throughout the US. Contact our securities law firm today.

SEC Charges Eight Mutual Fund Directors for Failure to Properly Oversee Asset Valuation, SEC, December 10, 2012

SEC Order
(PDF)


More Blog Posts:
Judge that Dismissed Regulators’ Claims Against Morgan Keegan to Rule on ARS Lawsuit Again After His Ruling Was Reversed on Appeal, Institutional Investor Securities Blog, November 27, 2012

Morgan Keegan & Company Ordered by FINRA to Pay $555,400 in Texas Securities Case Involving Morgan Keegan Proprietary Funds, Stockbroker fraud Blog, September 6, 2011

Morgan Keegan Ordered by FINRA to Pay RMK Fund Investors $881,000, Stockbroker Fraud Blog, April 24, 2011

Continue reading "Morgan Keegan Founder Faces SEC Charges Over Mortgage-Backed Securities Asset Pricing in Mutual Funds" »

October 29, 2012

Institutional Investor Securities Blog: Putnam Advisory Accused of Massachusetts Securities Fraud in $3B CDO Offerings, SEC Claims Yorkville Advisors Fixed Books To Attract Investors, and FINRA Seeks Comments on Revised Proposal Over Bond Market Research

The Massachusetts Securities Division is claiming that Putnam Advisory Co. deceived investors about its actual involvement in Pyxis 2006 and Pyxis 2007, two $1.5 billion collateralized debt obligations comprised of midprime and subprime mortgage-backed securities. In its administrative complaint, the state contends that Putnam represented to investors that it would act as an independent advisor when to the Pyxis CDOs when, in fact, Magnetar Capital, a hedge fund, was also involved creating in and structuring key aspects of both and even recommended that certain collateral to be included in them while then proceeding to take a substantial short position on that collateral. Putnam denies the allegations.

The state says that Magnetar proceeded to benefit from the downgrades of subprime assets in the two CDOs while making a net gain of about $67 million on aggressive positions and equity investments linked to the two of them. Meantime, Putnam earned $8.81 million in collateral management fees for the Pyxis CDOs. Massachusetts Secretary of Commonwealth William F. Galvin says that his office will continue to look at how banks misled the buyers of subprime mortgage-backed securitized debt instruments.

In other securities news, the SEC is accusing Yorkville Advisors LLC, its president and founder Mark Angelo, and CFO Edward Schinik of revising certain books to appeal to potential investors and succeeded in getting pension funds and funds of funds to invest $280 million into two Yorkville hedge funds. This allegedly let Yorkville charge at least $10 million in excessive fees. All three three defendants are denying the allegations.

Per the SEC, Yorkville, Angelo, and Schinik allegedly misrepresented the assets’ liquidity and safety of the funds’ assets and charged excessive fees to investors by fraudulently inflating the investments’ value. This included “falsely” presenting Yorkville as a firm that “employed a robust valuation procedure” and was in charge of an investment portfolio that was highly collateralized.

The Commission’s allegations stem from its Aberrational Performance Inquiry, which employs analytic data to determine risk and look for hedge funds with returns that are “suspicious.” The SEC claims that the defendants did not abide by Yorkville’s valuation practices, disregarded negative data about specific investments, failed to disclose adverse information from an auditor, and misled investors about the funds’ liquidity and the role played by a third-party valuation firm.

Meantime, the Financial Industry Regulatory Authority wants comments on a revised proposal that tackles conflicts of interest stemming from bond market research. While current FINRA rules are imposed on research analysts and research reports for equities research, the modifications, which the SEC must approve, would impose requirements on research analysts and research reports that examine debt securities.

Per the proposed revisions, brokerage firms would set up, maintain, and put into effect procedures and policies that would identify and deal with conflicts of interest having to do with debt research analysts’ public appearances, the preparation and distribution of debt research reports, and interactions between the analysts and others. Also, a “higher tier” of institutional investors that would be able to get institutional debt research without having to affirmatively elect to do so in writing would be set up. Institutional investors would qualify for this tier by satisfying the “qualified institutional buyer” definition and other requirements. Also, firms that have limited principal debt trading activity would, for the first time, obtain an exemption.

The revised proposal was developed following comments criticizing the original one as being too “burdensome.” As with the first proposal, this one continues to “treat retail investors and institutional investors as customers and counterparties, respectively,” said FINRA chairman and CEO Richard Ketchum, while retail debt research and equity research will get equal protections and institutional debt research becomes exempt from a lot of structural provisions.

In the matter of Putnam Advisory Co., LLC, Sec.State.Ma.US (PDF)

SEC v. Yorkville Advisors, Mark Angelo, and Edward Schinik (PDF)

Text of Proposed New Finra Rule: Debt Research Analysts and Debt Research Reports, FINRA


More Blog Posts:

FINRA Securities Fraud Roundup: Guggenheim Securities Fined $800K For Failure to Supervise CDO Traders, Brokerage Firm Managing TIC Securities Doesn’t Have to Arbitrate Investor Claims, & Investor Award in Morgan Keegan Funds is Upheld, Institutional Investor Securities Blog, October 12, 2012

Citigroup to Pay $590M to Settle Shareholder Class Action CDO Lawsuit Over Subprime Mortgage Debt, Institutional Investor Securities Blog, August 30, 2012

FINRA Arbitration Panel Tells Merrill Lynch to Pay $1.34M to Florida Couple Over Allegedly Misrepresenting Fannie Mae Preferred Shares' Risks, Stockbroker Fraud Blog, October 17, 2012

September 14, 2012

Class Action MBS Securities Lawsuit Against Goldman Sachs is Reinstated by 2nd Circuit

The U.S. Court of Appeals for the Second Circuit has reinstated a would-be class action securities lawsuit accusing Goldman Sachs (GS) (in the role of underwriter) and related entities of misstating the risks involving mortgage-backed securities certificates. The revival is based on 7 of 17 challenged offerings, causing the appeals court to conclude that the plaintiff can sue on behalf of investors in mortgaged-back certificates whose lenders originated the mortgages backing the certificates that were bought. The 2nd Circuit said that those investors’ claims and the pension fund’s claims implicate the same concerns.

Per the court, NECA-IBEW Health & Welfare Fund is alleging violations of the Securities Act of 1933’s Sections 15, 12(a)(2), and 11 involving a would-be class of investors who bought certain certificates that were backed by mortgages that Goldman had underwritten and one of its affiliates had issued. The certificates were sold in 17 offerings pursuant to the same shelf registration statement but with 17 separate prospectus supplements that came with specific details about each offering.

In its class action securities lawsuit, the plaintiff alleged that the shelf registration statement had material misrepresentations about both the risks involving the instruments and underwriting standards that are supposed to determine the ability of a borrower to repay. A district court dismissed the lawsuit.

The Second Circuit acknowledged that NECA suffered personal injury from the defendants’ use of allegedly misleading statements in the offering documents linked to the certificates that it bought. However, whether the defendants’ behavior implicates the same concerns as their decision to include similar statements in the Offering Documents associated with other certificates is more difficult to answer.

While the plaintiff’s claims are partially based on general allegations of a deterioration in loan origination practices that is industry wide, the most specific claims link the allegedly abusive conduct to the 17 trusts’ 6 main originators. However, Wells Fargo Bank (WFC) and GreenPoint Mortgage Funding Inc., the only two entities that are the originators of the loans behind the certificates that the fund bought, are not defendants in this securities lawsuit.

That the alleged misrepresentations showed up in separate Offering Documents doesn’t alone bring up fundamentally different concerns because their location doesn’t impact a given buyer’s “assertion that the representation was misleading,” said the court. Because of this, and other reasons, the plaintiff has class standing to assert the claims of the buyers of the Certificates from the 5 other Trusts that have loans that were originated by Wells Fargo, Greenpoint, or both.

The second circuit said that the fund didn’t need to “to plead an out-of-pocket loss” to allege a cognizable diminution in the value of a security that was not liquid under that statute. Finding the “requisite inferences” in favor of the plaintiff, the appeals court said that not only was it “plausible,” but also it was obvious that mortgage-backed securities, such as the Certificates, would experience a drop in value because of ratings downgrades and uncertain cash flows. The fund “plausibly alleged” a distinction between how much it paid for the certificates, their value, and when the class action MBS lawsuit was filed.

NECA-IBEW Health & Welfare Fund v. Goldman Sachs & Co.
, Justia (PDF)

Appeals Court Revives Class Suit Against Goldman Over MBS Certificates, Bloomberg/BNA, September 7, 2012

Continue reading "Class Action MBS Securities Lawsuit Against Goldman Sachs is Reinstated by 2nd Circuit" »

August 31, 2012

Institutional Investor Securities Roundup: FHFA Can Start Discovery in MBS Litigation Against Banks, SEC Sues Puerto Rico Man Over Alleged $7M Scam, and Assets of Two Colorado Men are Temporarily Frozen Over Alleged Promissory Note Ponzi Scheme

The U.S. District Court for the District of Connecticut has decided that the Federal Housing Finance Agency can begin the discovery process in its lawsuit over $190 million in mortgage-backed securities that were sold to Freddie Mac (FMCC) and Fannie Mae (FNM.MU) through several hundred securitizations. FHFA is suing financial firms and banks, contending that they did not properly represent the risks involved in the loans backing these MBS. This ruling rejects an attempt by Royal Bank of Scotland (RBS) to stall discovery.

To stop the discovery process from beginning, Royal Bank of Scotland contended that the Private Securities Litigation Reform Act (PSLRA) mandates a stay of discovery until a motion to dismiss is resolved. The bank said that under PSLRA, FHFA’s lawsuit is a private cause of action because the agency is maintaining the action for private firms. Royal Bank of Scotland also argued that under the Securities Act or PSLRA, there is “no ‘public’ investor suit.” Judge Alvin W. Thompson, however, did not agree and granted permission to FHFA to begin discovery while noting that the agency is suing as a conservator and therefore the concerns that Congress had in choosing to enact PSLRA don’t exist in this case.

In an unrelated securities fraud case, the SEC is suing Ricardo Banally Rajas of Puerto Rico and his firm Shadai Yire over their alleged involvement in a $7M Ponzi scam that targeted about 200 unsophisticated investors, both from the mainland and the island, between August 2005 and February 2009. Rajas is accused of hiring sales agents that worked on commission while making a number of misrepresentations to get investors to join up. Also, the Commission says that Rajas would recruit through individual conversations and group presentations, promising to pay investors 15-50% yearly return rates while claiming that this was a risk-free investment in Shadai Yire subsidiary M & R International Group, Corp., which would then invest in commodities contracts. Unfortunately, Rajas did not invest these clients’ money, instead using the funds to pay off investors with newer investors’ cash. He also allegedly misappropriated at least $700K to support for his lifestyle. The SEC wants disgorgement, injunctions, and fines.

In a different Ponzi scam, the U.S. District Court for the District of Colorado has put out an order temporarily freezing the assets of two locals, William Sullivan and Michael Turnock, and their firm Bridge Premium Finance LLC. The three defendants allegedly ran their business of selling promissory notes as a financial scheme that ended up raising at least $15.7M from over 100 investors throughout the country. These clients had been promised yearly returns of up to 12%.

The two Colorado men are accused of making it appear to investors that their money would be used to issue loans to small businesses to pay for yearly commercial insurance premiums and that the funds were completely protected via different types of collateral on the underlying loans. In truth, contends the SEC, for at least 10 years investors were paid using newer investors money because Bridge Premium, contrary to how it was represented to them, was not profitable and its obligations to noteholders were much greater than its total assets. As of May, says the Commission, the company had assets under $500K and owed investors over $6.2M. The SEC wants disgorgement and for the defendants to pay a fine.

Federal Housing Finance Agency

Private Securities Litigation Reform Act of 1995

Federal Housing Finance Agency v. Royal Bank of Scotland (PDF)

SEC v. Rojas, SEC.gov (PDF)

SEC halts Denver Based Ponzi Scheme, SEC.gov, August 15, 2012


More Blog Posts:

Institutional Investment Roundup: Madoff Ponzi Victims to Get 2nd Payout, Insurer’s MBS Lawsuit Against UBS Can Proceed, SEC Charges 2 in $10M Penny Stock Scam, & Hedge Fund Manager Found Guilty in $900K Insider Trading Scheme, Institutional Investor Securities Blog, August 29, 2012

SEC Securities Law Roundup: First Whistleblower Award Under New Program is Announced, Internet-Based Investment Adviser Seeks Regulator’s Recognition, & the Commission Stops Alleged $600M Online Ponzi Scheme, Stockbroker Fraud Blog, August 29, 2012

Texas Securities Roundup: Morgan Stanley Smith Barney Sued Over Financial Adviser’s Ponzi Scam, Judge Dismisses Ex-GE Executive Whistleblower’s Lawsuit Over His Firing, & Ex-Stanford Financial Group CIO Pleads Guilty to Obstructing the SEC’s Probe, Stockbroker Fraud Blog, July 3, 2012

August 29, 2012

Institutional Investment Roundup: Madoff Ponzi Victims to Get 2nd Payout, Insurer’s MBS Lawsuit Against UBS Can Proceed, SEC Charges 2 in $10M Penny Stock Scam, & Hedge Fund Manager Found Guilty in $900K Insider Trading Scheme

The U.S. Bankruptcy Court for the Southern District has issued an order giving Irving Picard, the Bernard L. Madoff Investment Securities LLC liquidation trustee, permission to issue a second interim distribution to the victims of the Madoff Ponzi scam. Picard had asked to add $5.5 billion to the customer fund and issue a second payout of $1.5 billion to $2.4 billion to the investors that were harmed.

According to Bloomberg Businessweek, a $2.4 billion payout would be seven times more than what the bilked investors have been able to get back since Madoff, who is serving a 150-year prison term for his crimes, defrauded them. A huge part of the customer fund is on reserve because there are investors who have filed securities lawsuits contending they should be getting more.

Meantime, the U.S. District Court for the Southern District of New York has decided that the mortgage-backed securities lawsuit filed by insurance company Assured Guaranty Municipal Corp. against UBS Real Estate Securities Inc. can proceed. The plaintiff contends that UBS misrepresented the quality of the loans that were underlying the MBS it insured in 2006 and 2007.

Assured claims that the defendant was in breach of the pooling and servicing agreements involving three MBS certificates that it had insured. Because UBS allegedly misrepresented the quality of the underlying mortgage loans, it has to, per the contracts, repurchase them from Assured.

While Judge Harold Baer denied UBS motion to dismiss the insurer’s contention that the defendant misrepresented the loans’ quality, it agreed with the defendant that Assured cannot force UBS to repurchase them because certificate trustees are the only ones entitled to make sure the “repurchase obligation” is enforced.

In other institutional investment fraud news, the Securities and Exchange Commission has filed charges against Edward Bronson and his E-Lionheart Associates LLC. The two are accused of making over $10 million in a penny stock scam involving the reselling of billions of unregistered shares in about 100 small companies that they acquired at “deep discounts.”

Per the Commission, at Bronson’s direction, E-Lionheart would cold call penny stock companies to try to get them to obtain capital. If there was interest, the firm would offer to purchase shares in the concern at prices that were greatly lower than market value. The defendants would then start reselling the shares through brokers involved in unregistered sales.

The SEC says that while the defendants are invoking a registration exemption that exists under Rule 504(b)(1)(iii) of Regulation D, the Commission contends that this does not apply to these types of sales. The regulator is seeking disgorgement of over $10M, in addition to other penalties.

In an unrelated financial scam, this one involving a criminal case, a New York jury has convicted hedge fund manager Doug Whitman on securities fraud and conspiracy over his involvement in two insider trading schemes. Whitman, who is a Whitman Capital LLC portfolio manager, was charged with using insider trading tips to trade in Marvell Technology Group Ltd. (MRVL), Polycom Inc., (PLCM), and Google Inc. (GOOG) stocks. This allegedly caused him to generate over $900,000 in profits.

Prosecutors claim Whitman obtained the confidential information about the Marvell options and shares from an independent research consultant that received the information from the company’s employees. A colleague in the hedge fund industry gave him the information about Google and Polycom.

The SEC has also filed a civil lawsuit against Whitman and his financial firm. The securities fraud complaint is still pending.

Madoff Trustee’s Customer Payment May Reach $2.4 Billion, Bloomberg Businessweek, August 22, 2012

The Madoff Recovery Initiative

Assured Guaranty Municipal Corp. v. UBS Real Estate Securities Inc. (PDF)

Read the SEC's Complaint against E-Lionheart Associates LLC (PDF)

California Hedge Fund Manager Doug Whitman Found Guilty in Manhattan Federal Court on All Counts for Insider Trading, FBI.gov, August 20, 2012


More Blog Posts:
Merrill Lynch Agrees to Pay $40M Proposed Deferred Compensation Class Action Settlement to Ex-Brokers, Stockbroker Fraud Blog, August 27, 2012

Securities Lawsuit Against Options Clearing Corporation and Chicago Board Options Exchange Can Proceed Says Illinois Appellate Court, Stockbroker Fraud Blog, August 24, 2012

2nd Circuit Affirms Dismissal of $18.5M Auction-Rate Securities Lawsuit Against Merrill Lynch Filed by Anschutz Corp.
, Institutional Investor Securities Blog, August 23, 2012

August 18, 2012

Shareholder Lawsuit Against Goldman Sachs CEO and Other Financial Firm Executives is Dismissed

In the US District Court for the Southern District of New York, the shareholder complaint against a number of Goldman Sachs Group (GS) executives, including CEO Lloyd Blankfein, COO Gary Cohn, CFO David Viniar, and ex-director Rajat Gupta, has been dismissed. The lead plaintiffs of this derivatives lawsuit are the pension fund Retirement Relief System of the City of Birmingham, Alabama and Goldman shareholder Michael Brautigam. They believe that the investment bank sponsored $162 billion of residential mortgage-backed securities while knowing that the loans backing them were in trouble. They say that Goldman then proceeded to sell $1.1 billion of the securities to Freddie Mac and Fannie May. Their securities complaint also accuses the defendants of getting out of the Troubled Asset Relief Program early so they could get paid more.

According to Judge William Pauley, the plaintiffs did not demonstrate that “red flags” had existed for bank directors to have been able to detect that there were problems with the “controls” of mortgage servicing business or that problematic loans were being packaged with RMBS. He also said that the shareholders did not prove that firm directors conducted themselves in bad faith when they allowed Goldman to pay back the $10 billion it had received from TARP early in 2009, which then got rid of the limits that had been placed on executive compensation.

Even with this shareholder complaint against Goldman tossed out, however, the investment bank is still dealing with other shareholder lawsuits. For example, they can file securities lawsuits claiming that they suffered financial losses after Goldman hid that there were conflicts of interest in the way several CDO transactions were put together.

Meantime, the US Department of Justice has officially concluded its criminal investigation into Goldman’s activities before the economic collapse. Yet, some are now wondering why the DOJ chose to issue an official statement that there was no “viable basis to bring a criminal prosecution” against the financial firm when such a public disclosure usually isn’t protocol in this type of probe.

Also, Goldman is reporting that the SEC has concluded its civil investigation into the bank’s sale of over a billion dollars of subprime mortgage debt and has decided not to take any civil action. This is a reversal from the Commission’s earlier Wells notification to Goldman notifying the bank that it would likely be the target of a civil action. The SEC had been looking into whether the bank misled investors, causing them to think that MBS were safe investments for them.

Unfortunately, the economic crisis led to massive losses for many investors of residential mortgage-backed securities, auction-rate securities, and other complex investments. You should speak to an experienced RMBS law firm to explore your legal options for recovery.

U.S. Goldman Disclosure a Rare Break in Secrecy, New York Times, August 10, 2012

Goldman execs win dismissal of mortgage, TARP lawsuit, Reuters, August 15, 2012

Troubled Asset Relief Program, Federal Reserve


More Blog Posts:
Ex-Goldman Sachs Director Rajat Gupta Pleads Not Guilty to Insider Trading Charges, Stockbroker Fraud Blog, October 26, 2011

Goldman Sachs Settles SEC Subprime Mortgage-CDO Related Charges for $550 Million
, Stockbroker Fraud Blog, July 30, 2010

Goldman Sachs Execution and Clearing Must Pay $20.5M Arbitration Award in Bayou Ponzi Scam, Upholds 2nd Circuit, Institutional Investor Securities Blog, July 14, 2012


August 14, 2012

Wells Fargo Securities Settles for Over $6.5M SEC Charges Over Allegedly Improper Sale of ABCP Investments with Risky MBS and CDOs

The SEC is charging Wells Fargo Securities, formerly known as Wells Fargo Brokerage Services, and former VP Shawn McMurtry for selling complex investments to institutional investors without fully comprehending the investments’ level of sophistication or disclosing all of the risks involved to these clients. To settle the securities charges, Wells Fargo will pay a penalty of over 6.5 million, $16,571.96 in prejudgment interest, and $65,000 in disgorgement.

According to the Commission, Wells Fargo engaged in the improper sale of asset-backed commercial paper that had been structured with risky collateralized debt obligations and mortgage-backed securities to non-profits, municipalities, and other clients. The SEC contends that the financial firm did not secure enough information about the instruments, even failing to go through the investment private placement memoranda (and the risk disclosures in them), and instead relied on credit ratings. With this alleged lack of comprehension of the actual nature of these investment vehicles and the risks and volatility involved, as well as having no basis for making such recommendations, Wells Fargo’s Institutional Brokerage and Sales Division representatives went ahead and recommended the instruments to certain investors who had generally conservative investment objectives.

These allegedly improper sales happened between January and August 2007 when representatives recommended to certain institutional investors that they buy ABCP that were structured investment vehicles that were primarily CDO and MBS-backed (SIVs and SIV-Lites). Unfortunately, a number of the investors that did buy the SIV-issued ABCP, per Wells Fargo’s recommendation, lost money when 3 of these programs defaulted that same year.

Meantime, the SEC is accusing McMurtry of violating the financial firm’s internal policy and choosing a certain ABCP issuer for one longstanding municipal client. He too allegedly did not obtain enough information about the investment and only depending on its credit rating. He has agreed to pay $25,000 and serve a 6-month securities industry suspension.

The Commission says that McMurtry and Wells Fargo, who, at the very least, were negligent when they recommended the ABCP program without being informed enough about the investments (or why they should be recommended to which client), failed to reveal the material risks involved and violated the Securities Act of 1933. Both have agreed to settle without admitting to or denying the charges.

Also, the SEC’s order is reporting that since 2007, Wells Fargo has executed several remedial steps to make sure that its representatives are given enough information so that they can make recommendations that are suitable to each investor. These clients are to be given any relevant information about the securities, including the details about the involved.

It is important that your financial representative recommended investments to you that were appropriate not just for your investment goals but also for the degree of risk that you and your finances are able/want to take. Certain investments are only for sophisticated investors and even then there are high risks involved.

If you believe that your losses are a result of unsuitable investments and/or because you were not given enough information to make the right decision for you and your investment, you should speak with an experienced institutional investment fraud lawyer right away.

Read the SEC Order (PDF)

SEC Charges Wells Fargo for Selling Complex Investments Without Disclosing Risks, SEC, August 14, 2012


More Blog Posts:

Wells Fargo & Co. May Have to Pay Another $15M to Minnesota Nonprofits For Securities Fraud, Institutional Investor Securities Blog, December 24, 2010

Wells Fargo Settles for $148M Municipal Bond Bid-Rigging Charges Against Wachovia Bank, Institutional Investor Securities Blog, December 8, 2011

Morgan Stanley, Citigroup, Wells Fargo, and UBS to Pay $9.1M Over Leveraged and Inverse ETFs, Stockbroker Fraud Blog, May 3, 2012

July 18, 2012

Institutional Investor Roundup: Ex-IndyMac Executives Class Action Securities Case for $6.5M, New York Fed Sells $828M of Mortgage Debt Securities from AIG Bailout, and Survey Says That 25% of Wall Street Employees Believe Cheating is Necessary to Succeed

The former executives of IndyMac Banccorp have consented to settle class-action securities lawsuit related to bank holding company’s collapse when the housing bubble burst. Per the settlement terms, the financial firm’s insurer will pay investors $6.5 million in cash.

IndyMac shareholders had gone after ex-CEO Michael Perry and ex-finance officer Scott Keys in 2008, contending that they had misled investors about the mortgage lender’s poor financial condition. A month later, federal bank regulators closed down IndyMac Bank. Although the two of them are settling, they were not required to admit to any wrongdoing.

“Again, no jail time for anyone,” commented Shepherd Smith Edwards and Kantas, LTD, LLP Founder and Stockbroker Fraud Lawyer William Shepherd.

Other litigation against ex-IndyMac executives is pending. The Federal Deposit Insurance Corp., which is overseeing the receivership of the failed mortgage lender, is also suing Perry for $600 million. FDIC says that IndyMac’s failure is expected to cost its deposit insurance fund $13 billion.

In other securities news, last week the Federal Reserve Bank of New York sold $828 million of mortgage debt securities as it proceeds to wind down a portfolio from the American International Group bailout in 2008. Acceptance of the bids made brings the total portfolio sales of Maiden Lane III to about $27.5 billion, while lowering the value of the rest of the portfolio to approximately $18.7 billion. Credit Suisse Group AG (CS) was one of the buyers.

“When the original sale was attempted the process was shut down because the bids, expected to be much higher, were for less than 10% of the face value of the securities,” said Mortgage-Backed Securities Lawyer Shepherd. “Believe me, there will be billions of profits made by those who acquire these assets no matter how toxic the waste being purchased. After the savings and loan debacle in the late 1980’s, billions were made by those who purchased the ‘bad paper’ from the Resolution Trust, which was the government bailout fund. My guess is that tens or hundreds of billions will be made on this batch of bad paper. A good collection agency could probably help the taxpayers here and put most of the difference in our government’s pocket. Oh, and who went to jail over the AIG blow up? Answer: Nobody”

Unfortunately, it looks like misconduct on Wall Street isn’t going to go away. According to a survey of 500 financial service professionals in the US and Great Britain, 24% of respondents believe that to be successful, you have to, on occasion, take part in activities that are illegal or unethical. For many, the incentive to cheat is money. 30% of those surveyed said that the impetus to engage in such activities was linked to the way their bonus and compensation plans were structured, which is where the real money comes in.

Although this leaves 76% of respondents saying that breaking the law or acting unethically is never necessary to move on up, Securities Attorney Shepherd said, “Only one in four? Is that supposed to be a good record? Over a million people are licensed to sell securities or act as financial advisors in the U.S. So, a quarter of a million financial professionals admit they feel obliged to break the rules from time to time? Most of these people work with dozens if not hundreds of clients. So, is there a question as to whether Wall Street needs tighter restrictions?”

Former IndyMac Chief Settles Suit, The Wall Street Journal, July 8, 2012

NY Fed Maiden Lane III Sales Top $27 Billion With Latest Auction
, Fox Business, July 12, 2012

Many on Wall Street think cheating breeds success, MSNBC, July 10, 2012


More Blog Posts:

Institutional Investor Securities Roundup: SEC Sues Investment Adviser Over $60M Ponzi Scam, Michigan Investment Club Manager Gets Prison Term for Defrauding Over 900 Investors, & IOSCO Seeks Comments on Report About Credit Raters’ Conflicts & Controls, Institutional Investor Securities Blog, June 7, 2012

Texas Securities Roundup: Morgan Stanley Smith Barney Sued Over Financial Adviser’s Ponzi Scam, Judge Dismisses Ex-GE Executive Whistleblower’s Lawsuit Over His Firing, & Ex-Stanford Financial Group CIO Pleads Guilty to Obstructing the SEC’s Probe, Stockbroker Fraud Blog, July 3, 2012

Barclays LIBOR Manipulation Scam Places Citigroup, Credit Suisse, Deutsche Bank, JP Morgan Chase, and UBS Under The Investigation Microscope, Institutional Investor Securities Blog, July 16, 2012

June 26, 2012

Federal Judge Approves $40M Residential Mortgage-Backed Securities Settlement In Class Action Against Former Lehman Brothers Holdings Executives

The U.S. District Court in Manhattan's Judge Lewis A. Kaplan has approved a $40 million class action settlement in the residential mortgage-backed securities lawsuit against three individuals who used to be affiliated with Lehman Brothers Holdings Inc. (LEHMQ). The plaintiffs are pension and union groups, including Locals 302 and 612 of the International Union of Operating Engineers – Employers Construction Trust Fund, Boilermakers-Blacksmith National Pension Trust, and New Jersey Carpenters Health Fund. The deadline for class members to file their settlement claims is August 20, 2012.

The defendants, Samir Tabet, James J. Sullivan, and Mark L. Zusy, had previously worked for Lehman affiliate Structured Asset Securities Corp. They are accused of filing misleading Offering Documents about the credit quality of mortgage pass-through certificates that were worth billions of dollars. The certificates were issued in 2006 and 2007.

The plaintiffs had submitted their original institutional securities lawsuit prior to Lehman’s filing for bankruptcy in September 2008. This case is one of a number of class action complaints accusing the financial firm and its ex-executives of wrongdoing and negligence.

Per the terms of the RMBS settlement, the Lehman Brothers Estate is responsible for paying $8.3 million. Dow Jones News Services reports that an insurance policy for the financial firm’s ex-directors and former officers will pay the remaining $31.7 million.

When Lehman filed for Chapter 11 bankruptcy, this was considered a major catalyst for the global financial crisis that ensued. The firm, which emerged from bankruptcy protection this March, is now a liquidating company that is expected to spend the next years repaying its investors and creditors that have asserted over $300 billion in claims. Depending on the type of debt owed, a creditor may receive 21 cents/28 cents on the dollar. Also, Lehman is still a defendant in several securities lawsuits related to its bankruptcy and there are other claims against it that need to be resolved.

Last month, Judge Kaplan approved the use of $90 million in insurance to settle another lawsuit against Fuld, ex-finance chief Erin Callan, ex-president Joseph Gregory, former CFO Ian Lowitt, ex-chief risk officer Christopher O’Meara, and several former Lehman directors. The plaintiffs include pension funds, companies, and individuals located abroad. The investors had purchased $30 billion in Lehman debt and equity prior to the firm’s bankruptcy filing and their investments later failed.

Kaplan had initially refused to let the plaintiffs’ insurers pay the $90 million because he wanted to determine whether the securities settlement was a fair one. Now that the federal judge has signed off on it, the plaintiffs will not have to pay for the settlement out of pocket and they are released from the investors’ securities claims.

Judge Approves $40M Settlement with Ex-Lehman Execs, American Banker, June 22, 2012

The Lehman Settlement

Ex-Lehman Executives’ $90 Million Settlement Approved, Bloomberg, May 24, 2012


More Blog Posts:

Ex-Lehman Brothers Holdings Chief Executive Defends Request that Insurance Fund Pay Legal Bills, Stockbroker Fraud Blog, October 19, 2011

UBS Financial Services Fined $2.5M and Ordered to Pay $8.25M Over Lehman Brothers-Issued 100% Principal-Protection Notes, Institutional Investor Securities Blog, April 12, 2011

Lehman Brothers’ “Structured Products” Investigated by Stockbroker Fraud Law Firm Shepherd Smith Edwards & Kantas LTD LLP, Stockbroker Fraud Blog, September 30, 2008

Continue reading "Federal Judge Approves $40M Residential Mortgage-Backed Securities Settlement In Class Action Against Former Lehman Brothers Holdings Executives" »

May 29, 2012

Institutional Investment Securities Round-Up: Citigroup Agrees to $3.5M FINRA FIne Related to Subprime RMBS, Ex-Broker Consents to $600K CFTC Fine Over Alleged Options Trading Scam, and Senate Ag Chair Presses Regulators To Fully Implement Dodd-Frank

Citigroup Global Markets Inc. (CLQ) has consented to pay the Financial Industry Regulatory Authority a $3.5M fine to settle allegations that he gave out inaccurate information about subprime residential mortgage-backed securities. The SRO is also accusing the financial firm of supervisory failures and inadequate maintenance of records and books.

Per FINRA, beginning January 2006 through October 2007, Citigroup published mortgage performance information that was inaccurate on its Web site, including inaccurate information about three subprime and Alt-A securitizations that may have impacted investors’ assessment of subsequent RMB. Citigroup also allegedly failed to supervise the pricing of MBS because of a lack of procedures to verify pricing and did not properly document the steps that were executed to evaluate the reasonableness of the prices provided by traders. The financial firm is also accused of not maintaining the needed books and records, including original margin call records. By settling, Citigroup is not denying or admitting to the FINRA securities charges.

In other institutional investment securities news, in U.S. District Court for the Southern District of New York, Kent Whitney an ex-registered floor broker at the Chicago Mercantile Exchange, agreed to pay $600K to settle allegations by the Commodity Futures Trading Commission that he made statements that were “false and misleading” to the exchange and others about a scam to trade options without posting margin. The CFTC contends that between May 2008 and April 2010, Whitney engaged in the scam on eight occasions, purposely giving out clearing firms that had invalid account numbers in connection with trades made on the New York Mercantile Exchange CME trading floors. He is said to have gotten out of posting over $96 million in margin.

The CFTC says that before an option was about to expire, Whitney would make orders to sell front-month out-of-the-money options. By doing this, he was “implicitly” representing that the accounts were open and had enough margin to cover trades (In truth, the accounts had no margin and were closed). When the clearing firms would turn the trades down because the accounts were closed, they would give back the trades to the executing floor brokers’ clearing firms. The following day, Whitney would give account numbers that were valid to clear the trades. The CFTC says that this process allowed him to avoid the margin posting. Also, when Whitney traded, he would allegedly collect the options premium. By settling, he is not denying or admitting to the CFTC allegations.

Meantime, Senate Agriculture Committee Chairman Debbie Stabenow (D-Mich.) has written a letter to the heads of the Securities and Exchange Commission, the CFTC, the US Treasury Department, the Federal Reserve Board, the Comptroller of the Currency, and Federal Deposit Insurance Corporation urging them to go ahead and complete its implementation of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. Right now, regulators are a year behind on the deadline for most of the law’s rules.

Stabenow cited JPMorgan Chase's (JPM) recent over $2 billion trading loss and MF Global Inc.’s (MFGLQ) bankruptcy last fall as clear examples of the need to pass Dodd-Frank. She worried that there hasn't been sufficient rulemaking to enforce the act’s new derivatives laws. She said that now is the time to finish writing the rules and “fully” implementing the law.

Our institutional investment lawyers at Shepherd Smith Edwards and Kantas, LTD, LLP represents investors throughout the US. We also have clients that are located abroad.

FINRA fines Citigroup Global Markets $3.5 million, Reuters, May 22, 2012

Federal Court in New York Orders Chicago Resident and Former Floor Broker, Kent R.E. Whitney, to Pay $600,000 for Margin Call Avoidance Scheme, CFTC, May 23, 2012

Chairwoman Stabenow: It Is Time To Fully Implement Wall Street Reform, AG.Senate.gov, May 18, 2012


More Blog Posts:

SEC Practice of Settling Enforcement Actions Without Requiring Defendants to Deny or Admit to Allegations Gets Support from Federal Judges and Democrats, Institutional Investor Securities Blog, May 26, 2012

Alleged Ponzi-Like Real Estate Investment Scam that Defrauded Victims of $9M Leads to SEC Charges Against New Jersey Man, Institutional Investor Securities Blog, May 24, 2012

SEC Charges New York-Based Fund Manager and His Two Financial Firms Over Alleged $11M Ponzi Scheme, Stockbroker Fraud Blog, May 28, 2012

May 11, 2012

Court Rules that Victims of Fraudulent Sales of Derivative Securities Must File Separate Claims - No Class Action Allowed

The U.S. Court of Appeals for the Second Circuit has affirmed a lower court’s decision to not grant the petition of two pension funds asking to certify a class action of investors that allegedly suffered financial losses in mortgage-backed securities. The Second Circuit said that the Lower Court did not abuse its discretion by denying the motion for class certification.

The institutional investment fraud cases were argued together at both the district court and appeals court levels but have never been officially consolidated. In both mortgage-backed securities lawsuits, the lead plaintiffs—both pension funds—are accusing their respective defendants of making misleading and false statements in the different MBS prospectuses. They are seeking to recover their losses.

Although the MBS that the plaintiffs had purchased were given AAA credit ratings for the majority of the tranches, the delinquency and default rates in the underlying mortgages would go on to dramatically go up. The ratings agencies then went on to downgrade most of these tranches.

The plaintiffs are claiming that the defaults are an indicator that the subcontractors and issuers failed to follow underwriting guidelines. If this is true, then there were false statements in the registration statements at the time the MBS were bought.

While the plaintiffs had made their claims under the 1933 Securities Act’s Sections 11, 12, and 15, the appeals court said that only claims under Section 11 needed to be discussed, as the claims under the other two sections were derivatives of the Section 11 claims. Under Section 11, a prima facie case has to have proof that a registration statement included material misstatements or omissions. However, since it isn’t a fraud provision, a culpable mental state on the issuer’s part is not required.

Section 11 claims are subject to an affirmative defense in that the issuer can show that when the acquisition took place the buyer had knowledge about a specific omission or untruth. The district court held that to determine whether each buyer had knowledge of specific untruths or omissions at the time of purchase, individual inquiries overriding the common issues would be needed. This holding was affirmed by the appeals court. The second circuit also said that the district court only looked at the facts “on the limited record available on this case.” It noted that district court judge, Harold Baer Jr. has since this decision not to certify the plaintiffs in these two cases granted class certification in similar litigation. (Public Employees’ Retirement System of Mississippi v. Goldman Sachs Group)

The appeals court said that its review was limited to the class definition rejected by the lower court judge and to the record the way it was when the motion to certify was made. It said the appeals determination was “without prejudice to further motion practice in the district court on the matter.”

New Jersey Carpenters Health Fund v. RALI Series 2006-QO1 (PDF)

Boilermaker Blacksmith National Pension Trust v. Harborview Mortgage Loan Trust 2006-4 (PDF)


More Blog Posts:

Morgan Stanley Sued by MetLife for Securities Fraud Over $757 Million in Residential Mortgage-Backed Securities, Institutional Investor Securities Blog, April 28, 2012

H & R Block Subsidiary Option One Mortgage Corporation to Pay $28.2M to Residential Mortgage-Backed Securities Investors, Institutional Investor Securities Blog, April 25, 2012

FDIC Objects to Bank of America’s Proposed $8.5B Settlement Over Mortgage-Backed Securities, Stockbroker Fraud Blog, August 30, 2011

$63 Million Mortgage-Backed Securities Lawsuit Against Bank of America is Second One Filed by Western and Southern Life Insurance Co. Against the Financial Firm, Institutional Investor Securities Blog, August 29, 2011


Continue reading "Court Rules that Victims of Fraudulent Sales of Derivative Securities Must File Separate Claims - No Class Action Allowed" »

April 28, 2012

Morgan Stanley Sued by MetLife for Securities Fraud Over $757 Million in Residential Mortgage-Backed Securities

Metlife (MET) is suing Morgan Stanley (MS) for securities fraud. According to Bloomberg, the insurance company bought over $757 million in residential mortgage-backed securities from the financial firm in 2006 and 2007. In the institutional investment fraud lawsuit, Morgan Stanley had vouched that the properties behind the loans were “accurately appraised” and that the loans met underwriting guidelines. The insurer, however, contends that the loans’ originators were actually some of the subprime lending industry’s “worst culprits.”

The RMBS lawsuit comes right after MetLife agreed to pay half a billion dollars to settle a probe by a number of states over its payment practices. The investigation involves the Social Security "Death Master" file, which includes a list of names of people who have recently passed away. Insurance companies are accused of using the list to stop issuing to dead clients their annuity payments and not using the list to confirm that life insurance policyholders had died.

MetLife announced on Thursday that it was leaving the reverse mortgage industry. Nationstar Mortgage LLC (NSM) will buy its portfolio. The move is a big change for the insurance company, which had been the market leader.

Meantime, Morgan Stanley has been battling other residential mortgage-backed securities lawsuits. Earlier this year, Sealink Funding Ltd. filed a case against it over more than $556 million in RMBS that it purchased. Sealink Funding, a European fund, was set up to manage Landesbank Sachsen AG’s most high-risk assets.

The fund bought the securities from Morgan Stanley after the financial firm said it had done its due diligence on the lenders of the investments and that the loans satisfied underwriting standards and merited their AAA ratings. Sealink called the loans’ originators among the subprime lending industry’s “worst culprits.”

Last year, Allstate Insurance Co. (ALL) filed its RMBS lawsuit against Morgan Stanley over more than $104 million in RMBS it bought in several offerings. The insurer’s contention over reassurances the financial firm made about the securities is similar to the allegations made by Sealink and Metlife. Allstate has also filed RMBS lawsuits against other financial firms, including Merrill Lynch (MER) units, Citigroup Inc. (C), and Bank of America Corp.'s (BAC) Countrywide.

As previously noted by SEC Enforcement director Robert Khuzami, mortgage products played a crucial role in the financial crisis that began a few years ago. Unprecedented losses resulted when mortgage-backed securities failed. Many institutional investors are still trying to recover. They claim they were misled about the risks involved and they want their money back.

MetLife Pays $500 Million To Settle Probe Into Unpaid Claims For Dead Policy Holders, Huffington Post, April 23, 2012

MetLife to pay $500 million in multi-state death benefits probe, Los Angeles Times, April 23, 2012

Morgan Stanley Sued by Allstate on Mortgage Claims, Bloomberg, August 18, 2011


More Blog Posts:
H & R Block Subsidiary Option One Mortgage Corporation to Pay $28.2M to Residential Mortgage-Backed Securities Investors, Institutional Investor Securities Blog, April 25, 2012

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

Continue reading "Morgan Stanley Sued by MetLife for Securities Fraud Over $757 Million in Residential Mortgage-Backed Securities" »

April 25, 2012

H & R Block Subsidiary Option One Mortgage Corporation to Pay $28.2M to Residential Mortgage-Backed Securities Investors

H & R Block (HRB) subsidiary Option One Mortgage Corporation has agreed to pay $28.2 million to settle Securities and Exchange Commission charges that it misled investors in over $4B in residential mortgage-backed securities when it failed to let them know that the company’s financial health was deteriorating. According to the SEC, Option One, which is now called Sand Canyon Corporation, promised these investors that it would replace or buy back mortgages that breached warranties or misrepresentations, even though it was unlikely that the mortgage lender would be able to fulfill these obligations.

Leading up to the 2007 fiscal year, Option One had originations of $40 billion during the year prior and was among the country’s largest mortgage lenders, originating and selling subprime loans through whole loan pool sales and market securitization in the secondary market. During this period, to be able to fulfill its buyback commitments and margin calls, it needed for H & R Block to give it financing under a credit line. However, Block wasn’t obligated to give Option One this funding, which is a fact that the mortgage lender neglected to tell its RMBS investors. When its revenues started to drop and it sustained substantial losses as the subprime mortgage market began to fail during the summer of 2006, Option One’s creditors started to ask for hundreds of millions of dollars in margin calls. (The SEC also claims that the mortgage lender’s losses were a threat to H & R Block’s credit rating while the tax service provider was negotiating its sale. Option One was sold by H & R Block to Wilbur Ross for about $1 billion.)

To settle the SEC allegations over RMBS fraud, Option One will not only pay the $28.2 million (A $10 million penalty, $14,250,558 in disgorgement, and $3,982,027 in prejudgment interest), but also, it has consented to a permanent order entry enjoining it from Securities Act of 1933 Sections 17(a)(2) and 17(a)(3) violations. The mortgage lender isn’t, however, denying or admitting to the charges.

Commenting on this RMBS case, SEC Division of Enforcement’s Structured and New Products Unit Chief Kenneth Lench spoke about the Commission’s commitment to act against parties that neglect to reveal pertinent facts that up an investment’s risk, even if the risks never becomes a reality. The SEC has been pursuing those believed to engaged in misconduct related to RMBS and other complex financial instruments.

The SEC isn’t the only one to sue Option One. In 2011, the mortgage lender settled Massachusetts securities charges against it by agreeing to pay $9.8 million in restitution and $115 million in loan modifications.

Read the SEC's complaint (PDF)

Ex-H&R Block Unit Agrees To Pay $28.2 Mln To Settle SEC Charges, The Wall Street Journal, April 24, 2012


More Blog Posts:
Residential Mortgage-Backed Securities Working Group Brings Federal Investigators and State Law Enforcement Officials Together to Investigate How MBS Abuses Contributed to 2008 Financial Crisis, Institutional Investor Securities Blog, January 30, 2012

Federal Home Loan Banks Say Countrywide Financial Corp Mortgage Bond Investors May Be Owed Way More than What $8.5B Securities Settlement with Bank of America Corp. is Offering, Institutional Investor Securities Blog, July 22, 2011

FDIC Objects to Bank of America’s Proposed $8.5B Settlement Over Mortgage-Backed Securities, Stockbroker Fraud Blog, August 30, 2011

Continue reading "H & R Block Subsidiary Option One Mortgage Corporation to Pay $28.2M to Residential Mortgage-Backed Securities Investors " »

April 10, 2012

Bank of New York Mellon Corp. Must Contend with Pension Fund Claims Over Countrywide Mortgage-Backed Securities

The U.S. District Court for the Southern District of New York has decided that investors can sue Bank of New York Mellon (BK) over its role as trustee in Countrywide Financial Corp.’s mortgage-backed securities that they say cost billions of dollars in damages. While Judge William Pauley threw out some of the clams filed in the securities fraud lawsuit submitted by the pension funds, he said that the remaining ones could proceed. The complaint was filed by the Benefit Fund of the City of Chicago, the Retirement Board of the Policemen’s Annuity, and the City of Grand Rapids General Retirement System. The retirement board and Chicago’s benefit fund hold certificates that 25 New York trusts and one Delaware trust had issued, and BNY Mellon is the indentured trustee for both. Pooling and servicing agreements govern how money is allocated to certificate holders.

In Retirement Board of Policemen's Annuity and Benefit Fund of City of Chicago v. Bank of New York Mellon, the plaintiffs are accusing BNYM of ignoring its responsibility as the investors’ trustee. They believe that the bank neglected to review the loan files for mortgages that were backing the securities to make sure that there were no defective or missing documents. The bank also allegedly did not act for investors to ensure that loans having “irregularities” were taken from the mortgage pools. As a result, bondholders sustained massive losses and were forced to experience a great deal of uncertainty about investors’ ownership interest in the mortgage loans. The plaintiffs are saying that it was BNYM’s job to perfect the assignment of mortgages to the trusts, certify that documentation was correct, review loan files, and make sure that the trust’s master servicer executed its duties and remedied or bought back defective loans. Countrywide Home Loans Inc. had originally been master servicer until it merged with Bank of America (BAC).

The district court, in granting its motion, limited the lawsuit to the trusts in which the pension fund had interests. It also held that the fund only claimed “injury in fact” in regards to the trusts in which it held certificates. The court found that the certificates from New York are debt securities and not equity and are covered under the Trust Indenture Act. The plaintiffs not only did an adequate job of pleading that Bank of America and Countrywide were in breach of the PSAs, but also they adequately pleaded that defaults of the PSAs were enough to trigger BNYM’s responsibilities under Sections 315(b) and (c). The court, however, threw out the claims that BNYM violated Section 315(a) by not performing certain duties under the PSAs and certain other agreements.

BNYM says it will defend itself against the claims that remain.

Bank of NY Mellon must face lawsuit on Countrywide, Reuters, April 3, 2012

Judge Rejects Bank Of NY Mellon Motion To Dismiss Countrywide Suit, Fox, April 3, 2012


More Blog Posts:

District Court in Texas Decides that Credit Suisse Securities Doesn’t Have to pay Additional $186,000 Arbitration Award to Luby’s Restaurant Over ARS, Stockbroker Fraud Blog, June 2, 2011

Credit Suisse Group AG Must Pay ST Microelectronics NV $431 Million Auction-Rate Securities Arbitration Award, Stockbroker Fraud Blog, April 5, 2012

Citigroup to Pay $285M to Settle SEC Lawsuit Alleging Securities Fraud in $1B Derivatives Deal, Institutional Investor Securities Blog, October 20, 2011


Continue reading "Bank of New York Mellon Corp. Must Contend with Pension Fund Claims Over Countrywide Mortgage-Backed Securities " »

February 7, 2012

Two Ex-Credit Suisse Executives Plead Guilty to Mortgage-Backed Securities Fraud

Salmaan Siddiqui and David Higgs have pled guilty to conspiracy to commit wire fraud and conspiracy to falsify books in the mortgage-backed securities fraud case against them. Higgs was former a Credit Suisse managing director while Siddiqui had been vice president.

The US Securities and Exchange Commission and the Justice Department have been conducting coordinated enforcement efforts against Higgs, Siddiqui, and Kareen Serageldin. They are charged with fraudulently inflating asset-backed bonds’ prices during late 2007 and early 2008. The bonds consisted of commercial mortgage-backed securities and subprime residential mortgage-backed securities in Credit Suisse’s trading books. Their alleged manipulation of the bond prices resulted in the financial firm getting a $2.65B write-down of its end of the year financial results for 2007. Meantime, seeing as trading book profitability determines bonuses, the three defendants obtained hefty ones.

In addition to the three men, the SEC is also suing Faisal Siddiqui as a fourth defendant. In its securities fraud complaint, the Commission accused the men of being involved in a scam to fraudulently overstate the prices of over $3B of subprime bonds. Recorded phone calls document their fraudulent actions.

Serageldin, who was Credit Suisse’s Structured Credit Trading global head, reportedly initiated the MBS fraud while Higgs, who was with the financial firm’s Hedge Trading, oversaw the operation. The Siddiquis, who are not related to each other, were brokers that allegedly falsely processed the bonds’ prices.

In August 2007, the defendants reportedly started pricing the bonds in a way that would benefit them, rather than recording the fair value. The MBS scam would continue to accelerate as the credit markets faltered. By the end of the year, they were pricing the bonds at falsely high levels. Higgs would later on get the bond prices raised beyond their year-end levels to gain favorable P & L results at the end of January.

In February, Credit Suisse reported having a 2007 net income of $7.12 billion and fourth quarter earnings of $1.16B. Seeing as these figures incorporated the false gains, the information was materially misleading and false. Their scam fell apart when Credit Suisse senior management realized that specific bonds that the defendants’ controlled had been priced abnormally high.

MBS Pricing by Credit Suisse Traders
Credit Suisse traders must price the securities that they hold at fair value, which is determined by current market price or the current price for a similar liability or asset. When there is no liquid market, the traders have to refer to other indicia to determine their assets’ fair value. Credit Suisse brokers know that the ABX indices are the benchmark for specific securities backed by home loans and that they must refer to it when placing a price on RMBS bonds and related products.


Ex-Credit Suisse bond players plead guilty to MBS fraud, Housing Wire, February 2, 2012

Manhattan U.S. Attorney and FBI Assistant Director in Charge Announce Charges Against Two Former Credit Suisse Managing Directors and Vice President for Fraudulently Inflating Subprime Mortgage-Related Bond Prices in Trading Book, FBI, February 2012

SEC Charges Former Credit Suisse Investment Bankers in Subprime Bond Pricing Scheme, SEC, February 1, 2012


More Blog Posts:

District Court in Texas Decides that Credit Suisse Securities Doesn’t Have to pay Additional $186,000 Arbitration Award to Luby’s Restaurant Over ARS, Stockbroker Fraud Blog, June 2, 2011

Credit Suisse Group AG Must Pay ST Microelectronics NV $431 Million Auction-Rate Securities Arbitration Award, Stockbroker Fraud Blog, April 5, 2012

Citigroup to Pay $285M to Settle SEC Lawsuit Alleging Securities Fraud in $1B Derivatives Deal, Institutional Investor Securities Blog, October 20, 2011

Continue reading "Two Ex-Credit Suisse Executives Plead Guilty to Mortgage-Backed Securities Fraud" »

January 30, 2012

Residential Mortgage-Backed Securities Working Group Brings Federal Investigators and State Law Enforcement Officials Together to Investigate How MBS Abuses Contributed to 2008 Financial Crisis

55 Federal Bureau of Investigation agents, prosecutors, and analysts have been dispatched by the US government to join up with state law enforcement officials as part of a financial crimes enforcement unit that will investigate how home mortgage abuses played a part in creating the economic meltdown of 2008. The Residential Mortgage-Backed Securities Working Group is headed by the US Department of Justice and New York Attorney General Eric Schneiderman (D). More lawyers, investigators, and support staff will be joining the team in the weeks to come.

Residential Mortgage-Backed Securities were the large investment packages of what proved to be comprised of close to worthless mortgages that not just helped spur on the country’s economic collapse but also bankrupted a lot of investors. SEC enforcement director Robert Khuzami has called the mortgage products the “ground zero” of the crisis.

During his State of the Union speech last week, President Obama announced the expanded federal-state probe that would be conducted by this working unit. The RMBS working group will have collective authority to look into abuses involving all areas of the financial services industry, including the selling, packaging, and valuing of residential MBS.

At a press conference on January 27, Attorney General Eric Holder said that this deeper look into what caused such “massive market failures” that continue to hurt homeowners will undoubtedly improve how financial losses can be recovered and fraud is prevented while shedding light on abuses and holding the responsible parties accountable. New York Attorney General Eric Schneiderman, who was also at the conference, said that the sharing of information between state and federal investigators would undoubtedly yield far-reaching results. Just in the past few days, investigators have sent out civil subpoenas to 11 financial firms with more to come. The RMBS Working Group intends to:

• Hold institutions accountable when they violate law
• Compensate victims and provide homeowners who are in trouble because of the housing market’s collapse with relief
• Help the nation gain closure on what happened in 2008

The RMBS Working Group will be run under President Obama’s Financial Fraud Enforcement Task Force (FFETF).

Holder has been quick to dispute speculation that the working group was set up because fraud enforcement efforts have so far been below adequate. He noted the recent string of successful civil lawsuits and prosecutions involving securities fraud, investment fraud, and bank fraud. Sentences for those convicted have totaled 150 years behind bars.

Our securities fraud lawyers continue to work with institutional and individual clients that have suffered huge financial losses as a result of residential mortgage-backed securities and the economic crisis of 2008. We may be able to help you recover your losses. Contact Shepherd Smith Edwards and Kantas, LTD, LLP today.

Panel Charged With Investigating Mortgage Crisis, Resulting Damage To Homeowners And Investors, Office of the Attorney General, January 27, 2012


More Blog Posts:
Former Brookstreet Securities Broker Who Promoted Subprime Mortgages Commits Suicide, Institutional Investor Securities Blog, January 7, 2012

Investors Want JP Morgan Chase & Co. To Explain Over $95B of Mortgage-Backed Securities, Institutional Investor Securities Blog, December 17, 2011

FDIC Objects to Bank of America’s Proposed $8.5B Settlement Over Mortgage-Backed Securities, Stockbroker Fraud Blog, August 30, 2011

January 7, 2012

Former Brookstreet Securities Broker Who Promoted Subprime Mortgages Commits Suicide

Cliff Popper, the South Florida trader and former Brookstreet Securities broker known for convincing retail investors to get to behind risky subprime mortgages and defrauding them of over $100 million, has died. Popper, who was awaiting the judge’s decision in a civil securities fraud trial where he was a defendant, killed himself earlier this week.

The US Securities and Exchange Commission had accused him of designing an investment program that misled clients, who ended up losing their investments when the housing market collapsed. While with Brookstreet, Popper traveled the US and coached brokers on how to sell the financial instruments. He and his team played a key role in selling CMOs, and as clients invested over $300 million in mortgaged backed securities, they made over $18 million in salary and commissions in three years.

In June 2007, however, as the sub-prime loan market declined and loan-based securities dropped significantly, certain investors borrowed up to 90% of all their investments. Brookstreet Securities Corp. went into decline after National Financial Services LLC (its clearing company) issued a margin call on accounts with collateralized mortgage obligations. The losses caused the financial firm to make shortfalls and lose all its capital. Brookstreet was forced to shut down its operations later that year. More than 600 brokers became unemployed.

In 2009, the SEC charged Popper and several others with securities fraud and of depleting the finances of investors, many of whom lost their life savings, retirement, and homes. At the civil securities fraud trial against him, Popper claimed that he never purposely made misrepresentations to anyone.

Popper was known for his extravagant lifestyle, including a $2.4 million condo and a Sun Life Stadium sky box. During the Superbowl XXXIX weekend in 2005, he spent $2,000 on a limo to transport clients to a Hawaiian Tropic model event. Popper previously worked for four financial firms, including Merrill Lynch Pierce Fenner & Smith Inc. and Workman Securities Corp.

Shepherd Smith Edwards & Kantas LTD, LLP has filed individual claims on behalf of investors that lost money from investing in mortgage backed securities through Brookstreet. Many clients were left in a state of financial limbo when the financial firm shut its doors.

CMO Securities
Investors in a CMO purchase entity-issued bonds and get payments in accordance to specific rules. The mortgages are the collateral and the bonds are known as “tranches.” CMOs transform illiquid, individual financial assets and turn them into liquid, tradable capital market instruments so that mortgage originators can fill up their funds, which can then go toward more origination activities.

Broker who touted subprime mortgages kills himself, Miami Herald, January 5, 2011

Subprime suicide: Notorious broker found dead, MSNBC, January 6, 2011

Brookstreet closes down, The OC Register, June 21, 2007


More Blog Posts:
Wedbush Hit with Nun’s Complaint over CMO’s - May Have More Than Brokers in Common with Brookstreet, Stockbroker Fraud Blog, July 18, 2007

Some Brookstreet Brokers Become Wedbush Morgan Brokers, Stockbroker Fraud Blog, July 9, 2007

Northern Trust Securities Agrees to $600,000 FINRA Fine Over Charges It Failed to Properly Monitor High-Volume Securities Trades and CMO Sales, Institutional Investor Securities Blog, June 8, 2011

Continue reading "Former Brookstreet Securities Broker Who Promoted Subprime Mortgages Commits Suicide" »

December 17, 2011

Investors Want JP Morgan Chase & Co. To Explain Over $95B of Mortgage-Backed Securities

Institutional investors that placed their money in over $95B in mortgage-backed securities want the trustees overseeing JP Morgan & Chase. Co.-issued securities to figure out whether certain loans shouldn’t have been included as a result of faulty underwriting. US Bank, Bank of New York Mellon, Wells Fargo & Co., HSBC, and Citibank are the trustees.

PIMCO and BlackRock Inc. are two of the institutional investors requesting the investigation. According to their legal representatives, the group of investors represent over 25% of voting rights on 243 residential mortgage-backed securities. The institutional investors want to know whether mortgages that were not eligible ended up included in the collateral backing the bonds. The investor group is the same one that reached an $8.5 billion securities settlement with Bank of America. (The 22 investors include the Federal Reserve Bank of New York, Black Rock Inc., Goldman Sachs Asset Management, MetLife Inc., and PIMCO). However, the settlement is still pending and has been challenged by other mortgage bondholders.

Related to this current requested probe, JP Morgan and its different arms put out the securities between 2005 and 2007. Included were bonds from Washington Mutual and Bear Stearns. About $450 billion in residential MBS were issued by JP Morgan to investors between 2005 and 2008. Approximately $169 billion of that principal is outstanding.

A lot of the loans were not originated at JP Morgan, but the investment bank and its other entities did buy them. JP Morgan has contented that it should be the originator that should buy back the loans that were part of the securities contract.

According to the New York Times, if investors were to settle with JP Morgan by applying the same loss ratio used in arriving at the Bank of America agreement, this figure would probably hit about $1.9 billion. Meantime, JP Morgan must contend with approximately $31 billion in securities class-action cases.

Because of mortgage-related concerns, beginning in 2010, JP Morgan placed $8.5 billion into its reserves for litigation. At the end of the third quarter, the investment bank’s mortgage repurchase reserves were $3.6 billion.

Meantime, state attorneys generals and the Federal Housing Finance Agency continue to look at how investment banks handled mortgage-backed securities leading up to the housing market. More securities litigation from investors is expected.


Investors target JPMorgan over $95 billion of RMBS, Reuters, December 16, 2011

Mortgage Investors Put J.P. Morgan in Cross Hairs, The Wall Street Journal, December 17, 2011

Bank of America in $8.5 billion settlement, CNN, June 29, 2011

More Blog Posts:
Bank of America’s Merrill Lynch Settles for $315 million Class Action Lawsuit Over Mortgage-Backed Securities, Institutional Investor Securities Blog, December 6, 2011

FDIC Objects to Bank of America’s Proposed $8.5B Settlement Over Mortgage-Backed Securities, Stockbroker Fraud Blog, August 30, 2011

Some of the SEC Charges Against Investment Adviser Over Alleged Involvement In J.P. Morgan Securities LLC Collateralized Debt Obligation Are Dismissed, Institutional Investor Securities Blog, September 24, 2011

Continue reading "Investors Want JP Morgan Chase & Co. To Explain Over $95B of Mortgage-Backed Securities" »

December 6, 2011

Bank of America’s Merrill Lynch Settles for $315 million Class Action Lawsuit Over Mortgage-Backed Securities

Bank of America, Corp. has agreed to pay investors $315 million to settle their class action claim accusing Merrill Lynch of misleading them about the risks involved in investing in mortgage-backed securities. If approved, the proposed settlement would be one of the largest reached over MBS that caused investors major losses when the housing market collapsed. The lead plaintiff in this securities case is the Public Employees' Retirement System of Mississippi pension fund.

The class action lawsuit accused Merrill of misleading investors about $16.5 billion of MBS in 18 offerings that were made between 2006 and 2007. They are claiming possible losses in the billions of dollars. (The offerings occurred before Bank of America bought Merrill.)

The plaintiffs contend that Merrill’s offering documents were misleading. They also believe that the original investment-grade ratings for the securities, which had been backed by loans from Countrywide, IndyMac Bancorp Inc., First Franklin Financial unit, and New Century Financial Corp. were unmerited. Most of these investments were later downgraded to “junk” status.

By agreeing to settle, Bank of America is not admitting to or denying wrongdoing.

This settlement must be approved by US District Judge Jed Rakoff, who just last week rejected the proposed $285M securities settlement between Citigroup Global Markets Inc. and the Securities and Exchange Commission. He ordered that the case be resolved through trial. Rakoff was also the one who refused to approve another proposed Bank of America securities settlement—the one in 2009 with the SEC—for $33 million over misstatements that were allegedly made regarding the purchase of Merrill. Rakoff would later go on to approve the revised settlement of $150 million.

Rakoff has criticized a system that allows financial firms to settle securities fraud allegations against them without having to admit or deny wrongdoing. He also has expressed frustration at the “low” settlements some investment banks have been ordered to pay considering the amount of financial losses suffered by investors.

Our securities fraud lawyers represent individual and institutional clients that sustained losses related to non-traded REITs, private placements, principal protected notes, auction-rate securities, collateralized debt obligations, mortgage-backed securities, reverse convertible bonds, high yield-notes and other financial instruments that were mishandled by broker-dealers, investment advisers, or their representatives. We also work with victims of Ponzi scams, affinity scams, elder financial fraud and other financial schemes.

BofA Merrill unit in $315 mln mortgage settlement, Reuters, December 6, 2011

Public Employees' Retirement System of Mississippi


More Blog Posts:

Citigroup’s $285M Settlement With the SEC Is Turned Down by Judge Rakoff, Stockbroker Fraud Blog, November 28, 2011

Citigroup’s $285M Mortgage-Related CDO Settlement with Raises Concerns About SEC’s Enforcement Practices for Judge Rakoff, Institutional Investor Securities Blog, November 9, 2011

Ex-Lehman Brothers Holdings Chief Executive Defends Request that Insurance Fund Pay Legal Bills, Stockbroker Fraud Blog, October 19, 2011

Continue reading "Bank of America’s Merrill Lynch Settles for $315 million Class Action Lawsuit Over Mortgage-Backed Securities " »

October 22, 2011

California Investigating Whether Bank of America & Countrywide Financial Used False Pretenses to Sell Mortgage-Backed Securities to Investors

Not long after bowing out of talks over a possible $25 billion dollar settlement between state and federal officials and the country’s largest banks (including Bank of America Corp, Citigroup, and JP Morgan Chase & Co.) over alleged foreclosure abuses, California’s Attorney General’s office has subpoenaed BofA as part of its investigation into whether it and subsidiary Countrywide Financial employed false pretenses to get private and institutional investors to purchase risky mortgage-backed securities. By walking out of the negotiations on the grounds that the banks weren’t offering a big enough settlement, the state of California has given itself the option of arriving at a larger settlement.

California Attorney General Kamala D. Harris has called the proposed settlement “inadequate” for the homeowners in her state. She has also has set up a mortgage fraud strike force tasked with investigating all areas of mortgage fraud.

Countrywide is credited with playing a role in the housing boom and its later collapse because of subprime loans it gave clients with poor/no credit histories, mortgages that let borrowers pay such a small amount that their loan balances went up instead of down, and “liar” loans that were issued without assets and income being confirmed. Also, a lot of the most high-risk loans were bundled up to support private-label securities that became highly toxic for investors and banks.

Meantime, Federal and state officials are trying to get California to rejoin the larger talks. Just this week, they presented the possibility of helping troubled creditworthy owners refinance their loans. California’s involvement is key for any deal because the state so many borrowers that owe more than the value of their homes, are in foreclosure, or are running behind on mortgages.

New York, too, has backed out of the group—a move that proved to be another blow for negotiations, as well as for the Obama Administration. Officials from other states, such as Nevada, Delaware, Minnesota, Massachusetts, and Kentucky, have also expressed worry about the breadth of the settlement and whether all potential misconduct has been investigated.

With its acquisition of Countrywide in 2008, BofA has sustained high losses over settlements as a result of its subsidiary’s loans. According to the Los Angeles Times, these settlements include:

• A promise to forgive up to $3 billion in principal for Massachusetts Countrywide borrowers
• $600 million to former Countrywide shareholders
• Billions of dollars to Freddie Mac and Fannie Mae over buybacks of bad home loans
• $8.5 billion to institutional investors over the repurchase of Countrywide mortgage-backed bonds
• $5.5 billion reserved for mortgage bond investors with similar claims

California reportedly subpoenas BofA over toxic securities, Los Angeles Times, October 20, 2011

California Pulls Out of Foreclosure Talks, Wall Street Journal, October 1, 2011


More Blog Posts:
$63 Million Mortgage-Backed Securities Lawsuit Against Bank of America is Second One Filed by Western and Southern Life Insurance Co. Against the Financial Firm, Institutional Investor Securities Blog, August 29, 2011

Federal Home Loan Banks Say Countrywide Financial Corp Mortgage Bond Investors May Be Owed Way More than What $8.5B Securities Settlement with Bank of America Corp. is Offering, Institutional Investor Securities Blog, July 22, 2011

Bank of America and Countrywide Financial Sued by Allstate over $700M in Bad Mortgaged-Backed Securities, Stockbroker Fraud Blog, December 29, 2010

Continue reading "California Investigating Whether Bank of America & Countrywide Financial Used False Pretenses to Sell Mortgage-Backed Securities to Investors" »

October 4, 2011

Govt.'s Mortgage-Backed Securities Case Against JPMorgan Case Leads to Lawsuit Against 23 Former Washington Mutual Employees

The federal government has filed a securities lawsuit against 23-ex Washington Mutual employees and a number of WaMu’s subsidiaries. The complaint contends that these persons signed off on documents that included misleading and false information that was used to sell billions of dollars in mortgage-backed securities. The case stems from the government’s MBS lawsuit against JPMorgan Chase, which acquired nearly all of WaMu’s banking assets and liabilities a few years ago. That securities complaint is one more than a dozen brought by the Federal Housing Finance Agency last month against the large banks that packaged and sold MBS at the height of the housing boom.

In this latest lawsuit, the government contends that when Fannie Mae and Freddie Mac bought their 35 issues of securities worth $12.9 billion during the bubble, they depended on the registration statements, prospectuses, and other documents that WaMu and its subprime unit Long Beach Mortgage had filed. Unfortunately, the documents that Fannie and Freddie depended on included omissions and misstatements that misrepresented that the underlying mortgage loans were in compliance with certain underwriting standards and guidelines, including representations that “significantly overstated” the borrowers’ ability to pay back their mortgage loans.

One example cited involves the LBMLT 2006-1, which is a subprime security. Standard & Poor’s and Moody’s had both given it an AAA rating and the offering document noted that almost 73% of the underlying mortgages had an 80% or lower loan-to-value ratio. Less than 25% were supposedly on non-owner occupied homes.

The government is now saying, however, that WaMu pressed appraisers to raise property values so that these lower LTV ratios could be obtained and that, in fact, only 50% of underlying loans in LBMLT 2006-1 had LTV ratios of 80% or lower. Also, the government believes that almost one third of LBMLT 2006-1 loans were on nonowner occupied homes and not the lower percentage that was quoted. Close to 56% of LBMLT 2006-1 have since defaulted, gone into foreclosure, or become delinquent.

Most of the ex-WaMu and Long Beach officers named in the complaint, save for ex-chief financial officer Thomas Case and ex-Home Loans group head Craig Davis, were midlevel employees. It was just earlier this year that the Federal Deposit Insurance Corp. sued three ex-WaMu executives for allegedly gambling billions of the bank’s money on risky home loans while they lined their own pockets.

Defendants named then were ex-Chief Executive Kerry Killinger, ex-Chief Operating Officer Stephen Rotella, and ex-WaMu home loans division president David Schneider. The three men are accused of earning $95 million in compensation between 2005 and 2008.

US banking regulators have sued over 150 bank officials in their efforts to get back at least $3.6 billion in losses linked to the 2007-2009 economic crisis.

If you are an investor that suffered losses related to mortgage-backed securities when the housing bubble burst, you might have grounds for a securities fraud case.

23 ex-WaMu employees named in federal suit, The Seattle Times, September 8, 2011

Ex-WaMu Execs Sued By FDIC For Gross Negligence Over Bank's Collapse - READ The Lawsuit, Huffington Post, March 17, 2011


More Blog Posts:

$63 Million Mortgage-Backed Securities Lawsuit Against Bank of America is Second One Filed by Western and Southern Life Insurance Co. Against the Financial Firm, Institutional Investor Securities Blog, August 29, 2011

NCUA Sues Goldman Sachs for $491M Over $1.2B of Mortgage-Back Securities Sales That Caused Credit Unions’ Failure, Institutional Investor Securities Blog, August 23, 2011


Continue reading "Govt.'s Mortgage-Backed Securities Case Against JPMorgan Case Leads to Lawsuit Against 23 Former Washington Mutual Employees " »

August 29, 2011

$63 Million Mortgage-Backed Securities Lawsuit Against Bank of America is Second One Filed by Western and Southern Life Insurance Co. Against the Financial Firm

Once again, Western and Southern Life Insurance Co. is suing Bank of America Corporation for the alleged misrepresentation of mortgage-backed securities that the financial firm sold to the insurer. This time, the plaintiff is seeking $63 million. Western and Southern Life’s first MBS lawsuit against BofA sought $225 million in losses over securities it bought through Countrywide Financial Corp. (Bank of America acquired Countrywide in 2008.)

In this latest ARS lawsuit, Western and Southern Life says that it purchased $134 million in MBS from Bank of America between 2006 and 2008. The company contends that the securities would go on to lose 47% of their value. Western and Southern Life claims that the financial firm disregarded its own underwriting procedures and that a lot of the loans, which had AAA-ratings when they were purchased, have since foreclosed or defaulted. The insurer is also accusing Bank of America of failing to properly examine documents pertaining to the loans, which it says were based on erroneous information (including inflated appraisals, overstated incomes, and false employment verifications).

It was just last month that Western and Southern Life filed two other MBS lawsuits. In its securities case against Morgan Stanley & Co., the insurer is seeking $68.1 million for losses it claims it sustained because the financial firm allegedly misrepresented the MBS. The insurer says that in 2006 and 2007 it bought $179 million in mortgage-backed securities from Morgan Stanley.

Also in July, Western and Southern Life sued Credit Suisse Securities over the alleged loss of $107 million in MBS that the financial firm underwrote and one of its units sold. As with its securities cases against Bank of America, Western and Southern Life claims that Credit Suisse and Morgan Stanley disregarded their standards when accepting the loans. The insurer says that between 2005 and 2008 it bought $276 million in MBS from Credit Suisse.

Although Bank of America’s agreement to settle mortgage-back securities claims by 22 private investors that purchased 530 MBS valued at $424 billion covers Countrywide loans, Western and Southern Life was not part of this arrangement. Among the institutional investors to benefit from the settlement are BlackRock, Inc., PIMCO, Metlife, Inc., the Federal Reserve Bank of New York, and Goldman Sachs.

Per that settlement, Bank of America will give $8.5 billion to Bank of New York Mellon, which, as bondholder trustee, will distribute the funds to investors. However, if the court approves this settlement, investors will still be at a disadvantage because only some 2 or 3 centers on the dollar would be represented for those that suffered financial losses.

BofA Again Sued Over MBS, Yahoo, August 25, 2011

Bank of America agrees to $8.5B Countrywide settlement, Biz Journals, June 29, 2011

Western & Southern sues over investments, Business Courier, July 29, 2011


More Blog Posts:

AIG Files $10 Billion Mortgage-Backed Securities Lawsuit Against Bank of America, Institutional Investors Securities Blog, August 13, 2011

Wall Street Knew 28% of the Loans Behind Mortgage Backed Securities (MBS) Failed to Meet Basic Underwriting Standards, Stockbroker Fraud Blog, September 29, 2010

Federal Home Loan Banks Say Countrywide Financial Corp Mortgage Bond Investors May Be Owed Way More than What $8.5B Securities Settlement with Bank of America Corp. is Offering, Institutional Investors Securities Blog, July 22, 2011

Continue reading "$63 Million Mortgage-Backed Securities Lawsuit Against Bank of America is Second One Filed by Western and Southern Life Insurance Co. Against the Financial Firm" »

August 24, 2011

Goldman Sachs CEO Hires Prominent Defense Attorney in the Wake of Justice Department Probe into Mortgage-Backed Securities

Now that the Justice Department is investigating Goldman Sachs (GS), Lloyd C. Blankfein, the broker-dealer’s chief executive, has retained the services of a prominent defense attorney. This move comes following allegations by the Senate Permanent Subcommittee on Investigations accusing firm executives of misleading investors and Congress about mortgage-backed securities. News of Reid Weingarten’s hiring caused Goldman Sachs’ shares to drop almost 5%. On Tuesday, Goldman Sachs lost almost $2.7 billion in market value.

The Senate panel issued a report claiming that Goldman Sachs misled investors when it failed to disclose that it was betting against securities that they were buying from the financial firm. The report also accuses the financial firm’s CEO of lying under oath when making the claim that the financial firm did not have a massive short position against the housing market.

Weingarten is a leading criminal defense attorney at Steptoe & Johnson. He previously represented ex-Enron accounting officer Richard Causey, ex-WorldCom chief executive Bernard Ebbers, ex-Duane Reade chief executive Anthony Cuity, and ex-Tyco International general counsel Mark Belnick.

The senate panel’s report, which is 639 pages long, comes after a 2-year bipartisan investigation. The subcommittee found that traders and executives tried to eliminate their exposure to the subprime mortgage market while shorting the market to make a profit.

The panel accused Goldman of misleading clients when it didn’t tell them that it was betting or shorting against their investments. In 2007, Goldman’s mortgage department made a $1.2 billion profit.

Goldman Sachs’s latest quarterly filing with the SEC reveals that the financial is under scrutiny for a number of issues, including its role as a clearing broker and its compliance with the US Foreign Corrupt Practices Act. The investment bank is also be under investigation at the state, federal, and local levels and is the recipient of subpoenas. In 2010, Goldman Sachs agreed to settle for $550 million charges by the SEC that it misled clients about a synthetic collateralized debt obligation (CDO) when the housing market was collapsing.

Recently, Allstate (ALL) sued Goldman Sachs Group for the over $123 million in MBS that it says that the financial firm fraudulently sold it. Allstate claims that Goldman issued misstatements and made omissions about the mortgages. The National Credit Union Administration also just filed its securities fraud case seeking $491 million from Goldman for the purchase of more than $1.2 billion in MBS sales. NCUA blames Goldman and other financial firms, including JPMorgan and RBS Securities, for the failure of five wholesale credit unions. NCUA says that because of the way Goldman handled the mortgage-backed securities sales, the credit unions did not know they were taking on such huge risks when they made those investments.

Why Goldman Investors Are Overreacting, New York Times, August 23, 2011

Goldman confirms Blankfein and other execs hired outside lawyers, Efinancial News, August 23, 2011


More Blog Posts:

NCUA’s Sues Goldman Sachs for $491M Over $1.2B of Mortgage-Back Securities Sales That Caused Credit Unions’ Failure, Institutional Investor Securities Blog, August 23, 2011

Goldman Sachs Settles SEC Subprime Mortgage-CDO Related Charges for $550 Million, Stockbroker Fraud Blog, July 30, 2010

Goldman Sachs Group Made Money From Financial Crisis When it Bet Against the Subprime Mortgage Market, Says US Senate Panel, Institutional Investors Securities Blog, April 15, 2011


Continue reading "Goldman Sachs CEO Hires Prominent Defense Attorney in the Wake of Justice Department Probe into Mortgage-Backed Securities" »

August 23, 2011

NCUA Sues Goldman Sachs for $491M Over $1.2B of Mortgage-Back Securities Sales That Caused Credit Unions’ Failure

In its fifth MBS lawsuit seeking what is now totaling to be nearly $2 billion in compensatory damages for wholesale credit union members, the National Credit Union Administration (NCUA) wants $491 million in compensatory damages from Goldman Sachs. NCUA is accusing the financial firm of misrepresenting the MBS that were sold to member credit unions that then sustained huge losses that led to their failure.

Goldman Sachs allegedly misrepresented material facts in prospectuses, marketing collaterals, and when selling the MBS. Because of this, NCUA says that the credit unions thought that the risk of loss for their investments was low.

NCUA filed its securities complaint against Goldman Sachs in California district court. NCUA is serving as the liquidating agent for the corporate credit unions that failed. It has filed other securities lawsuits seeking nearly $2 billion in compensatory damages. Two of the other defendants that NCUA is suing are RBS Securities and JPMorgan. Both, and others, are accused of underestimating the risks involved with the MBS.

The wholesale credit unions that failed are:
• Constitution Corporate Credit Union
• Southwest Corporate Credit Union
• Members United Corporate Credit Union
• U.S. Central Corporate Credit Union.
• Western Corporate Credit Union

Because these “corporate” credit unions failed after they invested in toxic MBS that was marketed by Wall Street firms, the credit unions industry has suffered. There are also smaller credit unions that have failed, which has resulted in costs of at least another $1.3 billion. Now, the industry must contend with billions of dollars that will have to be paid over the next several years.

While the NCUA did try to prevent having to shut down the failed corporate credit unions by taking over management of US Central and WesCorp in 2009, including guaranteeing all retail credit union deposits in the corporate credit unions and borrowing up to $20 billion from the Treasury to offer liquidity (this amount has since been paid back), the five credit unions mentioned above were closed in 2010.

NCUA says it is its statutory obligation to obtain recoveries from the parties responsible for the demise of the corporate credit unions and that this will minimize the failure costs to the industry and its insurance funds. It is pursuing those who issued, soled, and underwrote the faulty MBS. NCUA contends that the credit unions.

Our securities fraud law attorneys represents institutional and individual investors throughout the US. We are appalled at all the misconduct on Wall Street that contributed to the financial crisis of 2008. We continue to help our clients’ recoup their losses while holding the negligent parties responsible through arbitration and in court.

Regulator sues Goldman Sachs over risky mortgages, AP, August 9, 2011

Mortgage-backed securities losses costing nation's credit unions, Investigative Reporting Workshop, December 22, 2010

NCUA Sues Wall Street Over Corporate Debacle, Credit Union Journal, June 20, 2011

NCUA sues JPMorgan and RBS to recover losses from failed institutions, Housing Wire, June 20, 2011


More Blog Posts:
$629M Mortgage-Backed Securities Lawsuit Blames RBS Securities and Other Financial Firms For Bankruptcy of Western Corporate Federal Credit Union in 2009, Institutional Investor Securities Blog, July 26, 2011

Morgan Stanley Reports a Possible $1.7B in Mortgage-Backed Securities Losses, Institutional Investor Securities Blog, August 16, 2011

Morgan Keegan Settles Subprime Mortgage-Backed Securities Charges for $200M, Stockbroker Fraud Blog, June 29, 2011

August 16, 2011

Morgan Stanley Reports a Possible $1.7B in Mortgage-Backed Securities Losses

Morgan Stanley says it may sustain $1.7B in losses over a number of securities fraud cases related to subprime mortgage deals. Citigroup Inc.'s (C.N) Citibank is the plaintiff of the securities lawsuit over the Capmark VI CDO and STACK 2006-1 CDO deals, while there are 15 plaintiffs seeking punitive damages over Cheyne Finance, a structured investment vehicle. Morgan Stanley is also reporting losses over a mortgage-backed security deal involving MBIA Corp.

Our securities fraud attorneys would like you to contact us if you are someone who sustained financial losses in any of these MBS deals with Morgan Stanley. Here are more details about the cases:

• Morgan Stanley says the losses in the Citibank securities fraud lawsuit may be a minimum of $269M over a credit default swap on the Capmark VI CDO deal and another one on the credit default swap involving the STACK 2006-1 CDO deal.

• The financial firm is reporting that it may possibly incur $983 million in damages over the Cheyne deal.

• At least $223M may have been lost on an insurance contract with MBIA Corp. over a mortgage-backed security deal.

Morgan Stanley’s loss forecast doesn’t include interest, legal fees, costs, and other ancillary items. There are also other securities lawsuits involving Morgan Stanley, including:

• Allstate's complaint over investment losses related to residential mortgage-backed securities. The insurer, who purchased over $104 million in MBS from the financial firm and its affiliates, claims that financial firm misrepresented the quality of the mortgages while claiming it had performed due diligence on the loans and mortgage originators. Many of these originators have since closed office or filed for bankruptcy and they are the defendants in government investigations/securities lawsuits.

• MBIA is suing Morgan Stanley over claims that the financial firm made misrepresentations regarding the underwriting standards of bonds that it would go on to insure. The underwriting standards are for securities based on about 5,000 subordinate-lien residential mortgages. The bond insurer claims it has already paid out tens of millions of dollars in claims that were never reimbursed.

Mortgage-Backed Securities
These debt obligations represent claims to the cash flow from mortgage loan pools. Mortgage companies, banks, and other originators put together these pools by a private, governmental, or quasi-governmental entity, which then issues securities representing claims on principal and interest payments that borrowers made on the pool’s loans. This process is called securitization. Types of MBS include pass-through participation certificates, collateralized mortgage obligations, or mortgage derivatives.

If you are an investor who suffered financial losses from investing in mortgage-backed securities, you may have reason to file a securities case against the financial firm that handled your MBS. Our stockbroker fraud lawyers have helped thousands of clients recoup their losses.

M. Stanley may have to pay $1.7 billion in MBS cases, MSNBC, August 8, 2011

Bond Insurer Sues Morgan Stanley—What Are the Ramifications?, CNBC, December 9, 2010

Allstate Sues Morgan Stanley Over Mortgage-Backed Securities, Property Casualty 360, July 7, 2011


More Blog Posts:

AIG Files $10 Billion Mortgage-Backed Securities Lawsuit Against Bank of America, Institutional Investor Securities Blog, August 13, 2011

Investors in Oppenheimer Mutual Funds Considering Opting Out of $100M Class Action Settlement Have Until August 31, Institutional Investor Securities Blog, August 6, 2011

Morgan Keegan Settles Subprime Mortgage-Backed Securities Charges for $200M, Stockbroker Fraud Blog, June 29, 2011

August 13, 2011

AIG Files $10 Billion Mortgage-Backed Securities Lawsuit Against Bank of America

American International Group (AIG) is seeking to recover over $10 billion in mortgage-backed securities-related losses from Bank of America (BAC). The losses were allegedly sustained on $28 billion in investments.

In what may be the largest MBS-related action filed by one investor, the complaint accuses Bank of America and its units Countrywide Financial and Merrill Lynch of misrepresenting the quality of the mortgages that were in the securities that investors bought. AIG also claims that Bank of America used false data to persuade the credit rating agencies to give the MBS high ratings.

Bank of America, which contends that the disclosures that were made were robust enough for sophisticated investors and that AIG is a “seasoned investor,” is denying AIG’s allegations against it. According to Bank of America spokesperson Lawrence Di Rita, the reason AIG suffered the financial losses at issue is because it was reckless in pursing profits and high yields in the “mortgage and structured finance markets.”

Bank of America’s 2008 acquisition of Countrywide for $4 billion has cost the financial firm much more in mortgage-related fines, losses, loan buybacks, and litigation expenses. Courthouse News Service database reports that Countrywide and Bank of America have been named as defendants in 1300 lawsuits in 2011 alone. Recently, Bank of America agreed to settle investor MBS claims for $8.5 billion. Parties to the settlement included the Bank of NY Mellon, BlackRock, the Federal reserve Bank of New York, and PIMCO. However, the New York Attorney General is now calling that settlement inadequate.

As for AIG, which is still largely owned by taxpayers following its 2008 government bailout, the New York Times says that the insurer is preparing similar securities fraud complaints against JPMorgan Chase, Goldman Sachs, and Deutsche Bank to try to recover some of the billions that it lost during the economic crisis.

Government Not Proving Helpful In Pursuing Investment Banks
Contrary to investors, who are seeking to hold big banks accountable in civil court, the Justice Department closed many of its investigations into Wall Street’s big banks without filing any criminal charges. Although it has brought cases against three employees at big financial banks, no executives have been charged. However, a spokesperson for the Justice Department says that the government has pursued the cases were appropriate and that it is much more difficult to prove that a crime has been committed beyond a reasonable doubt than to find a party liable in civil court.

The New York Times reports that a person familiar with the case says that the Justice Department has concluded its investigation into Countrywide’s actions heading into the financial crises and that there will be no charges filed. The government also recently closed its probe into Washington Mutual, with the finding that there was no evidence of criminal wrongdoing. The Washington bank almost failed because of high-risk mortgages.


Related Web Resources:

A.I.G. Sues Bank of America Over Mortgage Bonds, The New York Times, August 8, 2011

AIG sues Bank of America for $10 billion over mortgages, USA Today/AP, August 8, 2011

More Blog Posts:
Federal Home Loan Banks Say Countrywide Financial Corp Mortgage Bond Investors May Be Owed Way More than What $8.5B Securities Settlement with Bank of America Corp. is Offering, Institutional Investor Securities Blog, July 22, 2011

Bank of America Cop. (BAC)’s Merrill Lynch a Defendant of Class-Action Mortgage-Backed Securities Lawsuit Against at Least 1,800 Investors, Institutional Investor Securities Blog, July 22, 2011, June 25, 2011

Bank of America and Countrywide Financial Sued by Allstate over $700M in Bad Mortgaged-Backed Securities, Stockbroker Fraud Blog, December 29, 2010

Continue reading "AIG Files $10 Billion Mortgage-Backed Securities Lawsuit Against Bank of America " »

August 6, 2011

Investors in Oppenheimer Mutual Funds Considering Opting Out of $100M Class Action Settlement Have Until August 31

Recently, our stockbroker fraud law firm reported on the $100 million class action settlement that Massachusetts Mutual Life Insurance Co.’s OppenheimerFunds Inc. has agreed to pay to settle allegations that it did not properly manage its Oppenheimer Core Bond Fund (OPIGX) and Oppenheimer Champion Fund (OCHBX, OPCHX and OCHCX). The securities case was brought by investors who claimed that the offering documents and sales pitches misrepresented the risks involved in credit default swaps (CDS), mortgage-backed securities (MBS), and other complex securitized financial instruments. Instead, they contend that the funds were marketed and sold as high yielding, diversified, and conservative investments.

The Champion Fund would go on to lose about 80% of its value in 2008. (55% was lost just in November of that year.) The Core Bond Fund lost 33%. (Compare that to the rest of its peer group, which lost 5%.) As a result, Champion Fund investors sustained extremely significant financial losses and Core Bond investors also suffered.

The class action settlement distributes the $100 million between the two groups of mutual fund investors. While Core Bond investors will get $47.5 million, Champion investors are slated to receive $52.5 million. The Boards of Trustees for the funds have already given their approval. However, even in settling, OppenheimerFunds is not admitting to any wrongdoing. Its spokesperson has said that the proposed settlement is in the best interests of its Funds’ shareholders.

Opting Out of the Oppenheimer Funds Class Action
Our securities fraud lawyers would like to remind investors that in a class action case such as this one, the amount each investor will receive is likely substantially less than what could be recovered if one were to file his/her own FINRA arbitration claim or securities fraud lawsuit. Considering that thousands invested in the OppenheimerFunds, Champion Fund investors are expected to get about 3 cents on the dollar, while Core Bond Fund investors will get about 12 cents on the dollar.

If you are an investor who wants to file your own securities fraud case against OppenheimerFunds, you must opt out of the class before August 31, 2011. To do this you have to send a written exclusion to class counsel and this must be postmarked no later than the deadline. If you don’t opt out and the settlement goes into effect, you will get a check for your share and you will not be allowed to file a securities fraud lawsuit or an arbitration claim.

Our securities fraud lawyers know how scary it can be to go it alone, but it is the best way to increase your chances of recovering as much of your financial losses as possible. Our stockbroker fraud law firm would be happy to offer you a free case evaluation.

OppenheimerFunds Settles Mismanagement Case for $100 Million, Bloomberg Businessweek, July 26, 2011

OppenheimerFunds to pay $100 million to settle mismanagement case, Denver Post, July 27, 2011

More Blog Posts:
Mortgage-Backed Securities Lawsuit Against Bank of America’s Merrill Lynch Now a Class Action Case, Stockbroker Fraud Blog, June 25, 2011

Class Members of Charles Schwab Corporation Securities Litigation Can Still Opt Out to File Individual Securities Claim, Stockbroker Fraud Blog, December 6, 2010

Wells Fargo Settles Mortgage-Backed Securities Class Action Case for $125M, Institutional Investor Securities Blog, July 19, 2011

July 26, 2011

$629M Mortgage-Backed Securities Lawsuit Blames RBS Securities and Other Financial Firms For Bankruptcy of Western Corporate Federal Credit Union in 2009

The National Credit Union Administration has filed a $629 million securities fraud lawsuit against RBS Securities, Wachovia Mortgage Loan Trust LLC, Nomura Home Equity Loan Inc., Greenwich Capital Acceptance Inc., Lares Asset Securitization Inc., IndyMac MBS Inc., and American Home Mortgage Assets LLC. The NCUA is accusing the financial firms of underwriting and selling subpar mortgage-backed securities, which caused Western Corporate Federal Credit Union to file for bankruptcy, as well as of allegedly violating state and federal securities laws.

The defendants are accused of misrepresenting the nature of the bonds and causing WesCorp to think the risks involved were low, which was not the case at all. NCUA says that the originators of the securities “systematically disregarded” the Offering Documents’ underwriting standards. The agency blames broker-dealers and securities firms for the demise of five large corporate credit union: WesCorp, US Central, Members United Corporate, Southwest Corporate, and Constitution Corporate.

Last month, NCUA filed separate complaints against JPMorgan Chase Securities and RBS Securities. The union believes that those it considers responsible for the issues plaguing wholesale credit unions should cover the losses that retail credit unions are having to cover. NCUA says it may file up to 10 mortgage-backed securities complaints seeking to recover billions of dollars in damages. As of now, it is seeking to recover $1.5 billion.

NCUA acts as the “liquidating agent” for failed credit unions. Wholesale credit unions provide electronic payments, check clearing, investments and other services to retail credit unions, which actively work with borrowers.

NCUA sues JPMorgan and RBS to recover losses from failed institutions, Housing Wire, June 20, 2011

NCUA seeks $629M in damages from RBS Securities, Credit Union National Association, July 19, 2011

Feds Sue Bankers Over Fall in Bonds, The Wall Street Journal, June 21, 2011

Continue reading "$629M Mortgage-Backed Securities Lawsuit Blames RBS Securities and Other Financial Firms For Bankruptcy of Western Corporate Federal Credit Union in 2009" »

July 22, 2011

Federal Home Loan Banks Say Countrywide Financial Corp Mortgage Bond Investors May Be Owed Way More than What $8.5B Securities Settlement with Bank of America Corp. is Offering

According to six Federal Home Loan Banks, the investors of Countrywide Financial Corp.’s mortgage bonds may be entitled to three or more times more than what the proposed $8.5 billion securities settlement reached with Bank of America Corp (BAC) is offering. Bank of America acquired Countrywide in 2008.

Under the current settlement, which was reached with Bank of New York Mellon (the trustee of 22 institutional investors), Bank of America is supposed to pay those who placed money in the 530 residential mortgage securitization trusts that Countrywide had set up. Now, however, the Federal Home Loan Banks of Chicago, Boston, Pittsburgh, Indianapolis, Seattle, and San Francisco have filed a court filing seeking more information about the deal. The home loan banks claim that they also invested over $8.5 billion in the mortgage-backed securities. While the current proposal requires that Bank of America repurchase just 40% of MBS that defaulted, the FHLBs believe there may be grounds for upping the proposed settlement amount to at least $22 billion and they may want to join the case.

The six FHLBanks are not the only ones to object to BofA’s proposed settlement. Walnut Place LLC I-XI, which represents another group of Countrywide MBS investors, also has filed a court petition. They claim that Bank of New York Mellon was only attempting to arrive at an agreement for its 22 institutional investors that the rest of the investors would just have to abide by. Walnut Place LLC I-XI wants to block the current settlement and be excluded from any agreement that is finalized between BofA and Bank of New York Mellon.

Mortgage-Backed Securities
If you or your company suffered financial losses from investing in mortgage-backed securities, an experienced securities fraud attorney may be able to determine whether you have grounds for an institutional investment fraud claim.

Related Web Resources:
BofA Mortgage-Backed Securities Settlement Hits a Snag, OnWallStreet, July 22, 2011

Mortgage Investors May Be Owed Three Times More in BofA Deal, Bloomberg, July 21, 2011

Federal Home Loan Banks

Bank Of America Hit With Massive Fraud Lawsuit Over Countrywide, Texas Stockbroker Fraud


More Blog Posts:

Countrywide Finance. Corp, UBS Securities LLC, and JPMorgan Securities LLC Settle Mortgage-Backed Securities Lawsuit Filed by New Mexico Institutional Investors for $162M, Institutional Investors Securities Blog, March 10, 2011

Bank of America and Countrywide Financial Sued by Allstate over $700M in Bad Mortgaged-Backed Securities, Stockbroker Fraud Blog, December 29, 2010

Countrywide Financial, Merrill Lynch, and Citigroup Executives Defend Their Hefty Compensations Following Subprime Mortgage Crisis, Stockbroker Fraud Blog, March 12, 2008


Continue reading "Federal Home Loan Banks Say Countrywide Financial Corp Mortgage Bond Investors May Be Owed Way More than What $8.5B Securities Settlement with Bank of America Corp. is Offering" »

July 19, 2011

Wells Fargo Settles Mortgage-Backed Securities Class Action Case for $125M

Wells Fargo & Co. (WFC) has consented to pay $125 million to settle allegations that it misled investors about the risks involved in mortgage-backed securities. The plaintiffs in the class action securities lawsuit include a number of public pensions, including the New Orleans Employees’ Retirement System, Government of Guam Retirement Fund, Alameda County Employees’ Retirement Association, the General Retirement System of Detroit and the Louisiana Sheriffs' Pension and Relief Fund. Wells Fargo is the biggest home lender in the country.

The securities in question were backed by mortgage loans that Wells Fargo or its affiliates had bought or originated, which were issued through Wells Fargo Asset Securities Corp. in July and October 2005 and September 2006. Per the investors’ securities fraud lawsuit, the bank misrepresented the quality of the loans in 28 offerings (they were accompanied by inflated appraisals), which resulted in artificially high ratings for the securities. Wells Fargo also allegedly neglected to disclose that it did not follow the proper underwriting standards. As a result, the true risks of investing in these mortgage-backed securities were not disclosed.

A judge must still approve the proposed MBS settlement. However, by agreeing to settle, Wells Fargo and the underwriters have been quick to emphasize that this is not an admission of wrongdoing.

Meantime, Wells Fargo must still deal with MBS lawsuits filed by federal home loan banks and individual investors in Illinois, California, and Indiana. The investment bank was one of several that were sued in 2009 over alleged securities violations related to the sale of $36 billion in mortgage pass-through certificates. It was just last month that Bank of America consented to pay investors $8.5 billion for their mortgage back-securities-related losses that the investment bank assumed after its acquisition of Countrywide Financial.

Wells Fargo settles MBS investors claims for $125 million, Housing Wire, July 8, 2011

Wells Fargo to Pay $125 Million to Settle Mortgage-Backed Securities Case, Bloomberg, July 7, 2011


More Blog Posts:
Allstate Files Mortgage-Backed Securities Fraud Lawsuit Against Morgan Stanley, Institutional Investor Securities Blog, July 6, 2011

Bank of America Cop. (BAC)’s Merrill Lynch a Defendant of Class-Action Mortgage-Backed Securities Lawsuit Against at Least 1,800 Investors, Institutional Investor Securities Blog, June 25, 2011

National Credit Union Administration Board Files $800M Mortgage-Backed Securities Fraud Lawsuits Against JP Morgan Securities, RBS Securities, and Other Financial Institutions, Institutional Investor Securities Blog, June 23, 2011

Continue reading "Wells Fargo Settles Mortgage-Backed Securities Class Action Case for $125M" »

July 6, 2011

Allstate Files Mortgage-Backed Securities Fraud Lawsuit Against Morgan Stanley

Allstate Insurance Co., which bought over $104M in residential mortgage-backed securities in 6 offerings from Morgan Stanley between ‘05 and ’07 is suing the broker-dealer for securities fraud. The insurer claims that the financial firm sold it RMBS under the assurances that they were in alignment with “conservative” underwriting standards and that the properties had received accurate appraisals when, actually, Morgan Stanley RMBS did not meet these standards and had come from originators that Allstate categorizes as among “worst” in the subprime lending:

• New Century Financial Corp.
• Decision One Mortgage Co.
• WMC Mortgage Corp.
• First NLC Financial Services
• Wilmington Finance Inc.
• AIG Federal Savings Bank

Allstate says that leading up to the financial collapse, it had acquired $2.78 billion in mortgage-backed securities. It bought RMBS from Morgan Stanley because of the “central role” the financial firm made in creating and selling the securities, the latter’s assurances that it had done its due diligence on the mortgages backing the securities, and because of the prospectuses, registration statements, and other documents. Now, the insurance company believes that the brokerage firm either knew that the lenders were putting forth risky loans that did not conform to standards or recklessly disregarded the facts.

Allstate is seeking unspecified compensatory and/or “recessionary” damages and is asking for a jury trial. This is not the first RMBS that the insurance company has filed. Allstate has already sued several other brokerage firms for MBS fraud including:

• Merrill Lynch (a Bank of America unit)
• Countrywide (also a Bank of America units)
• Citigroup Inc.
• JP Morgan Chase & Co.
• Deutsche Bank AG
• Credit Suisse Group AG

Related Web Resources:

Morgan Stanley Sued by Allstate Over Mortgage Securities Fraud Claims, Bloomberg, July 6, 2011

Allstate adds Morgan Stanley to RMBS litigation pool, Housing Wires, July 6, 2011


More Blog Posts:

Bank of America Cop. (BAC)’s Merrill Lynch a Defendant of Class-Action Mortgage-Backed Securities Lawsuit Against at Least 1,800 Investors, Institutional Investors Securities Blog, June 25, 2011

National Credit Union Administration Board Files $800M Mortgage-Backed Securities Fraud Lawsuits Against JP Morgan Securities, RBS Securities, and Other Financial Institutions, Institutional Investors Securities Blog, June 23, 2011

Morgan Keegan Settles Subprime Mortgage-Backed Securities Charges for $200M, Stockbroker Fraud Blog, June 29, 2011

Continue reading "Allstate Files Mortgage-Backed Securities Fraud Lawsuit Against Morgan Stanley" »

June 25, 2011

Bank of America Cop. (BAC)’s Merrill Lynch a Defendant of Class-Action Mortgage-Backed Securities Lawsuit Against at Least 1,800 Investors

U.S. District Judge Jed S. Rakoff has ruled that Merrill Lynch must face a class action securities fraud lawsuit over mortgage-backed securities. The class of at least 1,800 investors consists of the buyers of 31 tranches of MBS in 18 different offerings that were sold between February 2006 and September 2007. Merrill Lynch is a unit of Bank of America Corp. (BAC).

The investors, who filed their litigation in 2008, are accusing Merrill of misleading them in the offering documents for certificate valued at $16.5 billion and of falsely claiming that the underlying mortgages were in compliance with underwriting guidelines. Plaintiffs include the Los Angeles County Employees Retirement Association, the Mississippi Public Employees’ Retirement System, the Wyoming state treasurer, the Connecticut Carpenters Annuity Fund, and the Connecticut Carpenters Pension Fund. The class action certification lets the investors put their claims together into one lawsuit rather than having to individually push their cases through.

Meantime, Bloomberg.com is reporting that in a separate securities fraud lawsuit, also against Bank of America, U.S. District Judge William Pauley in Manhattan consolidated three cases accusing the investment bank of hiding the risks involved in mortgage-backed securities and of not using appropriate controls in processing foreclosures. The lead plaintiff in this case is Pennsylvania Public School Employees’ Retirement System.

Securities Class Actions
“The average net recovery for victims in securities class action claims is about 8% of their losses because such claims face many problems," says Shepherd Smith Edwards and Kantas founder and securities fraud attorney William Shepherd. "For example, only federal securities fraud claims can be made in such cases, which are often difficult to prove. However, investors who “opt out” of the class in a timely manner can file their own individual claims, including under state law claims often easier to prove. Our stockbroker fraud lawyers has represented many investors who have opted-out of securities class actions."

Shepherd continues, "Unfortunately, many securities class action claims are filed with very short “opt out” dates and some of these cases are later settled on terms that arguably favor the defendants while large payments end up going to the lawyers representing the investor/ victims in the class. Many believe the true losers in such cases are the members of the investor class who suffered the losses. [We have no information at this time to suggest such a result in this matter.] ”

Related Web Resources:
Merrill Must Face Class Action Over Mortgage Securities, Bloomberg, January 20, 2011

Los Angeles County Employees Retirement Association

Mississippi Public Employees’ Retirement System

Connecticut Carpenters Annuity Fund


More Blog Posts:

National Credit Union Administration Board Files $800M Mortgage-Backed Securities Fraud Lawsuits Against JP Morgan Securities, RBS Securities, and Other Financial Institutions, Institutional Investor Securities Blog, June 23, 2011

MBIA Can Sue Morgan Stanley Over Alleged Misrepresentation of MBS Risks, Says US New York Supreme Court, Institutional Investor Securities Blog, June 14, 2011

Dow Corning Corp.’s $165M Securities Fraud Lawsuit Against Merrill Lynch & Co. Can Proceed, Says District Court Judge, Stockbroker Fraud Blog, April 7, 2011


Continue reading "Bank of America Cop. (BAC)’s Merrill Lynch a Defendant of Class-Action Mortgage-Backed Securities Lawsuit Against at Least 1,800 Investors" »

June 23, 2011

National Credit Union Administration Board Files $800M Mortgage-Backed Securities Fraud Lawsuits Against JP Morgan Securities, RBS Securities, and Other Financial Institutions

This week, the National Credit Union Administration Board filed two securities fraud lawsuits accusing a number of financial institutions of misrepresenting the risks involved in the mortgage-securities that they sold to investors. The federal credit union is seeking a combined $800 million.

JP Morgan Securities LLC, Novastar Mortgage Funding Corp, and RBS Securities Inc. are just a few of the defendants, who are accused of committing securities fraud against five wholesale credit unions. Both mortgage-backed securities lawsuits claim that large investment banks sold securities to institutional investors that held subprime loans as Triple-A rated investments. The financial firms allegedly omitted material facts, including that the securities were larded with loans issued to borrowers at high risk of default. The defendants are accused of getting the wholesale credit unions to purchase over $3 billion in mortgage-backed securities that, according to The Wall Street Journal, were “destined to perform poorly.” Subsequently, the credit unions became 5 of the over 40 in the US that have failed since 2009. It has since been up to the approximately 7,000 remaining credit unions to take on some of the loans, while charging higher interest rates to stay in operation. Meantime, the failures of the credit unions have forced NCUA to take on about $50 billion in battered bonds that are currently valued at a fraction of their original value.

When a borrower defaults on a loan payment, the value of the mortgage-backed security suffers. The NCUA’s complaint says that as a result, the credit ratings assigned too many mortgage-backed securities that the credit union purchased collapsed in short order. The NCUA plans to file more securities fraud complaints. Goldman Sachs will likely be among the new defendants.

Feds Sue Bankers Over Fall in Bonds, The Wall Street Journal, June 21, 2011

National Credit Union Administration Board sues big banks for $800M, Biz Journals, June 20, 2011

National Credit Union Administration



More Blog Posts:

MBIA Can Sue Morgan Stanley Over Alleged Misrepresentation of MBS Risks, Says US New York Supreme Court, Institutional Investor Securities Blog, June 14, 2011

“Skin in the Game” Mortgage Rule Announced by Federal Regulators, Institutional Investor Securities Blog, April 16, 2011

Ambac Financial Group, Insurers, and Bank Underwriters to Pay $33M to Settle Securities Lawsuits Alleging Concealed Risks Related to its Bond-Insurance Business, Stockbroker Fraud Blog, May 18, 2011

Continue reading "National Credit Union Administration Board Files $800M Mortgage-Backed Securities Fraud Lawsuits Against JP Morgan Securities, RBS Securities, and Other Financial Institutions" »

June 18, 2011

JP Morgan Settles for $153.6M SEC Charges Over Its Marketing of Synthetic Collateralized Debt Obligation

J.P. Morgan Securities LLC (JPM) has consented to pay $153.6 million to settle Securities and Exchange Commission charges that it misled investors in 2007 when it marketed a synthetic collateralized debt obligation that was linked to the US housing market. The financial firm also agreed to a permanent bar from future violations of the 1933 Securities Act and to bettering its business practices related to mortgage securities transactions. By agreeing to settle, JP Morgan is not denying or admitting to the allegations. The settlement, however, should allow investors to get a “full return” on their losses.

The SEC says that the brokerage firm mainly used credit default swaps that referenced other CDO securities tied to the housing market to structure the Squared CDO 2007-1. While the CDO’s marketing collateral said that GSCP, GSC Capital Corp.’s investment advisory arm, chose the deal’s investment portfolio, investors were not notified that hedge fund Magnetar Capital LLC played a key part in choosing the portfolio’s CDOs and or that it would benefit if the CDO assets defaulted.

The Commission also claims that when JP Morgan discovered in early 2007 that it could sustain huge losses because the housing market was in peril, it started marketing the deal to investors outside its regular client base. Less than a year later, the securities had lost the majority, if not all, of their value.

The SEC’s complaint accuses the investment bank of selling approximately $150 million of “mezzanine notes” of the Squared deal to over a dozen institutional investors who consequently lost their investments. Also, when the Squared deal was shut in May 2007, Magnetar’s short position was $600 million while its long position was $8.9 million.

J.P. Morgan to Pay $153.6 Million to Settle SEC Charges of Misleading Investors in CDO Tied to U.S. Housing Market, SEC, June 21, 2011

J.P. Morgan Agrees to Pay Over $150M To Settle SEC Charges Over 2007 CDO Deal, BNA Bank Daily, June 22, 2011

More Blog Posts:
Washington Mutual Bank Bondholders’ Securities Fraud Lawsuit Against J.P. Morgan Chase & Co. is Revived by Appeals Court, Institutional Investor Securities Blog, June 29, 2011

National Credit Union Administration Board Files $800M Mortgage-Backed Securities Fraud Lawsuits Against JP Morgan Securities, RBS Securities, and Other Financial Institutions, Institutional Investor Securities Blog, June 23, 2011

JP Morgan Chase Agrees to Pay $861M to Lehman Brothers Trustee, Stockbroker Fraud Blog, June 28, 2011

Continue reading "JP Morgan Settles for $153.6M SEC Charges Over Its Marketing of Synthetic Collateralized Debt Obligation " »

June 14, 2011

MBIA Can Sue Morgan Stanley Over Alleged Misrepresentation of MBS Risks, Says US New York Supreme Court

In MBIA Insurance Corp. v. Morgan Stanley, N.Y. Sup.Ct., No. 29951-10, the New York Supreme Court says that insurance company MBIA can sue Morgan Stanley and affiliates Saxon Mortgage Services Inc. and Morgan Stanley Mortgage Capital Holdings LLC for alleged misrepresentations about the risks involved in insuring residential mortgages that were sold to investors as mortgage-backed securities. While Judge Gerald Loehr allowed MBIA to bring a cause of auction for fraud against the broker-dealer and its affiliates, he did dismiss an unjust enrichment claim against Saxon.

MBIA claims that the defendants made their representations in their talks leading up to the agreement that had the insurer saying it would insure over $223 million in residential MBS that investors bought in the transaction. The alleged misstatements were over the characteristics of the mortgage loans (both pooled and individual), the quality of the collateral for the loans, and borrowers’ credit ratings. The action dealt with the securitization of a transaction involving about 5,000 subordinate-lien residential mortgages that were bought, structured, and sold by the defendants. Morgan Stanley is also accused of representing to MBIA that the mortgage loans weren’t subprime loans but were instead alternative documentation loans.

MSMCH had acquired the mortgage loans and then transferred and pooled them to Morgan Stanley Capital Inc., which then transferred them to a trust that had LaSalle Bank National Association serve as a trustee. The trust put out certificates secured by groups of those mortgages, which were sold, and paid a yield to certificate holders connecting the cash flow to the loans.

Information on Selected Legal Proceedings, MBIA

Read the Opinion, MBIA (PDF)


More Blog Posts:

“Skin in the Game” Mortgage Rule Announced by Federal Regulators, Institutional Investor Securities Blog, April 16, 2011

Goldman Sachs Group Made Money From Financial Crisis When it Bet Against the Subprime Mortgage Market, Says US Senate Panel, Institutional Investor Securities Blog, April 15, 2011

Wells Fargo Settles SEC Securities Fraud Allegations Over Sale of Complex Mortgage-Backed Securities by Wachovia for $11.2M, Institutional Investor Securities Blog, April 7, 2011


Continue reading "MBIA Can Sue Morgan Stanley Over Alleged Misrepresentation of MBS Risks, Says US New York Supreme Court " »

April 16, 2011

“Skin in the Game” Mortgage Rule Announced by Federal Regulators

Federal regulators are proposing new risk retention rules geared toward reducing risky low mortgage lending. The ‘skin in the game” rule was articulated in the Dodd-Frank Consumer Protection Act, which mandates credit risk sharing and for mortgage-backed securities (MBS) sponsors and those of other asset classes to align their interests with investors.

Under the new qualified residential mortgage rules, lenders would have to retain 5% of the risk, known as “skin in the game,” for non-qualifying loans that they make rather than selling all of them to investors. The loans would likely include higher mortgage costs. Loans sold to Freddie Mac or Fannie Mae, however, would be exempt from the rules as long as they remain in government conservatorship. Loans through the Federal Housing Administration would also be exempt.

A qualified residential mortgage (QRM) is a mortgage that regulators consider to be a loan that offers a low risk of default. Some of the requirements for qualifying for a QRM loan:

• Placing at least a 25% down if you are buying a house.
• Having at least 25% equity to refinance.
• Having at least 30% equity for cash-out refinancing.
• No 60-day delinquencies over the past two years.
• Not being able to get a loan with interest only payments, negative amortization, or "significant interest rate increases.”

Our securities fraud lawyers represent institutional investors who have lost money from investing in mortgage-backed securities or other investments.

Related Web Resources:
Rule Could Make Mortgages Harder to Get, Fox Business, March 31, 2011

Bankers pleased with ‘skin in the game’ rule, Marketwatch, March 29, 2011


More Blog Posts:
Goldman Sachs Group Made Money From Financial Crisis When it Bet Against the Subprime Mortgage Market, Says US Senate Panel, Institutional Investors Securities Blog, April 15, 2011

Bank of America and Countrywide Financial Sued by Allstate over $700M in Bad Mortgaged-Backed Securities, Stockbroker Fraud Blog, December 29, 2010

Citigroup’s $75 Million Securities Fraud Settlement with the SEC Over Subprime Mortgage Debt Approved by Judge, Stockbroker Fraud Blog, October 23, 2010

Continue reading "“Skin in the Game” Mortgage Rule Announced by Federal Regulators" »

April 15, 2011

Goldman Sachs Group Made Money From Financial Crisis When it Bet Against the Subprime Mortgage Market, Says US Senate Panel

The Senate's Permanent Subcommittee on Investigations says that because Goldman Sachs Group Inc. bet billions against the subprime mortgage market it profited from the financial crisis. The panel’s findings come following a two-year bipartisan probe and were released in a 639-page report on Wednesday.

The subcommittee released documents and emails that show executives and traders attempting to get rid of their subprime mortgage exposure, which was worth billions of dollars, and short the market for profit. Their actions ended up costing their clients that purchased the financial firm’s mortgage-related securities.

The panel says that Goldman allegedly deceived the investors when failing to tell them that the investment bank was simultaneously shorting or betting against the same investments. The subcommittee estimates that Goldman’s bets against the mortgage markets in 2007 did more than balance out the financial firm’s mortgage losses, causing it to garner a $1.2 billion profit that year in the mortgage department alone. Also, when Goldman executives, including Chief Executive Lloyd Blankfein appeared before the committee in 2010, the panel says that they allegedly misled panel members when they denied that the financial firm took an a position referred to as being “net short,” which involves heavily tilting one’s investments against the housing market.

It was just last year that the Securities and Exchange Commission ordered Goldman to pay $550 million to settle securities fraud charges over its actions related to the mortgage-securities market. The allegations in this report go beyond the claims covered by the SEC case. The report also names mortgage lender Washington Mutual, credit rating firms, the Office of Thrift Supervision, and a federal bank regulator as among those that contributed to the financial crisis.

Goldman is denying many of the subcommittee’s claims and says its executives did not mislead Congress.

Related Web Resources:
Goldman Sachs shares drop on Senate report, Reuters, April 14, 2011

Senate Panel: 'Goldman Sachs Profited From Financial Crisis', Los Angeles Times, April 14, 2011

Senate Permanent Subcommittee on Investigations

More Blog Posts:
Goldman Sachs Sued by ACA Financial Guaranty Over Failed Abacus Investment for $120M, Institutional Investor Securities Blog, January 10, 2011

Goldman Sachs Settles SEC Subprime Mortgage-CDO Related Charges for $550 Million, Stockbroker Fraud Blog, July 30, 2010

Goldman Sachs COO Says Investment Firm Shorted 1% of CDOs Mortgage Bonds But Didn’t Bet Against Clients, Stockbroker Fraud Blog, July 14, 2010

Continue reading "Goldman Sachs Group Made Money From Financial Crisis When it Bet Against the Subprime Mortgage Market, Says US Senate Panel " »

April 7, 2011

Wells Fargo Settles SEC Securities Fraud Allegations Over Sale of Complex Mortgage-Backed Securities by Wachovia for $11.2M

For a payment of $11.2 million, Wells Fargo & Co. will settle US Securities and Exchange Commission allegations that Wachovia Capital Markets LLC misled investors and improperly sold two collateralized debt obligations in 2007 and 2006. Wachovia was bought by Wells Fargo in 2008.

Wells Fargo Securities now manages Wachovia. By agreeing to settle, the investment bank is not admitting to or denying the findings.

According to the SEC, Wachovia Capital Markets LLC, now called Wells Fargo Securities, violated securities law anti-fraud provisions when it sold the complex mortgage-backed securities to investors despite the red flags indicating that there was trouble brewing with the US housing market.

The SEC says that Wachovia charged excessive markups in the sale of part of a $1.5 billion CDO called Grand Avenue II. Unable to sell the CDOs $5.5 million equity portion in October 2006, it kept the shares on the trading desk while dropping their value to 52.7 cents on the dollar. Wachovia later sold the shares for 90 and 95 cents on the dollar to an individual investor and the Zuni Indian tribe. Both did not know that they had purchased the shares at a price that was 70% above their accounting value. The transaction went into default in 2008.

The SEC claims that in 2007, Wachovia Capital Markets misrepresented to investors in Longshore 3, a $1.3 billion CDO, that assets had been acquired from Wachovia affiliates on an “arms’-length basis” when actually, 40 residential mortgage-backed securities were transferred at $4.6 million over market prices. The SEC contends that Wachovia was trying to avoid sustaining losses by transferring the assets at “stale” prices.

Related Web Resources:
Wells to pay $11.2 M in case, Seeking Alpha, April 6, 2011

Wells Fargo-Wachovia settles CDO claim with SEC for $11 million, Housing Wire, April 5, 2011

CDO News, New York Times

Mortgage-Backed Securities, SEC.gov


More Blog Posts:
Goldman Sachs Sued by ACA Financial Guaranty Over Failed Abacus Investment for $120M, Institutional Investor Securities Blog, January 10, 2011

Houston Man Indicted in Alleged $17M Texas Securities Fraud, Stockbroker Fraud Blog, December 23, 2010

Goldman Sachs COO Says Investment Firm Shorted 1% of CDOs Mortgage Bonds But Didn’t Bet Against Clients, Stockbroker Fraud Blog, July 14, 2010

Continue reading "Wells Fargo Settles SEC Securities Fraud Allegations Over Sale of Complex Mortgage-Backed Securities by Wachovia for $11.2M" »

March 10, 2011

Countrywide Finance. Corp, UBS Securities LLC, and JPMorgan Securities LLC Settle Mortgage-Backed Securities Lawsuit Filed by New Mexico Institutional Investors for $162M

New Mexico’s State Investment Council and Public Employees Retirement Association have settled their securities lawsuit with Countrywide Finance Corp. and two underwriters for $162 million. These details, from the confidential settlement agreement, were was obtained by the Albuquerque Journal through an Inspection of Public Records request.

The Countrywide investments were made up of mortgage-backed securities that the company had written. JPMorgan Securities and UBS Securities LLC were the two underwriters.

The securities were obtained through securities lending, which involved the SIC lending one batch of securities in return for another batch that paid a slightly higher interest rate. Although securities lending is generally considered safe for institutional investors like the SIC and PERA, mortgage-backed securities played a key role in the recent financial collapse. Even now, since the market has rebounded, the Countrywide securities are still worth less than what the state got.

In their institutional investment fraud lawsuit, the SIC and PERA accuse the defendants of disregarding their own underwriting guidelines and dumping the securities on investors, including the state of New Mexico, “to generate high volume loan business regardless of credit risk.” The New Mexico agencies opted to file their complaint in state court instead of taking part in a class-action lawsuit with other US states.

Of the $162 million, $149 million goes to SIC, PERA gets $6 million, the Educational Retirement Board receives $100,000, and the lawyers hired by the state are to receive $7 million. Bank of America bought out Countrywide in 2008.

Related Web Resources:
State Nets $155 Million in Settlement, Albuquerque Journal, March 7, 2011

Countrywide sued by 3 New Mexico funds, Pensions & Investments, Pension and Investments, August 20, 2008

New Mexico State Investment Council

Public Employees Retirement Association of New Mexico

New Mexico Educational Retirement Board


More Blog Posts:
Bank of America and Countrywide Financial Sued by Allstate over $700M in Bad Mortgaged-Backed Securities, Stockbroker Fraud Blog, December 29, 2010

Countrywide Financial, Merrill Lynch, and Citigroup Executives Defend Their Hefty Compensations Following Subprime Mortgage Crisis, Stockbroker Fraud Blog, March 12, 2008

Continue reading "Countrywide Finance. Corp, UBS Securities LLC, and JPMorgan Securities LLC Settle Mortgage-Backed Securities Lawsuit Filed by New Mexico Institutional Investors for $162M " »

March 8, 2011

Securities Lawsuit Accusing Merrill Lynch of Facilitating Sale of Mortgage-Backed Securities to King County, Washington Can Proceed, Says Court

The U.S. District Court for the Western District of Washington says that King County, Washington has pleaded sufficient facts to continue with its securities fraud lawsuit accusing Merrill Lynch, Merrill Lynch, Pierce, Fenner and Smith Inc. and Merrill Lynch Money Markets Inc. of facilitating its purchase of allegedly toxic mortgage-backed securities and violating the Washington State Securities Act. The defendants had sought to dismiss the securities fraud complaint.

Per the plaintiff, the defendants sold more than $100 million of the toxic assets to King County through the entities Mansail II and Victoria Finance in 2007. At the time, the county had wanted to make conservative investments. Not long after, Mansail failed and Victoria was downgraded to “junk” and placed on negative credit watch.

The county, claiming $60 million in losses, contends that the defendants played the role of seller or dealer of the commercial paper but did not fulfill its responsibility of ensuring there were sufficient procedures in place so that unwise investments were avoided and adequate warning of investment risks were provided. The county also contends that Merrill Lynch and its subsidiaries knew that the securities it was selling were toxic and had even made efforts to get rid of its MBS.

The district court says that under the state securities law, civil liability for omissions and misrepresentations attaches both the seller of the security and parties that played a substantial role in the sale. The court found that the defendants of this securities case, as pleaded by King County, are “sellers” under the Washington State Securities Act and that the county wouldn’t have bought the MBS if it hadn’t been working with Merrill Lynch and its subsidiaries. The court also found that the county had adequately pleaded control person liability, as well as sufficiently alleged that the defendants had omitted or misrepresented the facts. It decided not to dismiss the county’s breach of contract claim accusing the defendants of failing to warn about the risks involved in the MBS investments.

Related Web Resources:
King County's Pleadings Sufficient To Keep MBS Suit Against Merrill Lynch Alive, BNA Securities

Lawsuit: Merrill Lynch sold King Co. 'toxic' 'junk', Seattle PI, July 20, 2010


More Blog Posts:
$18M Credit Default Swap Case Against Merrill Lynch International Reinstated, Institutional Investors Securities Blog, February 18, 2011

Merrill Lynch Doesn’t Have to Arbitrate ARS Claims by LSED, Says Appeals Court, Institutional Investors Securities Blog, December 22, 2010

February 17, 2011

Ex-Goldman Sachs Broker’s Request for SEC Help in Obtaining Documents from Germany Denied by District Court

The U.S. District Court for the Southern District of New York says it will not direct the Securities and Exchange Commission to contact German authorities on behalf ex-Goldman Sachs & Co. (GS) executive Fabrice Tourre, who is seeking to obtain certain documents related to the securities fraud case against him. Per Magistrate Judge Michael Dolinger’s ruling, a discovery request based on Federal Rule of Civil Procedure 34(a) doesn’t “extend” to having a
“government agency make requests to a foreign government under the terms of” a memorandum of understanding between both parties. Dolinger notes that while MOU between the SEC and its German equivalent allows both regulators to help each other in the enforcement of their respective securities laws, “there is no indication” that the MOU is supposed to offer a right or a benefit to a private party, such as allowing a securities fraud litigant to obtain discovery in Germany.

The SEC charged Goldman Sachs and Tourre over alleged misstatements and omissions related to collateralized debt obligations called Abacus 2007-AC1, a derivative product linked to subprime mortgages. The broker-dealer settled its securities case for $550 million. Meantime, Tourre, who is accused of giving Goldman Sachs “substantial assistance” in its alleged efforts to mislead investors, is seeking to have the SEC case against him dismissed. He is pointing to Morrison v. National Australia Bank Ltd., a US Supreme Court decision that was issued two months after the SEC filed charges against him.

This week, his lawyers argued that the SEC was attempting to circumvent the Supreme Court ruling, which limits the reach of civil claims over acts that occurred outside the country. The transactions involving Tourre that are under dispute took place abroad.

Goldman’s Tourre Shouldn’t Face SEC Lawsuit, His Lawyers Say, Bloomberg Businessweek, February 15, 2011

The SEC Complaint (PDF)

Morrison v. National Australia Bank Ltd., US Supreme Court


More Blog Posts:
Goldman Sachs Sued by ACA Financial Guaranty Over Failed Abacus Investment for $120M, Institutional Investors Securities Blog, January 10, 2011

Goldman Sach’s $550 Million Securities Fraud Settlement Not Tied to Financial Reform Bill, Says SEC IG, Institutional Investors Securities Blog, October 27, 2010

Goldman Sachs International Fined $27M by UK’s FSA for Not Reporting SEC Investigation into Abacus 2007-AC1 Synthetic Collateralized Debt Obligation, Institutional Investors Securities Blog, October 7, 2010

Continue reading "Ex-Goldman Sachs Broker’s Request for SEC Help in Obtaining Documents from Germany Denied by District Court" »

February 10, 2011

CalPERS Files Securities Fraud Lawsuit Against Lehman Brothers

The California Public Employees' Retirement System is suing Lehman Brothers Holdings Inc., its ex-executives, and a number of bond underwriters for fraud and of making materially false statements about mortgage-backed securities losses. CalPERS, a $229 billion public pension fund, owned about $700 million Lehman bonds and 3.9 million shares of Lehman bonds when Lehman filed for bankruptcy in September 2008. Because of the economic crisis, CalPERS funds lost $100 billion in value from September 2008 and March 2009.

In its securities fraud complaint, CalPERS accused Lehman of “dramatically” borrowing to fund its real estate investments from 2004 to 2007—high-risk activity that investors were not told about. Other defendants include ex-Lehman Chief Executive Richard S. Fuld Jr., ex-Lehman Chief Financial Officers Erin Callan and Christopher O'Meara, 9 Lehman directors, and 33 others firms, including Wells Fargo Securities, Citigroup Global Markets Inc., and Mellon Financial Markets. The defendants allegedly failed to disclose not just Lehman’s exposure to Alt-A lending and subprime, but also its mortgage-related assets' true value.

This securities complaint is CalPERS second action against members of Wall Street that sold mortgage-backed securities. In July 2009, CAlPERS sued Standard & Poor’s, Moody’s Investors Services Inc., and Fitch Inc. The complaint accused the financial rating companies of giving top grades to bonds that ended up sustaining huge financial losses when the subprime mortgage securities market collapsed.

Also, CalPERS has a shareholder lawsuit against Bank of America Corp. (BAC) over its Merrill Lynch acquisition. The pension fund also has a case against BofA’s Countrywide Financial.

Related Web Resources:
Calpers Alleges Top Lehman Execs Misled On Exposures, Financials, The Wall Street Journal, February 8, 2011

CalPERS suit accuses Lehman Bros. of fraud, Los Angeles Times, February 9, 2011

CalPERS


Related Blog Posts About Pension Funds:
Quadrangle Cofounder and CalPERS Partner Steven Rattner Settles NY Pension Fund Corruption Probe for $10M, Institutional Investors Securities Blog, January 4, 2011

Securities Fraud Lawsuit Against UBS Securities LLC by Detroit Pension Funds Won’t Be Remanded to State Court, Says District Court, Institutional Investors Securities Blog, January 17, 2011

In Securities Fraud Case Against Morgan Stanley Pension Fund Doesn’t Have Standing to Bring Certain Claims, Says Court, Institutional Investors Securities Blog, October 4, 2010

Continue reading "CalPERS Files Securities Fraud Lawsuit Against Lehman Brothers" »

February 3, 2011

Insurer Claims that JP Morgan and Bear Stearns Bilked Clients Of Billions of Dollars with Handling of Mortgage Repurchases

Ambac Assurance Corp., a mortgage insurance company, claims that not only did JP Morgan Chase & Co. resist repurchasing loans from Bear Stears-created bonds, but also, it demanded that a lender buy back the bad mortgages. Ambac made the claim in a proposed amended securities lawsuit against Bear Stear’s EMC Mortgage unit. JP Morgan now owns Bear Stearns.

Ambac filed its securities lawsuit in 2008, claiming that ex-Bear Stearns mortgage executives that currently head mortgage divisions at Bank of America, Goldman Sachs, and Ally Financial defrauded and cheated investors, while hiding their actions from the public. Its complaint lists more than $600 million in claims with $1.2 billion in damages from the bad mortgage securities that it insured against and invested in. The insurer is now adding the claim of fraud to its case.

According to the complaint, on March 11, 2008, Bear Stearns, who had bought loans and packaged them into bonds for investors to buy, sought to have a lender repurchase mortgages in bonds that Syncora Guarantee Inc. had insured because it claimed that they did not meet promised standards of quality. This, at the same time that Bear Stearns refused, per Syncora’s demands, that it buy back the loans over the same flaws.

Bear traders allegedly sold the toxic mortgage securities to investors and then resold the bad loans with early payment defaults to banks that originated them. Because investors were not notified that the time allowed for early default payments had been cut, this allowed the investment bank to swiftly securitize defective loans without giving investors time conduct due diligence.

Former EMC analysts have stepped forward admitting that they were ordered to falsify loan-level performance data and that the information was passed on to ratings agencies, who would then approve Bear’s billion-dollar deals. They also claim that senior traders were taking money that should have gone to the security holders that bought the bonds and loans from Bear. Due diligence standards were allegedly ignored. Executives allegedly made tens of millions of dollars in compensation.

Ambac claims that Bear knew that what traders were doing in its mortgage trading division yet chose to conceal the defective loans and ignore contractual obligations. The insurer is now holding JP Morgan accountable for the accounting fraud that began at Bear. Ambac also contends that JP Morgan has continued to ignore the vast off-balance sheet exposure linked to its contractual repurchase agreements.

Related Web Resources:
E-mails Suggest Bear Stearns Cheated Clients Out of Billions, The Atlantic, January 25, 2011

Ambac Says JPMorgan Refused Mortgage Repurchases It Also Sought, Bloomberg Businessweek, January 25, 2011

JP Morgan and Chase, Institutional Investors Securities Blog, February 3, 2011

Continue reading "Insurer Claims that JP Morgan and Bear Stearns Bilked Clients Of Billions of Dollars with Handling of Mortgage Repurchases" »

November 30, 2010

Securities Fraud Lawsuit Against Citigroup Involving Mortgage-Related Risk Results in Mixed Ruling

According to a district court ruling, investors can proceed with certain securities fraud charges against Citigroup and a number of its directors over the alleged misrepresenting of the risks involved in mortgage-related investments (including auction-rate securities, collateralized debt obligations, Alt-A residential mortgage-backed securities, and structured investment vehicles). However, the majority of claims involving pleading inadequacies have been dismissed. The securities lawsuit seeks to represent persons that bought Citigroup common stock between January 2004 and January 15, 2009.

Current and ex-Citigroup shareholders have said that as a result of the securities fraud, which involved the misrepresentation of the risks involved via exposure to collateralized debt obligations, they ended up paying an inflated stock price. The plaintiffs are accusing several of the defendants of selling significant amounts of Citigroup stock during the class period. They also say that seven of the individual defendants certified the accuracy of certain Securities and Exchange Commission filings that were allegedly fraudulent. They plaintiffs are claiming that there were SEC filings that violated accounting rules because of the failure to report CDO exposure and value such holdings with accuracy.

The plaintiffs claim that the defendants intentionally hid the fact that billions of dollars in CDOs hadn’t been bought. They also said that defendants made misleading statements that did not properly make clear the subprime risks linked to the Citigroup CDO portfolio.

The defendants submitted a dismissal motion, which the court granted for the most part. Although the court is letting certain CDO-related claims to move forward, it agrees with the defense that because the plaintiffs failed to raise an inference of scienter before February 2007 (when the investment bank started buying insurance for its most high risk CDO holdings), the claims for that period cannot be maintained. The court also held that the plaintiffs failed to plead that seven of the individual defendants had been aware of Citigroup’s CDO operations. As a result, the court determined that there can be no finding of scienter in regards to the individuals.

The court, however, did that the plaintiffs adequately pleaded securities fraud claims against Citigroup, Gary Crittenden, Charles Prince, Thomas Maheras, Robert Druskin, David C. Bushnell, Michael Stuart Klein, and Robert Rubin for misstatements made about the bank’s CDO exposure between February and November 3, 2007. The plaintiffs also adequately pleaded securities fraud claims against Citigroup and Crittenden for Nov. 4, 2007, to April 2008 period.

Related Web Resource:
Citigroup Inc. Securities Litigation (PDF)

Continue reading "Securities Fraud Lawsuit Against Citigroup Involving Mortgage-Related Risk Results in Mixed Ruling " »

November 29, 2010

Financial Firms File Securities Fraud Lawsuits Against Each Other Over 2008 Credit and Subprime Crisis

In what one investment banking official is calling a “second wave” of securities litigation stemming from the credit and subprime crisis of 2008, financial firms are now suing other financial institutions for damages. While speaking on a Practising Law Institute panel, Morgan Stanley managing director D. Scott Tucker noted that this “second wave” is the “exact opposite of the first wave,” which was primarily brought by smaller pension funds or states claiming violations of the 1933 Securities Act and the 1934 Securities Exchange Act.

Tucker said that with this new wave, most of the plaintiffs are financial institutions, including investment managers and hedge funds, that are asserting common law fraud and making other state law claims. Also, these latest lawsuits are primarily individual cases, rather than class actions. The securities at the center of this latest wave of litigation are complex structured products, such as credit default swaps, collateralized debt obligations, and mortgage-backed securities, as well as complaints involving private placements and derivatives or securities that don’t trade on liquid markets.

Our securities fraud lawyers at Shepherd Smith Edwards & Kantas LTD LLP represent institutional investors who suffered financial losses because of their dealings with investment companies. Unlike other law firms, our stockbroker fraud lawyers will never represent brokerage firms.

Over the years, we have represented thousands of investors and recovered millions of dollars for them. We are dedicated to protecting our clients' right to financial recovery.

Related Web Resources:
Panel: 2008 Credit Crisis Now Spawning New Wave of Suits Between Financial Firms, BNA, November 16, 2010

Can’t Grasp Credit Crisis? Join the Club, New York Times, March 19, 2008

Stockbroker Fraud Blog

October 30, 2010

Securities Claims Against Goldman Sachs Over Mortgage-Backed Certificates are Partially Dismissed by Court Due to Lack of Injury

The U.S. District Court for the Southern District of New York has ruled that without an injury, a mortgage-backed certificates holder cannot maintain a securities claim against MBS underwriter Goldman Sachs & Co. (GS) and related entities for allegedly misstating the risks involved in the certificates in their registration statement. Judge Miriam Goldman Cedarbaum says that plaintiff NECA-IBEW Health & Welfare Fund knew that the investment it made could be illiquid and, therefore, cannot allege injury based on the certificates hypothetical price on the secondary market at the time of the complaint. The court, however, did deny Goldman's motion to dismiss the plaintiff's claims brought under the 1933 Securities Act’s Section 12(a)(2) and Section 15.

The Fund had purchased from Goldman a series of MBS certificates with a face value of $390,000 in the initial public offering on Oct. 15, 2007. The fund then bought another series of MBS certificates with a $49,827.56 face value from Goldman, which served as underwriter, creator of the mortgage loan pools, sponsor of the offerings, and issuer of the certificates after securitizing the loans and placing them in trusts.

Per the 1933 Act’s Section 11, the Fund alleged that in the resale market the certificates were valued at somewhere between “‘between 35 and 45 cents on the dollar.” However, instead of alleging that it did not get the distributions it was entitled to, the plaintiff contended that it was exposed to a significantly higher risk than what the Offering Documents represented. The court said that NECA failed to state any allegation of an injury in fact. The court granted the defendants’ motion to dismiss.

Following the court’s decision, Shepherd Smith Edwards and Kantas Founder and Securities Fraud Attorney William Shepherd said, “It is sad that large and small investors have little clout in the processes of selecting judges. Thus, Wall Street continues to gain advantages in court—especially federal court.”

Related Web Resources:
NECA-IBEW Health & Welfare Fund v. Goldman Sachs & Co.

Court Partially Dismisses Claims Against Goldman Over Mortgage-Backed Certificates, AlacraStore

NECA-IBEW

Continue reading "Securities Claims Against Goldman Sachs Over Mortgage-Backed Certificates are Partially Dismissed by Court Due to Lack of Injury" »

October 27, 2010

Goldman Sach’s $550 Million Securities Fraud Settlement Not Tied to Financial Reform Bill, Says SEC IG

According Securities and Exchange Commission Inspector General H. David Kotz, there is no evidence that the SEC’s enforcement action against Goldman Sachs or the $550 million securities fraud settlement that resulted are tied to the financial services reform bill. Kotz also noted that it does not appear that any agency person leaked any information about the ongoing investigation to the press before the case was filed last April. The SEC says that the IG’s report reaffirms that the complaint against Goldman was based only on the merits.

That said, Kotz did find that SEC staff failed to fully comply with the administrative requirement that they do everything possible to make sure that defendants not find out about any action against them through the media. Kotz notes that this, along with the failure to notify NYSE Reg[ulation] before filing the action and the fact that the action was filed during market hours caused the securities market to become more volatile that day. Goldman had settled the SEC’s charges related to its marketing of synthetic collateralized debt obligation connected to certain subprime mortgage-backed securities in 2007 on the same day that the Senate approved the financial reform bill.

Last April, several Republican congressman insinuated that politics may have been involved because the announcement of the case came at the same time that Democrats were pressing for financial regulatory reform. SEC Chairman Mary Schapiro denied the allegation.

Earlier this month, Rep. Darrell Issa (R-Calif.) wrote Schapiro asking to see an unredacted copy of the internal investigative report by the IG. Issa is the one who had pressed Kotz to examine the decision-making process behind the Goldman settlement. Issa's spokesperson says the lawmaker is concerned that the SEC can redact parts of its IG reports before the public and Congress can see them. However, at a Senate Banking Committee last month, Kotz, said that the SEC redacts information because the data could impact the capital markets.


Related Web Resources:
SEC Investigation Finds No Evidence Politics Drove Goldman Suit, MMC-News, October 21, 2010

Goldman Settles With S.E.C. for $550 Million, The New York Times, July 15, 2010

SEC's Inspector General to Investigate Timing of Suit Against Goldman Sachs, Fox News, April 25, 2010

General H. David Kotz, SEC


Continue reading "Goldman Sach’s $550 Million Securities Fraud Settlement Not Tied to Financial Reform Bill, Says SEC IG" »

October 13, 2010

UBS AG Motion to Dismiss Class Securities Case Test’s US Supreme Court’s Ruling Regarding Extraterritorial Transactions

UBS AG has filed a motion to dismiss a class securities case against it. The move is putting the US Supreme Court’s recent ruling in Morrison v. National Australia Bank Ltd. to the test.

In this securities fraud case, four institutional investors—three of them foreign—are charging UBS and a number of individual defendants with violating Section 10(b) of the 1934 Securities Exchange Act. This is based on misstatements that were allegedly made regarding its auction rate securities-related and mortgage-related activities. They are seeking relief for all purchasers of UBS stock on all worldwide exchanges. Most of the statements in question were issued from the bank’s headquarters in Switzerland.

In 2008, the defendants asked the court to dismiss the allegations due to lack of subject matter jurisdiction. They cited the decision made in Morrison by the U.S. Court of Appeals for the Second Circuit, which had dismissed the action.

Now that the US Supreme Court issued its ruling in Morrison, with the justices concluding that Section 10(b) only applies to securities transactions on domestic exchanges and in other securities, the defendants are attempting to also have the securities case against them dismissed per Morrison’s “bright-line, location-of-the transaction rule.”

The defendants say that the plaintiffs have advised them that they will use the Supreme Court’s use of the word “listed” to end-run Morrison. Per the justices' decision, Section 10(b) applies to transactions involving securities that are “listed on an American stock exchange.” UBS shares can be found on the NYSE.

However, the defendants are contending that there isn't any support in the "the test of Section 10(B), its legislative history, or Morrison" for this type of unprecedented interpretation. They say that the word “listed," as it is used in Morrison is only applicable to two kinds of securities that can be purchased in the US—an unlisted security that trades over the counter in this country and a listed one that trades on a US exchange. The defendants claim that the plaintiffs are misreading the word “listed” in order to authorize international class action lawsuits based on securities purchases on a foreign market and that this "flies in the face of Morrison’s statements that Section 10 (b) doesn’t “regulate foreign securities exchanges.”

Related Web Resources:
Morrison v. National Australia Bank Ltd., Supreme Court (PDF)

1934 Securities Exchange Act

Continue reading "UBS AG Motion to Dismiss Class Securities Case Test’s US Supreme Court’s Ruling Regarding Extraterritorial Transactions" »

October 4, 2010

In Securities Fraud Case Against Morgan Stanley Pension Fund Doesn’t Have Standing to Bring Certain Claims, Says Court

A US district court judge has issued a ruling in the securities fraud lawsuit against Morgan Stanley and several affiliates. The case, which was brought by West Virginia Investment Management Board (WVIMB), involves mortgage-backed securities.

WVIMB, which bought securities from Morgan Stanley Mortgage Loan Trust 2007-11AR, had filed class claims against securities bought under the trust claiming that the defendants had violated federal securities laws when making mortgage-backed securities sales. However, WVIMB wanted to expand the claims to include 30 other loan trusts even though it hadn’t bought securities from them.

Morgan Stanley and its affiliates contended that WVIMB did not have the legal standing to pursue claims on certificates it didn’t buy. They also said that the plaintiff waited too long to file its claims on Trust 2007-11AR. The court agreed.

According to Judge Laura Taylor Swain’s decision, pension funds do not have standing to bring certain claims, and, at least in court, there will be a distinction made between loan trusts that have separate prospectus supplements even if they have the same shelf registration statement. The court also noted that the pension fund had enough information that it could and should have filed its securities lawsuit sooner. Swain’s decision narrowed the pension fund’s claims that the defendants affiliates violated federal securities laws when making mortgage-backed securities sales.

Mortgage-Backed Securities
Many securities fraud lawsuits that have been filed over the alleged wrongdoings related to the marketing, packaging, and sale of mortgage-backed securities. Retirement funds, pension funds, and other investors are among those that have sued investment firms and banks for misleading them about these securities and failing to reveal the true degree of risk involved in investing in them.

Related Web Resources:
West Virginia Investment Management Board

Morgan Stanley Mortgage Pass-Through Certificates Litigation, Leagle.com, August 17, 2010

Continue reading "In Securities Fraud Case Against Morgan Stanley Pension Fund Doesn’t Have Standing to Bring Certain Claims, Says Court " »

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