Securities News: Deutsche Bank to Pay $2.5M For Swaps Violations, Fifth Street Finance Sued in Class Action Lawsuit, and Countrywide’s $8.5B MBS Settlement Gets IRS Approval

Deutsche Bank Reaches Swaps Violation Settlement with CFTC
The Commodity Futures Trading Commission and Deutsche Bank AG (DB) have reached a settlement over the regulator’s order accusing the firm of not properly reporting its swaps transactions from 1/13 through 7/15. The regulator also said there were supervisory failures and that the bank failed to modify the reporting errors at issue until after it found out that the CFTC was conducting a probe.

According to the regulator, Deutche Bank did not properly report swap transaction cancellations in all asset classes, resulting in somewhere between tens of thousands and hundreds of thousands of reporting errors, violations, and oppositions in its reporting of swaps. CFTC believes that the bank knew about the problem but did not notify its Swap Data Repository in a timely manner, nor did it properly probe, deal with, and modify the information deficiencies until last year when it became aware of the investigation. As a result of the reporting failures, the wrong information was put out to the public.

The CFTC believes that the bank’s reporting failures were partly because of deficiencies in its swaps supervisory system. A more adequate system could have better supervised Deutsche Bank’s activities involving compliance with reporting requirements.

Because the bank is a provisionally registered Swap Dealer, it has to abide by certain recordkeeping, disclosure, and reporting duties related to swap transactions. These requirements are supposed to improve transparency, encourage standardization, and lower systemic risk in swaps trading.

Investors File Class Action Securities Case Against Fifth Street Finance
An investor has filed a class action securities fraud case against Fifth Street Finance Corp. on behalf of shareholders. According to the plaintiff, and for those who bought Fifth Street Finance common shares between 7/7/14 and 2/6/15, the company, Fifth Street Asset Management, Inc., and specific directors and officers violated federal securities laws by allegedly taking part in a fraudulent scam to artificially inflate Fifth Street Finance assets and investment income to raise revenue of Fifth Street Management.

The defendants are accused of getting Fifth Street Finance into high risk, speculative investments at leverage levels that were not sustainable, writing down investments that were impaired to make it appear as if revenues at Fifth Street Assessment Management were going up, and overstating the income made by investment and the fair value of Fifth Street Finance’s portfolio. Meantime, contends the plaintiff, investors and the market were given false and misleading representations regarding Fifth Street Finance’s business trends and performance projections.

The plaintiff claim that on 10/29/14, defendants sold 6M Fifth Street Asset Management shares at $17/share with the company’s founder Leonard M. Tannenbaum and associates getting tens of millions of dollars from selling their shares in the IPO.

IRS Approves Countrywide’s $8.5B Mortgage-Backed Securities Settlement
The Internal Revenue Services has approved the $8.5 billion settlement reached between Bank of America Corp (BAC) and holders of Countrywide Financial Corp.’s subprime mortgage-backed securities that failed during the financial crisis. Bank of America bought Countrywide in 2008.

In 2011, the bank went into an agreement with BNY Mellon (BK), which was the trustee for 530 trusts. The New York Supreme Court Appellate Division had issued its approval of the settlement earlier this year after finding that BNY Mellon was allowed to leave out loan modifications as the trustee of the deal.

CFTC Orders Deutsche Bank AG to Pay a $2.5 Million Civil Monetary Penalty for Swaps Reporting Violations and Related Supervision Failures
, CFTC, September 30, 2015

IRS Gives Nod To $8.5B Countrywide MBS Settlement, Law 360, October 15, 2015