Walter A. Morales III, a money manager who for years worked with high net worth individual investors and pension funds, is now barred from the securities industry. Morales resolved the US Securities and Exchange Commission’s 2012 civil lawsuit accusing him and his Commonwealth Advisors of fraud and mismanagement this week.
The regulator contends that of the approximately $750M that his clients invested through him, Morales and his firm lost over $178M in subprime and residential mortgage-backed securities (RMBSs). According to the Commission, Morales lied about heavy mortgage-backed securities losses to clients and instead tried to conceal them through trades involving his different hedge funds while touting prices that were fraudulent.
The regulator claims that Walters and his investment adviser firm recommended that the hedge funds buy into Collybus, a collateralized debt obligation (CDO) that was considered among the most high risk of such investments and the lowest of tranches. MBSs were sold into CDOs at outdated prices even while Morales was purportedly aware that the market for RMBSs had since dropped. When the CDOs kept doing poorly, Commonwealth employees were directed to engage in manipulative trading among the hedge funds they advised to hide a $32M loss sustained by one of the funds that invested in Collybus.
The SEC sued Morales in 2012. At the time, he claimed that his firm was a victim of the 2008 financial crisis and that investments he made were done to benefit investors not harm them. He closed down Commonwealth Advisors the following year.
The SEC, however, believes that Morales and Commonwealth knew that the investments were doing badly and would continue to suffer losses. Still, Morales purportedly had Commonwealth execute over 150 cross-trades among hedge funds. Although Morales had promised its largest investors that its exposure to Collybus would be 10% of the equity of a Coommonwealth hedge fund in which it was invested, he went on to disregard that agreement and more than doubled the investor’s exposure.
As part of the settlement, Morales is barred from the industry and must pay a $130K fine. Commonwealth, meantime, has agreed to have its registration with the SEC revoked for an “alleged financial crisis-era scheme.” Neither Morales nor his firm agreed to or denied the SEC’s allegations or findings.
SEC Orders Deutsche Bank Securities to Pay More than $3.7M Over CMBS Sales
It was just earlier this week that the SEC arrived at a settlement, this one over commercial mortgage-backed securities sales, with Deutsche Bank Securities. The firm agreed to pay customers back over $3.7M. The regulator accused Deutsche Bank (DB) of alleged false and misleading statements when soliciting investors.
As a result, customers ended up paying more than they should have for the CMBSs. Head trader Richard Solomon, who faces allegations of supervisory failures for not making sure traders were only providing customers with accurate statements, must pay a $165K penalty. He also is suspended from the industry for a year.
Our residential mortgage-backed securities fraud lawyers work with high net worth individual investors and institutional investors. We have helped thousands of clients in successfully recouping their investment losses. Contact The SEEK Partners Group to request your free, no obligation case consultation.
More Blog Posts:
Deutsche Bank Securities Will Pay Back Customers Over $3.7M for Commercial Mortgage-Backed Backed Securities Sales, Institutional Investor Securities Blog, February 13, 2018
BNP Paribas to Pay $90M After Pleading Guilty in FX Currency Rigging Probe, Institutional Investor Securities Blog, January 31, 2018
Multi-Million Dollar Investment Adviser Fraud Cases Target Widows, Older Investors, and Other Retail Investors, Stockbroker Fraud Blog, December 28, 2017