Bank of America

Bank of America to Pay $42M to New York Over Fraudulent “Masking” Involving Electronic Trading

Published on: March 24, 2018 | by Shepherd Smith Edwards & Kantas, LLP

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 as if a trade execution had taken place through the bank instead.

SEC Grants $83M in Whistleblower Awards in $415M Bank of America Settlement

Published on: March 19, 2018 | by Shepherd Smith Edwards & Kantas, LLP

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.

Strategic Return Notes

Published on: March 16, 2018 | by Shepherd Smith Edwards & Kantas, LLP

The attorneys at Shepherd Smith Edward & Kantas are investigating the claims of investors who purchased Strategic Return Notes (“SRNs”). Bank of America and Merrill Lynch created Strategic Return Notes, which are an unsecured promissory note issued by Bank of America. Bank of America has no obligation to and will not make any interest payments throughout the duration of the notes, which go through 2016 if held until maturity. Investors also have no guarantee of getting back the original purchase price of the note at maturity. Instead, investors are paid back a variable amount based upon the performance of an underlying index, the Investable Volatility Index (“VOL”).

The VOL is a complicated index which measures the volatility of the S&P 500, essentially attempting to calculate how volatile the stock market as a whole is and predict how volatile it will be in the coming months. If the computation indicates that the market will be less volatile, or that the market will fluctuate less in the time period, then the index falls. Conversely, if the computation indicates that the market will be more volatile in the coming months, then the index rises. The result is that investors in these SRNs achieve returns or losses based not upon how high the market rises or how low it falls, but rather on how wildly the market was swinging on the way there.

These products are very complicated, and are only suitable for certain types of investors. It is believed that many investors who were sold these products were not told the risks that were involved, or were promised that this product could be used as a hedge to reduce overall portfolio risk when that was not true. Many investors have suffered substantial losses in these products.

Criminal Securities Fraud: Ex-ARCP CFO Sentenced to 18 Months for REIT Scam, Former Merrill Lynch Broker Pleads Guilty Over Excessive Commissions, and Businessman Convicted For Defrauding Washington Mutual Bank

Published on: November 9, 2017 | by Shepherd Smith Edwards & Kantas, LLP

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 Realty 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 hidden accounting errors.

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

Ex-Morgan Stanley Broker Pleads Not Guilty to Insider Trading

Published on: September 5, 2017 | by Shepherd Smith Edwards & Kantas, LLP

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 was 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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Securities Cases: Bank of America and Deutsche Bank Settle Agency Bond Rigging Litigation for $65.5M & Pension Funds Sue Citigroup, JP Morgan, and Other Big Banks Over Stock Lending Market Rigging Allegations

Published on: August 25, 2017 | by Shepherd Smith Edwards & Kantas, LLP

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.

$5M Insider Trading Case Leads to Criminal Arrests

Published on: August 17, 2017 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission has brought insider trading case 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.

Bank of America Unit Settles Auction-Rate Securities Fraud Lawsuit by Tutor Perini for $37M

Published on: June 9, 2017 | by Shepherd Smith Edwards & Kantas, LLP

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.

$335M Mortgage-Backed Securities Settlement for PSERS, Other Institutional Investors is Approved in Class Action Lawsuit Against Bank of America

Published on: December 30, 2016 | by Shepherd Smith Edwards & Kantas, LLP

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.

Tutor Perini’s $50M Auction-Rate Securities Lawsuit Against Bank of America is Revived

Published on: November 22, 2016 | by Shepherd Smith Edwards & Kantas, LLP

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 auction-rate securities (ARS) 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 auction-rate securities 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.