Bank of America

Merrill Lynch & Co. Sued Over Auction-Rate Securities by Teva Pharmaceutical Industries Ltd. and Seneca Gaming Corp.

Published on: August 7, 2009 | by Shepherd Smith Edwards & Kantas, LLP

On Wednesday, Teva Pharmaceutical Industries Ltd. sued Merrill Lynch & Co., a Bank of America Corp. unit. The pharmaceutical company’s securities fraud lawsuit accuses the brokerage firm of making misrepresentations that resulted in its purchase of $273 million in ARS. Merrill Lynch underwrote the securities that Teva bought. A day later, Seneca Gaming Corp. filed its own lawsuit against Merrill Lynch. The complaint is over a $5 million tranche of ARS backed by mortgages that the company had purchased.

While the agreements that brokerage firms have reached with regulators generally require that the former buy back auction-rate securities from small companies, individual investors, and nonprofits, the broker-dealers are only required to work with bigger investors or try their best to help them deal with their illiquidity issues. As a result, some large investors are taking matters into their own hands by filing securities fraud claims and lawsuits. These investors include Bankruptcy Management Solutions Inc., Braintree Laboratories, Ocwen Financial Corp. Ashland Inc., and Texas Instruments. Other large companies will likely follow suit.

For the large investors that are undecided on what action to take regarding their frozen ARS, it is important from them to realize that more financial losses are likely.

Bank of America Agrees to settle SEC Charges of Merrill Lynch Bonuses for $33 Million But Judge Blocks Settlement

Published on: August 6, 2009 | by Shepherd Smith Edwards & Kantas, LLP

Although Bank of America has agreed to settle charges by the Securities and Exchange Commission that the broker-dealer misled investors about Merrill Lynch bonuses worth billions of dollars, a federal judge is withholding approval for the $33 million penalty. The U.S. District Court for the Southern District of New York Judge Jed S. Rakoff has scheduled a hearing for Monday to discuss the matter.

Without denying or admitting to the charges, Bank of America had consented to pay the amount. The SEC has accused Bank of America of failing to notify investors about plans to pay top Merrill executives $5.8 billion in bonuses for the 2008 fiscal year. Regulators say that instead, the brokerage firm told investors that year-end performance bonuses were not going to be given out.

It wasn’t until February when New York State Attorney Attorney General Andrew Cuomo accused Merrill Lynch of secretly issuing the rewards to its executives before its merger with Bank of America that news of the bonuses was revealed. Investigators also found out Merrill had bumped up the date of its end-of-year bonus payments and that Bank of America had let Merrill pay the bonuses to its executives.

Scott Silvestri, a Bank of America spokesperson, says the settlement is a “constructive conclusion” to the dispute. The SEC’s charges against Bank of America is the first case that the federal government has brought against a financial firm that has been closely linked to the ongoing financial crisis.

There are, however, critics who are not satisified with the settlement. The Washington Post quotes Rep. Dennis J. Kucinich (D-Ohio) of criticizing the settlement amount. The head of the House Oversight and Government Reform subcommittee noted that it pays in America to commit a corporate crime. Former SEC chief accountant Lynn Turner expressed disappointment that no executives were charged with any wrongdoing.

Bank of America has complained that federal regulators pressured the broker-dealer to make the deal with Merrill, which was in financial trouble at the time.

Related Web Resources:
Judge Blocks BoA Settlement, Washington Post, August 6, 2009
Judge raps $33m bank bonus fine, BBC, August 6, 2009
Bank of America Pays $33 Million to Settle Merrill Bonus Charges, Washington Post, August 4, 2009 Continue Reading ›

Auction-Rate Securities Probes Lead to More Enforcement Actions and Final Settlements with Investment Firms

Published on: June 1, 2009 | by Shepherd Smith Edwards & Kantas, LLP

Another state has filed an individual enforcement against brokerage and investment banking firm Stifel, Nicolaus, & Co. Inc. On May 7, Virginia’s State Corporation Commission’s ‘s Division of Securities and Retail Franchising filed its civil lawsuit accusing the broker-dealer of making misrepresentations and false statements related to the sale of auction-rate securities, as well as failing to properly supervise its sales representatives that sold ARS to Virginia residents.

Just this March, Missouri Secretary of State Robin Carnahan had sued Stifel, Nicolaus, accusing the investment firm of making misrepresentations to over 100 ARS clients that were told that the securities were liquid, conservative investments. In May, Carnahan reached an agreement with two Bank of America Corp subsidiaries. Under the agreement, the bank would pay a $1.37 million fine and provide relief to numerous Missouri entities that bought $400 million in ARS.

Meantime, state officials are looking into whether TD Ameritrade Holding Corp., Charles Schwab Corp., and E*Trade Financial Corp also engaged in ARS-related violations. Broker-dealers that have reached preliminary settlements with federal and state regulators over their misrepresentation of ARS to clients include Citigroup Inc., Deutsche Bank AG, Credit Suisse Group, JP Morgan Chase & Co, Goldman Sachs Group Inc., Merrill Lynch & Co. Inc., Royal Bank of Canada, Morgan Stanley, Wachovia Corp, and UBS AG.

Per the agreements, settlement parties would repurchase up to $56 billion in illiquid ARS at par from charities, retail investors, and mid-sized and small businesses, as well as pay $522 million in penalties. The agreements with Bank of America, Wachovia, and Citigroup have been finalized.

Last month, the Financial Industry Regulatory Authority announced final settlements reached with NatCity Investments Inc. of Cleveland (a $300,000 fine), M & T Securities Inc. of Buffalo (a $200,000 fine), M & I Financial Advisors Inc. of Milwaukee (a $150,000 fine), and Janney Montgomery Scott LLC of Philadelphia (a $200,00 fine). FINRA also announced that SunTrust Investment Services Inc. and SunTrust Robinson Humphrey Inc. decided not to finalize their preliminary settlements. FINRA is still investigating both firms’ activities pertaining to ARS.

Related Web Resources:
Virginia sues Stifel, Nicolaus & Co. over auction rate securities, St Louis Business Journal, May 15, 2009
FINRA Announces Agreements with Four Additional Firms to Settle Auction Rate Securities Violations, FINRA, May 7, 2009
Carnahan Finalizes $400 Million Bank of America Auction Rate Securities Settlement, Missouri Secretary of State, May 14, 2009
Carnahan sues Stifel Nicolaus over auction rate securities, St Louis Business Journal, March 12, 2009 Continue Reading ›

Wells Fargo, Goldman Sachs, JP Morgan Chase, Citigroup, UBS Securities, Bank of America, Moody’s Investment Services, and Fitch Ratings are Among Defendants Sued On Behalf of Wells Fargo Certificate Investors for Alleged Securities Fraud Violations

Published on: March 5, 2009 | by Shepherd Smith Edwards & Kantas, LLP

The Boilermaker-Blacksmith National Pension Trust is suing a number of investment banks, credit rating agencies, and underwriters, including Wells Fargo, WFASC, Morgan Stanley & Co., Credit Suisse Securities (USA) LLC, Barclays Capital Inc., Bear Stearns & Co., Countrywide Securities Corp., Deutsche Bank Securities Inc., JPMorgan Chase Inc., Bank of America Corp., Citigroup Global Markets Inc., McGraw-Hill Cos., Moody’s Investor Services Inc., and Fitch Ratings Inc., over allegations that they made false statements in the prospectus and registration statement for certificates that were collateralized by Wells Fargo Bank, NA. The lawsuit, filed on behalf of thousands of investors that bought the certificates from Wells Fargo Asset Securities Corp., accuses the defendants of violating the 1933 Securities Act by engaging in these alleged actions.

According to the securities fraud lawsuit, the defendants concealed from investors that Wells Fargo revised its underwriting practices in 2005 and became involved in high risk subprime mortgage lending. The complaint contends that WFASC and a number of defendants submitted to the Securities and Exchange Commision prospectus and registration statements representing that the mortgages were backed by certificates that were subject to specific underwriting guidelines for evaluating a borrower’s creditworthiness. The plaintiffs contend that these prospectuses and registration statements were false because they neglected to reveal that the Wells Fargo-originated certificates were not in accordance with the credit, underwriting, and appraisal standards that Wells Fargo, per the companies, had supposedly used to approve mortgages.

The lawsuit also claims that because Wells Fargo decided to enter the subprime mortgage mortgage market in 2005, the investment bank had to take significant write-downs in 2008 because of its massive exposure to the subprime market and the WFASC certificates that these mortgages backed dropped significantly in value. The Boiler-Blaksmith fund reports that it lost about $5 million, which is more than half of what it invested.

Related Web Resources:
Read the Complaint

The Boilermakers National Funds
Continue Reading ›

Bank of America, Citigroup, Goldman Sachs, and Wells Fargo Chief Executives Among Those Defending Bailout Fund Use

Published on: February 26, 2009 | by Shepherd Smith Edwards & Kantas, LLP

Earlier this month, the chief executives of the eight biggest banks in the United States, including Citigroup, Bank of America, Wells Fargo, and Goldman Sachs addressed the House Financial Services Committee in an attempt to persuade US lawmakers that billions of dollars in bailout funds were used as intended-to increase consumer and business lending and improve balance sheets. The banking heads also admitted to certain mistakes and promised that compensation in the future would be commensurate with performance.

Under the Capital Purchase Program, the federal government gave the banks $125 billion in cash infusions in November. Bank of America and Citigroup also received $20 billion each in Treasury investments.

At the session, some of the bank executives gave testimony regarding activities performed since they received the government’s financial assistance. For example, Kenneth Lewis, Bank of America’s chief executive, says that during 2008’s fourth quarter, the bank committed to $115 billion in new loans.

Vikram Pandit, Citigroup’s chief executive, said his bank had provided $75 billion in new loans for the fourth quarter. He also said that Citigroup had used $36.5 billion to expand personal loans, mortgages, and credit lines for businesses, families, and individuals, as well as to create secondary market liquidity. He said Citigroup had cancelled an order for a $50 million jet.

While the executives were contrite, Committee Chairman Barney Frank criticized them for giving executives bonuses, in addition to salaries. Lawmakers also asked the banks’ executives to stop home foreclosures until the Obama Administration can executive a $50 billion plan on mortgage modifications and other assistance for borrowers that are experiencing problems.

John Stumpf, Wells Fargo’s chief executive, said that his bank could hold off on foreclosing on loans in which it is the investor or owner. Pandit said Citigroup could support a moratorium for borrowers that live on properties facing foreclosure. Lewis said Bank of America could place a moratorium on home foreclosure for two or three weeks.

Related Web Resources:
Fed Urges Banks to Put Bailout Funds Into Loans, Not Dividends, Bloomberg.com, February 24, 2009 Continue Reading ›

Merrill Lynch NY Branch Manager is No Longer with the Firm

Published on: December 5, 2008 | by Shepherd Smith Edwards & Kantas, LLP

Merrill Lynch & Co. is confirming that Branch Manager Joseph Mattia no longer works for the investment firm’s global wealth-management group. Mattia supervised 200 financial advisors in Merrill Lynch’s 5th Avenue office.

A spokesperson for Merrill Lynch refused to provide details. CNN reports that Mattia left the firm. Investment News, however, says that Mattia was escorted from the building on Monday. Industry insiders say there are a number reasons why a branch manager might be let go. Personnel problems and compliance issues are just two reasons.

Also on Monday, Merrill Lynch severed ties with Rosalie H. Fields, an adviser who also worked at the New York branch. Fields was one of 900 female brokers that filed a class action lawsuit against Merrill Lynch accusing the firm of gender discrimination. A settlement was reached with almost all of the plaintiffs.

Meantime, Bank of America, Corp. is still expected to acquire Merrill Lynch during the first quarter. Merrill Lynch is one of the bigger investment firms that took huge financial hits because of the credit crunch. Today, several hundred people showed up at a meeting at Merrill Lynch’s New York offices to vote on the merger between Bank of America and Merrill Lynch.

Bank of America shareholders also got together today to ratify the $50 billion acquisition. Because of Bank of America’s falling share price, however, the value of the deal has dropped by $30.3 billion since September and is now worth $19.7 billion. Continue Reading ›

NASAA Says Investors with Frozen Auction-Rate Securities Should Ask Investment Firms About Buyback Opportunities

Published on: November 19, 2008 | by Shepherd Smith Edwards & Kantas, LLP

The North American Securities Administrators Association is reminding investors to ask the investment firms that sold them any now-frozen auction-rate securities about repurchase opportunities. Following the ARS market collapse, securities regulators in 12 US states joined together to form a multi-state Task Force dedicated to finding out whether Wall Street investment firms had misled investors when persuading them to invest in the ARS market.

As part of their settlement agreements reached with the firms in question, 11 major Wall Street investment banks have said they will buy back over $51 billion in ARS from charities, retail investors, and small companies. However, these repurchase offers may not be available indefinitely.

NASAA President Fred Joseph says the best way to avail of any redemption offers is to contact the investment firms as soon as possible. So far, 11 firms have agreed in principle to buy back over $50 billion in ARS. NASAA says additional repurchase opportunities are expected to become available in the coming months.

Investment Firms with ARS Hotlines:

Bank of America 1-866-638-4183 Deutsche Bank 1-866-926-1437 Citi 1-866-720-4802 JP Morgan 1-866-450-8470 Goldman Sachs 1-888-350-2857 Merrill Lynch 1-888-706-1381 UBS 1-800-253-1974 Morgan Stanley 1-800-566-2273 Wachovia 1-866-283-794
Meantime, more investigations are under way into the sales practices of US firms that marketed and sold auction-rate securities to investors. Unfortunately, many investors who were told ARS were liquid investments are now dealing with frozen securities and cannot access their funds.

If you invested in the auction-rate securities industry and your ARS became frozen during the market’s collapse, you may be the victim of securities fraud.

Related Web Resources:
Small firms caught in ARS buyback vise, November 16, 2008 Continue Reading ›

Bank of America Did Not Warn Small Investors About Auction-Rate Securities Crisis

Published on: August 19, 2008 | by Shepherd Smith Edwards & Kantas, LLP

Documents reveal that Bank of America told the state of California as early as late last year that there were problems brewing with the auction-rate securities market. The country’s largest retail banking firm, however, failed to warn smaller investors about potential trouble and continued selling the investments without providing any warning to these clients.

In its presentation to the California’s treasurer last year, Bank of America warned the state of a “significant dislocation” in the auction-rate securities market, as well as a drop in demand for the bonds. It also informed the State that corporate clients had engaged in “significant year-end selling” of the investments. The Boston Globe obtained a copy of Bank of America’s presentation to California, as well as the presentation of other investment banks.

Bank of America is the eighth-biggest issuer of auction-rate securities. It is one of the few brokerage firms that has yet to announce a settlement with state regulators related to the collapse.

The retail banking firm told The Boston Globe that its presentation to the state of California did not talk about the liquidity issues that would end up being at the center of the auction-rate securities collapse earlier this year. Upon closer scrutiny, however, Bank of America’s presentation appears to indicate the possibility of the market shutting down.

Prior to the market collapse, California had some $1.4 billion in outstanding auction-rate securities. Fortunately, the state’s treasurer paid attention to the warnings it received from Bank of America and other investment advisers. By May 23, it had refinanced all except for $100 million of its auction-rate bonds.

Related Web Resources:

Bank of America subpoenaed on auction-rate securities, derivatives, BizJournals.com, August 8, 2008
Investors sue Bank of America over auction rate securities, Bizjournals.com, July 18, 2008 Continue Reading ›

UBS Securities, Bank of America, and Merrill Lynch Among Firms Subpoenaed In Massachusetts Auction-Rate Market Sales Probe

Published on: April 1, 2008 | by Shepherd Smith Edwards & Kantas, LLP

Massachusetts Secretary of the Commonwealth William Galvin is subpoenaing Merrill Lynch, Pierce, Fenner, & Smith Inc., UBS Securities, and Bank of America Investments because it wants information about the companies’ involvement in selling auction-rate market securities to retail investors. The companies are all registered Massachusetts broker dealers. Galvin issued the subpoenas on behalf of the Massachusetts Securities Division.

The division wants to determine whether the firms followed proper procedures in letting Massachusetts investors know of the possibilities that their investments could become illiquid. The state is also trying to determine what role big investment banks played in causing the auctions to fail and whether the investments sold to retail investors were suitable.

Many of the investors that bought auction market securities cannot get their money because the securities are frozen. Small business owners and individual investors have been especially hurt by the failures in the auction market because of the subprime mortgage collapse.

Deutsche Bank Trust Company, Goldman Sachs Group, and Bank of America Corporation are Among the 21 Lenders Named in Cleveland, Ohio Lawsuit

Published on: January 24, 2008 | by Shepherd Smith Edwards & Kantas, LLP

The city of Cleveland, Ohio is suing 21 financial institutions for hundreds of millions of dollars in damages caused by subprime lending and securitization. The defendants named in the lawsuit are:

• Deutsche Bank Trust Company • Ameriquest Mortgage Company • Bank of America Corporation • The Bear Stearns Companies • Citigroup, Inc.

• Countrywide Financial Corp.