Evergreen Investment Management Co. LLC and related entities have consented to pay $25 million to settle a class action securities settlement involving plaintiff investors who contend that the Evergreen Ultra Short Opportunities Fund was improperly marketed and sold to them. The plaintiffs, which include five institutional investors, claim that between 2005 and 2008 the defendants presented the fund as “stable” and providing income in line with “preservation of capital and low principal fluctuation” when actually it was invested in highly risky, volatile, and speculative securities, including mortgage-backed securities. Evergreen is Wachovia’s investment management business and part of Wells Fargo (WFC).
The plaintiffs claim that even after the MBS market started to fail, the Ultra Short Fund continued to invest in these securities, while hiding the portfolio’s decreasing value by artificially inflating the individual securities’ asset value in its portfolio. They say that they sustained significant losses when Evergreen liquidated the Ultra Short Fund four years ago after the defendants’ alleged scam collapsed. By settling, however, no one is agreeing to or denying any wrongdoing.
Meantime, seeking to generally move investors’ claims forward faster, the Financial Industry Regulatory Authority has launched a pilot arbitration program that will specifically deal with securities cases of $10 million and greater. The program was created because of the growing number of very big cases.
Under the voluntary program, parties would be able to “customize” the arbitration process. The SRO says it wants parties to have a “formal” approach that gives them greater control and flexibility over their claims, including “additional control” over choosing arbitrators and “expanded” discovery.
In other securities news, the U.S. Court of Appeals for the Fifth Circuit has turned down ex-AmeriFirst Funding Inc. manager Jeffrey Bruteyn’s appeal to his criminal conviction. Bruteyn was convicted of 9 counts of securities fraud in 2010 for running a scam that used the sale of secured debt obligations to defraud investors of millions of dollars.
The SDO’s were sold to raise capital for AmeriFirst Funding, which financed used car buys. Bruteyn is accused of making the sales by generating promotional materials that overstated insurance coverage while understating investor risk and falsely telling investors that that his family, which owned Hess Corp. (HES) would cover any losses sustained. Bruteyn was ordered to pay $7.3M in restitution and sentenced to 25 years in prison and three years of supervised release.
In Europe, regulators are examining the recent decisions made by credit rating agencies Moody’s (MCO), Fitch, and Standard & Poor’s to downgrade banks affected by the eurozone sovereign debt crisis and the economic contraction. The European Securities and Markets Authority says it wants make sure that “transparent” and “rigorous” analyses were part of the credit raters’ decision-making process. ESMA is especially interested in a “block” rating that Moody’s issued to a number of Spanish banks last month.
ESMA is allowed to fine credit rating agencies for not following correct methodology or applying proper resources. It can also force a credit rater’s “de-registration.”
$25 Million Settlement Submitted In Re Evergreen Ultra Short Opportunities Fund Securities Class Action, Yahoo Finance, July 2, 2012
FINRA Announces Pilot Program for Large Cases, FINRA, July 2, 2012
EU market regulator is suspicious of rating agencies, RT, July 2, 2012
More Blog Posts:
CFTC Accuses Peregrine Financial Group of Securities Fraud Related to $200M Customer Funds Shortfall, Institutional Investor Securities Blog, July 10, 2012
Will the JOBS ACT Will Expand Private Offerings But Hurt Public Markets?, Institutional Investor Securities Blog, July 6, 2012
SEC to Push for Money Market Mutual Fund Reform Provisions Despite Opposition, Stockbroker Fraud Blog, July 6, 2012