Citigroup

SEC Cases: Citigroup to Pay $18.3M for Overbilling Clients, Strategic Capital Management is Banned Following $1.3M Cherry Picking Scam, & 10 Investment Advisory Firms Settle Pay-to-Play Violation Charges Involving Pension Fund Fees

Published on: January 27, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Citigroup is Accused of Overcharging At Least 60 Investment Advisory Clients
Citigroup Global Markets (C) will pay $18.3M to resolve Securities and Exchange Commission charges accusing the firm of overbilling clients and misplacing client contracts. According to the regulator’s order, at least 60,000 investment advisory clients were overcharged about $18M in unauthorized fees because Citigroup did not confirm the accuracy of the billing rates in its computer systems compared to the fees noted in client contracts and other documents. The firm also purportedly improperly collected fees even when clients suspended their accounts. The SEC says that the billing mistakes took place over a 15-year period.

The regulator also contends that the investment advisory firm has been unable to locate about 83,000 advisory contracts. Their absence made it impossible for Citigroup to correctly validate whether the fees that clients were billed are the same ones that they negotiated.

The SEC believes that affected clients paid Citigroup about $3.2M in excess fees.

Citigroup and Morgan Stanley to Pay Over $5.9M to Settle SEC Charges That They Misled Investors About Forex Trading Program

Published on: January 24, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Morgan Stanley Smith Barney (MS) and Citigroup Global Markets (MS) have settled civil charges brought by the US Securities and Exchange Commission accusing the two firms of making misleading and false statements about the CitiFX Alpha, which is a foreign exchange trading program. Without denying or admitting to the regulator’s findings, Morgan Stanley and Citigroup will each pay more than $624K of disgorgement, interest of over $89K, and a $2.25M penalty.

Citigroup’s ownership interest in Morgan Stanley was a 49% stake during the period at issue, from 8/2010 to 11/2011, when the firms’ registered representatives were marketing the CitiFX Alpha to Morgan Stanley customers.

However, according to the regulator, the oral and written representations that these representatives made were based on previous risk metrics and performance. Meantime, they purportedly did not do an adequate enough job of disclosing to investors that the latter could be put into the forex trading program with the use of more leverage than what was promoted, as well as that there would be markups for each trade.

Nomura To Pay Over $3M to Settle RMBS Fraud Claims brought by NCUA for Credit Unions

Published on: November 2, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Nomura Home Equity Loan, Inc. and Nomura Asset Acceptance Corporation have agreed to jointly pay over $3M to settle allegations that they engaged in the sale of faulty residential mortgage-backed securities (RMBS) to the Western Corporate Federal Credit Union and the U.S. Central Federal Credit Union. The National Credit Union Administration brought the RMBS fraud case on behalf of the two corporate credit unions.

It was in 2011 that the NCUA Board, while serving as liquidating agent for both financial institutions, brought the claims against the Nomura entities. The RMBS lawsuit was brought in federal district courts in Kansas and California.

The $3M settlement dismisses NCUA’s pending cases against the two firms. By settling, neither firm is denying or admitting to the alleged wrongdoing.

Securities News: Citigroup to Pay $7M Over Incomplete Blue Sheet Data, Cetera Fined $75K for Client Record Issue, and Raymond James Settles EB-5 Program Violations for $1.45M

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

Raymond James to Pay Vermont Almost $1.5M in Immigrant Visa Case
The Securities Division of the Vermont Department of Financial Regulation said that Raymond James & Associates (RJF) must pay $1.45M in penalties because one of its registered representaitves allowed investor money to be misused in a$350M development fraud involving the EB-5 program. The program lets rich foreign investors obtain permanent residency if they invest a certain amount in projects that help establish jobs for U.S. citizens.

Earlier, a Securities and Exchange Commission-appointed receiver sued Raymond James, which received wire transfers involving the scam beginning in 2008. The money was from investors who thought they were investing in a Vermont ski resort. One of the fraudsters, Ariel Quiro, is accused of borrowing against the Raymond James accounts and using nearly $2.5M of investors’ money to cover margin interest loans to the firm. Last month, Raymond James arrived at a $5.95M settlement with the Vermont Department of Financial Regulation over violations involving the ski resort. $4.5M of the money was for paying back investors.

Regarding this $1.45M fine, Vermont regulators said that it was a Raymond James representative who set up the brokerage and margin accounts involved in the alleged scam. The financial representative also failed to procure the proper documentation showing that Quiros was entitled to act for certain limited partnerships and let him authorize the transfer of $13M in limited partnership money to buy the ski resort even though written instructions directed otherwise.

Citigroup Admits Wrongdoing Over Blue Sheet Data
According to the SEC, for 15 years, Citigroup Global (C) markets provided the regulator with incomplete blue sheet data regarding trades that it executed. The coding error involved software that the firm used from 5/99 to 4/14 for processing the Commissions’ requests for the information, including data about trade times, prices, volume traded, and information identifying customers. As a result, Citigroup left out nearly 27,000 securities transactions in responses to over 2,300 blue sheet requests.

Citibank Settles Libor, Euroyen Tibor, and YenLibor Rigging Allegations With $425M Fine

Published on: June 4, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Citibank (C) is the first U.S. bank to settle allegations of benchmark interest rate manipulation. To resolve the Commodities Futures Trading Commission claims that it manipulated the London Interbank Offered Rates (LIBOR), Citibank will pay $250M. It will pay $175M to resolve Euroyen Tibor and Yen Libor rigging claims. Also settling charges within this case are Citibank Japan Ltd (CJL) and Citigroup Global Markets Japan Inc. (CGMJ).

The CFTC claims that between ’07 and ‘12 Citigroup had specific traders input false information so their trading positions would benefit. It also claims that the bank’s affiliates issued false reports related to dollar Libor rates and ISDAFIX benchmark rates during the financial crisis so that its reputation would be protected.

Citigroup Global Markets Japan is charged with trying to rig Euroyen TIBOR and Yen LIBOR. Citibank Japan Ltd. is accused of engaging in false reporting related to the Euroyen TIBOR so that derivatives trading positions priced according to Euroyen TIBOR and Yen LIBOR would purportedly benefit.

Libor, along with the Tokyo Interbank Offered Rate (Tibor), is what banks use to establish the cost of borrowing from one another. Libor is also used to set the rates on mortgages, credit cards, derivatives, and other financial products.

Bank of America, Citigroup, JPMorgan Chase, Credit Suisse, Deutsche Bank, and Other Banks Settle ISDAFix Rigging Case for $324 Million

Published on: May 4, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Seven big banks have resolved a U.S. lawsuit accusing them of rigging ISDAFix rates, which is the benchmark for appraising interest rate derivatives, structured debt securities, and commercial real estate mortgages, for $324M. The banks that have reached a settlement are:

· Barclays PLS (BCS) for $30M (In 2015, Barclays paid $115M to U.S. Commodity Futures Trading Commission to resolve charges of ISDAfix rigging.)
· Bank of America Corp. (BAC) for $50M
· Credit Suisse Group AG (CS) for $50M
· Citigroup Inc. (C) for $42M
· JPMorgan Chase & Co. (JPM) for $52M
· Deutsche Bank AG (DB) for $50M
· Royal Bank of Scotland Group plc (RBS) for $50M

The deal must be approved by a Manhattan federal court. The defendants had sought to have the case dismissed, but US District Judge Jesse Furman in Manhattan refused their request. stating that the case raised “plausible allegations” that the defendants were involved in a conspiracy together.

ISDAFix-Rigging Lawsuits Against Bank of America, Citigroup, Deutsche Bank, and Others May Proceed, Says Judge

Published on: March 29, 2016 | by Shepherd Smith Edwards & Kantas, LLP

U.S. District Judge Jesse Furman has turned down the request by Barclays Plc (BARC), Bank of America Corp. (BAC), Deutsche Bank AG (DB), Citigroup Inc. (C), Royal Bank of Scotland Group Plc (RBS), BNP Paribas SA, Credit Suisse Group AG (CS), HSBC Holdings Plc, Goldman Sachs Group Inc. (GS), UBS AG (UBS), JPMorgan Chase & CO. (JPM), Wells Fargo & CO. (WFC), and Nomura Holdings Inc. to dismiss the antitrust lawsuits accusing them of working together to rig the ISDAfix. The benchmark rate is used to establish prices on commercial real estate mortgages, interest-rate swap transactions, and other securities. Another defendant is ICAP Plc, which brokered transactions that set the rate for ISDAfix.

Furman said that plaintiff Alaska Electrical Pension Fund and other investors have brought up “plausible allegations” that there may have been a conspiracy between the defendants that allowed them to collude with one another. The investors are seeking billions of dollars in losses they believe they sustained because ISDAFix was allegedly rigged. In this case, the judge let the breach-of-contract claims and antirust claims proceed to trial but dismissed the other claims.

Citigroup to Pay $23M to Resolve Yen Libor and Euroyen Tibor Rigging Claims

Published on: February 2, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Citigroup (C) Inc. has agreed to pay $23M in an institutional investor fraud lawsuit accusing the bank of conspiring to manipulated the Euroyen Tibor and yen Libor benchmark interest rates and Euroyen Tibor futures contracts. Plaintiff investors included hedge fund Hayman Capital Management LP and the California State Teachers’ Retirement System. They contend that Citigroup and other banks benefited their trading positions from ‘06 through at least ’10 when they conspired to manipulate rates. As part of the settlement Citigroup said it would cooperate with the plaintiffs, whose lawsuits are still pending against other banks.

Also settling but without having to anything is broker-dealer RP Martin. Defendants that have yet to settle include Barclays Plc (BARC), JPMorgan Chase & Co. (JPM), Deutsche Bank AG (DB), UBS AG (UBS), HSBCA Holdings Plc (HSBC), Sumitomo Mitsui Trust Holdings Inc., and Mitsubishi UFJ Financial Group Inc.

Senator Warren Accuses the SEC of Poor Enforcement

Published on: January 31, 2016 | by Shepherd Smith Edwards & Kantas, LLP

U.S. Senator Elizabeth Warren has issued a report in which she claims that the U.S. Securities and Exchange Commission and the U.S. Department of Justice have been doing a poor job on enforcement when it comes to going after companies and individuals for corporate crimes.

In Rigged Justice: How Weak Enforcement Lets Corporate Offenders off Easy, Warren takes a closer look at what she describes as the 20 worst federal enforcement failures of 2015. The Senator noted that that when federal agencies caught large companies in illegal acts, they failed to take substantial action against them. Instead, companies were fined for sums that in some cases could be written off as tax deductions.

Some of the 2015 cases that Warren Mentions:
• Standard & Poor’s consented to pay $1.375B to the DOJ, DC, and 19 states to resolve charges that it bilked investors by putting out inflated ratings misrepresenting the actual risks involved in collateral debt obligations and residential mortgage-backed securities. Warren Points out that the amount the credit rater paid is less than one-sixth of the fine the government and states had sought against it, and at S & P did not have to admit wrongdoing. No individuals were prosecuted in this case.

• Citigroup (C), Barclays (BARC), JPMorgan Chase (JPM), Royal Bank of Scotland (RBS), and UBS AG (UBS) paid the DOJ $5.6B to resolve claims that their traders colluded together to rig exchange rates. As a result, the firms made billions of dollars while investors and clients suffered. While admissions of guilt were sought, no individuals were prosecuted. Also, the SEC gave the banks waivers so they wouldn’t have to deal with collateral damages from pleading guilty.

Citigroup, Morgan Stanley, Goldman Sachs, and Other Big Banks to pay $63M to Virginia to Settle RMBS Fraud Claims

Published on: January 26, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The state of Virginia has arrived at a $63M settlement with 11 banks to resolve claims that they bilked the state’s retirement system by purportedly misrepresenting the quality of residential mortgage-backed securities in the run up to the 2008 financial crisis. The resolution settles all claims against the financial firms accused of causing financial harm to the Virginia Retirement system and its taxpayers and pensioners.

The banks involved will pay the following amounts respectively to settle, including:

· UBS Securities for $850K
· Bank of America’s Merrill Lynch, Pierce, Fenner & Smith, Inc. and Countrywide Securities Corp. (BAC) for $19.5M
· Credit Suisse Securities (CS) for $1.2M
· RBS Securities (RBS) for $10M
· HSBC Securities (HSBC) For $2.5M
· Barclays Capital (BARC) for $9M
· Goldman Sachs & Co. (GS) for $2.9M
· Morgan Stanley & Co. (MS) for $6.9M
· Citigroup Global Markets (C) for $4.8M
· Deutsche Bank Securities (DB) for $5.6M

The state lost $383M over RMBS it purchased from 2004 to before 2010 and it had to sell most of these securities, which were toxic and constructed on junk mortgages. The settlement is the largest non-healthcare related financial recovery in a case involving Virginia Fraud Against Taxpayers Act-related violations. However, according to the state’s Attorney General Mark Herring, even though the firm is settling it is not denying or admitting liability.