Articles Posted in Bank of America

Bank of America Merrill Lynch (BAC) will pay a $42M penalty to New York State to settle allegations that it engaged in fraudulent practices involving electronic trading services. According to a press release issued by New York Attorney General Eric Schneiderman, the bank admitted that over five years, it “systematically” hid from clients that it was “secretly routing” their equity securities orders to electronic liquidity providers, including Knight Capital, Citadel Securities, Two Sigma Securities, D.E. Shaw, and Madoff Securities, which then executed the transactions.

Bank of America Merrill Lynch, which is Bank of America’s corporate investment banking division, had “undisclosed” agreements with these providers. Its “masking” strategy was used in more than 16 million client orders that involved over 4 billion shares that were traded.

According to the probe by Schneiderman office, and Bank of America Merrill Lynch’s own admission, starting in 2008, the corporate investment banking division purposely took steps to hide that it was sending a number of equity securities orders made by clients to the electronic liquidity providers. Bank of America Merrill Lynch told investors that the orders were executed “in-house.” Meantime, it committed fraud by modifying its electronic trading systems to “automatically doctor” the trade confirmation that clients received after these other firms executed the transactions. Internally, Bank of America Merrill Lynch called this action “masking,” which consisted of replacing the electronic liquidity provider’s identity with a code to make it appear is if a trade execution had taken place through the bank instead.

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The US Securities and Exchange Commission has awarded two whistleblowers almost $50M and another over $33M in the largest whistleblower awards that the regulator has issued to date. This ups the total of SEC whistleblower awards granted to $262M to 53 individuals in the last six years.

According to the SEC Office of the Whistleblower Chief Jane Norberg, these latest awards show that whistleblowers can offer information that is “incredibly significant,” making it possible for the regulator to go after serious violations that could have gone “unnoticed. “ Until these latest awards, the largest SEC whistleblower award granted was $30M in 2014.

Whistleblowers who provide quality, unique information involving securities law violations that lead to a successful enforcement action rendering over $1M in monetary sanctions may be eligible to receive an award that is 10-30% of the funds collected.

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Ex-American Reality CFO to Go to Prison for 18 Months
In Manhattan, a US District Court Judge has sentenced Brian Block to 18 months behind bars. Block, who was the CFO of American Reality Capital Properties, was found guilty of fraud when he inflated the financial statements of the real estate investment trust.

Prosecutors accused Block of inputting bogus figures when preparing the REIT’s financial reporting. He allegedly did this to hide a calculation mistake that occurred in an earlier financial report.

Following the disclosure of the accounting misstatements, American Realty’s share price plunged, taking with it over $3B of the REIT’s market worth. It was in late 2014 that the REIT announced that employees had purposely hid accounting errors.

The REIT’s ex-chief accounting officer, Lisa McAlister, has also pleaded guilty to charges over this matter.

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Michael Siva, a former Morgan Stanley broker (MS), has pleaded not guilty to criminal charges accusing him of insider trading. Siva is one of several people charged over their alleged participation in a group of “tipping chains” and trading on tips about upcoming acquisitions and mergers. The information were provided by Bank of America (BAC) consultant Daniel Rivas. Siva is said to have gotten the tips from the James Moodhe, who is the father of Rivas’ girlfriend.

Rivas and Moodhe have both pleaded guilty to the criminal charges accusing them of insider trading. They are cooperating with the government’s probe.

Moodhe is said to have shared Rivas’s tips with Siva from at least 2015 up through earlier this year. Siva allegedly used the information so he could make successful trades for clients as well as for himself. Moodhe and Siva allegedly met at eating places outside NYC during which time the former would read details about upcoming deals to Siva, including the value of the deals and when news about them was expected to go public. The two men allegedly made over $3M trading prior to and after the announcement of the deals.
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In the U.S. District Court in Manhattan, preliminary settlements have been submitted in which Deutsche Bank (DB) will pay $48.5M and Bank of America (BAC) will pay $17M to resolve investor lawsuits accusing them of manipulating the agency bond market for years. A judge must still approve the settlements.

Despite settling, both banks maintain they did not engage in any wrongdoing. The lead plaintiff investors include the Sheet Metal Workers Pension Plan of Northern California and the Iron Workers Pension Plan of Western Pennsylvania, and KBC Asset Management NV.

According to court papers and as reported by Reuters, Bank of America and Deutsche Bank are two of the 10 banks accused of rigging the $9 trillion agency bond market for supranational, sub-sovereign and agency bonds, also known as SSA bonds. The plaintiffs contend that from 2005 to 2015 the banks shared price information with one another, worked as a “super-desk” together, and allowed traders to coordinate strategies in the name of profit. Meantime, customers had to accept bond prices that were unfair to them.

The US Securities and Exchange Commission has brought insider trading charges against seven people who made millions of dollars while insider trading on dozens of upcoming acquisitions and mergers involving 30 corporate deals. The regulator’s complaint contends that Daniel Rivas, who used to be a bank IT employee, misused the access he had to a computer system by tipping four people with information that they then used to trade. Some of the those whom Rivas tipped allegedly also tipped other people, who tipped others, too.

InvestmentNews identified the bank that Rivas worked for at the time of the misconduct as Bank of America (BAC). (Bank of America Merrill Lynch later fired Rivas, who was then hired by RBC Capital Markets. In the wake of the insider trading allegations against him, Rivas was suspended by RBC.)

Rivas often tipped James Moodhe, who is the father of his girlfriend, using handwritten notes. Moodhe made approximately $2M from trading on the tips and shared the information with financial adviser Michael Siva, whom InvestmentNews identifies as a former Morgan Stanley (MS) broker.

Merrill Lynch Pierce Fenner & Smith, a Bank of America (BAC) unit will pay Tutor Perini Corp. $37M to settle a securities case accusing the broker-dealer of selling the construction company millions of dollars of auction-rate securities (ARS) without giving it the heads up that the market was likely to experience a “spectacular crash.” Despite settling, neither party is admitting to wrongdoing.

Tutor Perini, which brought its ARS fraud case in 2011, claims that the brokerage firm, then called Banc of America Securities LLC, purposely directed it to buy ARS in 2008 even while knowing that the investments were problematic. By December 2007, the construction company had invested about $196M in ARSs. After the market failed Tutor Perini said that it had no choice but to sell the securities at a huge discount in a secondary market.

A district judge initially granted the broker-dealer summary judgment based on the determination that the construction company did not demonstrate misconduct by the Bank of America unit when the latter sold student loan-backed ARSs. Last year, however, the First Circuit partially reversed that ruling after finding that a jury could potentially determine that at least some of the ARSs bought by the construction company were a result of assessments that proved inaccurate because the broker-dealer did not examine certain key developments. Reviving the lawsuit, the federal appeals court said that dismissing certain Massachusetts state securities fraud claims and federal claims was a mistake.

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US District Court Judge William Pauley III has approved a $335M settlement in a securities fraud case against Bank of America (BAC). This one of the largest class action settlements involving securities buyer claims related to the 2008 financial crisis. Among the investors that will be able to avail of the settlement are the Pennsylvania Public School Employees’ Retirement System (PSERS), the Anchorage Fire and Police Retirement Fund, the Arkansas Teacher Retirement Fund, a number of asset managers, and two trade unions.

PSERS served as lead plaintiff for those that purchased the bank’s common stock or common equivalent securities on a US public exchanges and later sustained losses between 2/27/09 through 10/19/10. According to a PSERS Spokesperson, the Pennsylvania retirement plan lost approximately $8M of its holdings with Bank of America.

The mortgage-backed securities case accused Bank of America of misleading investors about the position it took in MBSs and of hiding debt. They also claim that the bank compelled them to purchase Bank of America stock that was sold to pay back $45B of federal bailout funds from TARP. The plaintiffs alleged that the bank was aware that it could not raise enough capital to avoid TARP restrictions on executive salaries if it were to disclose that it might have to buy back billions of dollars of securities that were backed by high-risk loans.

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The 1st U.S. Circuit Court of Appeals in Boston has resuscitated Tutor Perini Corp.’s (TPC) securities fraud lawsuit against Bank of America (BAC). Circuit Judge Ojetta Rogeriee Thompson said that a district court judge made a mistake when tossing the Massachusetts and federal securities claims accusing the bank of selling the construction company millions of dollars in auction-rate securities that it knew were about to fail.

Tutor Perini, which is estimating over $50M plus interest in losses, claims that Bank of America persuaded it to purchase ARSs prior to the financial crisis, toward the end of 2007 and the beginning of 2008, even though it knew that the securities were on the brink of becoming illiquid. It was in February 2008 that the dealer stopped supporting the $330B ARS market, leaving investors with debt that was illiquid—debt that they had been reassured time and again was liquid, like cash. Instead, investors were unable to access their funds.

In 2015, the district court judge dismissed Tutor Perini’s ARS fraud case, noting that Bank of America did not have the “duty” to reveal every fact about the risks involved to the construction company and that the bank had, in fact, already made a number of disclosures. Judge Thompson, however, said that because the ARS market was failing, this might have meant that Bank of America now had the duty to warn about the new risks, including those involving its earlier recommendations. Thompson noted that a jury could very well find that as the bank had sought to protect itself from the ARS market, it pushed the construction company toward greater exposure.

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Former Fannie Mae CEO Settles SEC Charges for $100K
Daniel Mudd has agreed to pay $100K to settle Securities and Exchange Commission charges accusing the ex-Fannie Mae CEO of misleading investors about the degree to which the mortgage company was exposed to subprime loans leading up to the 2008 economic crisis. The regulator had filed its civil case against Mudd and two other Fannie Mae executives in 2011. The latter two settled with the Commission last year.

Mudd maintains he did nothing wrong.

WL Ross Resolves Fee-Allocation Disclosure Charges
WL Ross & Co. will reimburse specific WL Ross funds about $11.8M to resolve SEC charges related to its fee allocation practices and disclosures. The firm will also pay a $2.3M civil penalty.

According to the SEC, WL Ross was given transaction fees by portfolio companies. This lowered the management fees that funds had to pay the firm. The regulator points to WL Ross’s limited partnership agreements that were unclear regarding fee offsets when multiple funds and other co-investors share ownership.

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