Articles Posted in Financial Firms

FINRA Panel Orders Merrill Lynch Professional Clearing Corporation to Pay $64M Over Losses Sustained by Rosen Capital Institutional LP and Rosen Capital Partners LP

Published on: July 14, 2011 | by Shepherd Smith Edwards & Kantas, LLP

Merrill Lynch Professional Clearing Corporation must pay hedge funds Rosen Capital Partners LP and Rosen Capital Institutional LP $63,665,202.00 in compensatory damages plus interest (9% from October 7, 2008). A Financial Industry Regulatory Authority arbitration panel issued the order which found the respondent liable.

In their statement of claim, made by the claimants in 2009, the hedge funds accused Merrill Lynch of reach of contract, fraud, breach of the duty of good faith and fair dealing (the New York Uniform Commercial Code), and negligence related to the allegedly unexpected margin calls that caused the claimants to sustain financial losses.

Rosen Capital Partners and Rosen Capital Institutional had originally sought at least $90 million in compensatory damages, as well as punitive damages and other costs. Meantime, Merrill Lynch had sough to have the entire matter dismissed and that it be awarded all costs incurred from the suit and other relief as deemed appropriate.

JPMorgan Chase to Pay $211M to Settle Charges It Rigged Municipal Bond Transaction Bidding Competitions

Published on: July 9, 2011 | by Shepherd Smith Edwards & Kantas, LLP

JPMorgan Chase & Co. will pay $211 million to settle charges that its JP Morgan Securities LLC Division rigged dozens of bidding competitions for reinvesting the proceeds from municipal bond transactions to win business from local and state governments. The settlement is for complaints that the US Securities and Exchange Commission, the Justice Department, the Internal Revenue Service, 25 state attorneys general, and bank regulators had filed against the investment bank. JPMorgan has also agreed to give back approximately $129.7 million to the municipalities that were harm.

JP Morgan Securities is accused of making at least 93 secret deals with companies that take care of the bidding processes in 31 states. The arrangement let the investment bank see competitors’ offers.

According to regulators, between 1997 and 2005, members of JPMorgan’s municipal derivatives desk made misrepresentations and omissions in the secret deals, which impacted the prices the governments ended up paying while jeopardizing the tax-exempt position of billions of dollars worth of securities in the billions. This alleged misconduct also undermined JP Morgan’s competitors, who, along with the financial firm, are supposed to offer cities and states the opportunity to bid for competitive interest rates when they invest their tax-exempt proceeds from municipal bonds in municipal reinvestment products. JPMorgan is accused of also sometimes turning in nonwinning bids on purpose to meet tax requirements.

While The New York Time reports that by agreeing to settle JPMorgan Chase is not denying or admitting to wrongdoing, Yahoo reports that the financial firm has admitted to the illegal conduct and agreed to cooperate with the Justice Department’s probe as long as it wasn’t prosecuted. JPMorgan, however, did blame the illegal activity on ex-employees at a division that is no longer in operation.

To settle, JPMorgan will pay $51.2 million to the SEC, $35 million to the Office of the Comptroller of the Currency, $50 million to the IRS, and $75 million to a number of state attorneys general. It also reached a settlement with the Federal Reserve Bank of New York.

Related Web Resources:
JPMorgan Settles Bond Bid-Rigging Case for $211 Million, NY Times, July 7, 2011
JPMorgan pays $211M to settle bid-rigging charges, Yahoo, July 7, 2011

More Blog Posts:
JP Morgan Chase Agrees to Pay $861M to Lehman Brothers Trustee, Stockbroker Fraud Blog, June 28, 2011
Citigroup Ordered by FINRA to Pay $54.1M to Two Investors Over Municipal Bond Fund Losses, Stockbroker Fraud Blog, April 13, 2011
UBS Financial Reaches $160M Settlement with the SEC and Justice Department Over Securities Fraud, Antitrust, and Other Charges Related to Municipal Bond Market, May 16, 2011 Continue Reading ›

$750,000 Arbitration Award Against Stone & Youngberg LLC Confirmed by District Court

Published on: June 30, 2011 | by Shepherd Smith Edwards & Kantas, LLP

A district court has confirmed an arbitration panel’s $750,000 award to the Kay Family Revocable Trust in its securities case against Stone & Youngberg LLP. The trust sustained financial losses when its money was invested in the FutureSelect Prime Advisor II, which had most of its capital invested with Ponzi scam mastermind Bernard Madoff.

In its arbitration claim, Kay Family Revocable Trust claimed that S & Y failed to perform its requisite due diligence before recommending that the trust invest in the fund. S & Y rejoined with the argument that the trust had not succeeded in proving a causal link between the Madoff scheme and any alleged lack of due diligence. S & Y also argued it shouldn’t have to be responsible for the harm that the Trust suffered as a result of Madoff’s financial fraud. The brokerage firm even pointed to a federal district court ruling of a professional malpractice claim that concluded that “a simple ‘but for’ relationship between the claimed negligence and the injury” will not back up a finding of legal causation. S & Y also cited a decision by a federal appeals court that said it was up to a securities fraud plaintiff to prove that the loss it sustained was a foreseeable outcome of the alleged misrepresentation.

The U.S. District Court for the Northern District of California, however, concluded that the panel’s decision to confirm the award in favor of the investor and against S & Y was not manifest disregard of the law, but rather the application of the law to the facts the way it found them.

STONE & YOUNGBERG, LLC v. KAY FAMILY REVOCABLE TRUST UAD 02-07-90 FBO LENORE BLEADON UNDER TRUST A, Leagle.com, June 22, 2011

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Houston Securities Arbitration: FINRA Panel Orders Penson Financial Services, Inc. to Pay Boushy North Investments, Ltd. $500,000, Stockbroker Fraud Blog, June 11, 2011
District Court Wants to Know Why FINRA Arbitration Panel Denied Freecharm Ltd.’s Securities Fraud Claim Against One Atlas Financial Group LLC, Stockbroker Fraud Blog, June 11, 2011, May 31, 2011
Raymond James Must Pay $925,000 Over Auction-Rate Securities Dispute, Institutional Investor Securities Blog, September 1, 2010 Continue Reading ›

Morgan Keegan Settles Subprime Mortgage-Backed Securities Charges for $200M

Published on: June 29, 2011 | by Shepherd Smith Edwards & Kantas, LLP

According to the SEC, FINRA, and state regulators, Morgan Keegan & Company and Morgan Asset Management have consented to pay $200 million to settle subprime mortgage-backed securities-related charges. Also agreeing to pay penalties over their alleged misconduct are Morgan Keegan comptroller Joseph Thompson Weller and ex- portfolio manager James C. Kelsoe Jr.

The two men were accused of causing the false valuation of subprime mortgage backed securities in five Morgan Asset Management-related funds. Per the SEC’s administrative order, Kelsoe directed the fund accounting department to arbitrarily execute price adjustments to the fair values of certain portfolio securities. These adjustments disregarded the lower values for the same securities that outside broker-dealers provided as part of the pricing process. Kelsoe’s directives and the actions that were taken as a result would sometimes cause Morgan Keegan to not price the bonds at current, fair value.

The SEC also says that Kelsoe screened and affected at least one broker-dealer’s price confirmations. That broker-dealer had to provide interim price confirmations that were below the value that the funds were valuing certain bonds at but greater than the initial confirmations that the broker-dealer meant to provide. The interim price confirmations allowed the funds to not mark down the securities’ value to reflect current fair value. Kelsoe is also accused of getting the broker-dealer to withhold price confirmations in certain instances where they would have been significantly lower than the funds’ current valuations of the relevant bonds. The SEC says that Kelsoe fraudulently kept the Navs of funds from being reduced when they should have gone down when the subprime securities market deteriorated in 2007.

Of the $200 million, Morgan Keegan must pay a $75 million penalty to the SEC, $25 million in disgorgement, and $100 million to a state fund that would then pay investors.

Morgan Keegan to Pay $200 Million to Settle Fraud Charges Related to Subprime Mortgage-Backed Securities, SEC, June 22, 2011
Morgan Keegan Entities to Pay $200M In Settlement Over Subprime MBS Valuations, Law 360, June 22, 2011

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Morgan Keegan Ordered by FINRA to Pay RMK Fund Investors $881,000, Stockbroker Fraud Blog, April 24, 2011
Morgan Keegan & Co. Inc. Must Pay $250K to Couple that Lost Investments in Hedge Fund with Ties to Bernard L. Madoff Investment Securities, Stockbroker Fraud Blog, March 16, 2011
Morgan Keegan to Pay $9.2M to Investors in Texas Securities Fraud Case Involving Risky Bond Fund, Stockbroker Fraud Blog, October 6, 2010 Continue Reading ›

Washington Mutual Bank Bondholders’ Securities Fraud Lawsuit Against J.P. Morgan Chase & Co. is Revived by Appeals Court

Published on: June 29, 2011 | by Shepherd Smith Edwards & Kantas, LLP

The D.C. Circuit Court of Appeal has revived a securities fraud lawsuit filed by bondholders of the now failed Washington Mutual Bank against JP Morgan Chase & Co. (JPM.N). The plaintiffs had accused the investment bank of causing them to suffer financial losses because it purchased the thrift’s assets at a “fire sale” price.

Per the securities complaint, insurers American National Insurance Co., Farm Family Life Insurance Co., American National Property and Casualty Insurance Co., National Western Life Insurance Co., and Farm Family Casualty Insurance Co. are accusing JP Morgan of exerting pressure on the U.S. Federal Deposit Insurance Corp. so it would force the $1.9 billion sale of Washington Mutual. They contend that as a result, what used to be the biggest savings and loan in the country with $307 billion in assets was “drastically undervalued,” which allowed the financial firm to pick out the best assets at the expense of the plaintiffs, whose bond investments lost their value.

The appeals court panel’s decision reverses a federal district judge’s ruling last year dismissing the complaint. The judge had said that the bondholders need to have pursued all administrative revenues before filing their securities fraud lawsuit, which is one of a number of complaints stemming from the FDIC’s seizure of WaMu in 2008. WaMu’s holding company immediately filed for bankruptcy and is still waiting for a judge to grant the permission required to allow it to give creditors $7 billion.

The appeals court’s decision came just one day after the WaMu bankruptcy reorganization plan was challenged by Aurelius Capital Management. The hedge fund said that WaMu was denied access to approximately $4 billion that JP Morgan was improperly holding. Aurelius claims that as a result, this settlement is currently of greater value to JP Morgan than WaMu.

Related Web Resources:
Aurelius withdraws support of WaMu bankruptcy plan, Bloomberg Businessweek/AP, June 23, 2011

Court revives WaMu bondholder suit vs JPMorgan, Reuters, June 24, 2011

American National Insurance Co.

Farm Family Life Insurance Co.

National Western Life Insurance Co.

Farm Family Casualty Insurance Co.

More Blog Posts:
JP Morgan Chase Agrees to Pay $861M to Lehman Brothers Trustee, Stockbroker Fraud Blog, June 28, 2011

National Credit Union Administration Board Files $800M Mortgage-Backed Securities Fraud Lawsuits Against JP Morgan Securities, RBS Securities, and Other Financial Institutions, Institutional Investor Securities, June 23, 2011

JP Morgan Chase Agrees to Pay $861M to Lehman Brothers Trustee

Published on: June 28, 2011 | by Shepherd Smith Edwards & Kantas, LLP

A bankruptcy settlement has been reached between JP Morgan Chase & Co. and the trustee of Lehman Brothers. Per the agreement, JP Morgan will pay $106 million in securities and $755 million in cash-that’s $861 million. This will go to the customers of the now defunct Lehman Brothers Holding. The settlement comes after a two-year probe by trustee James Giddens in the Securities Investor Protection Act liquidation proceedings.

Lehman Brothers Holdings Inc., which is Lehman Brothers Inc.’s parent company, filed for bankruptcy in 2008. JP Morgan served as its clearing bank. Some 125,000 customers have filed claims worth about $180 billion total, of which about $130 billion are resolved. The claims that are left include those involving Lehman Brothers Holdings, Lehman Brothers International, and a number of hedge funds. JP Morgan and Lehman Brothers Holdings are still involved in two multibillion-dollar lawsuits.

Per court papers, the majority of the trustee’s claims against JP Morgan come from securities that the bank held but failed to liquidate following the collapse of Lehman brothers. While JP Morgan did not agree with all of the trustee’s findings, they consented to turning over the majority of the funds to resolve the dispute.

Lehman Brothers Holdings claims that JP Morgan Chase abused its role as a clearing house firm when it forced the former to surrender $8.6 billion in cash collateral. Lehman believes that if it could have held on to the funds, it wouldn’t have needed to file for bankruptcy and that even if it still had to shut down, it could have done so in a more orderly fashion.

Judge Clears $861 Million J.P. Morgan-Lehman Settlement, Wall Street Journal, June 23, 2011
JP Morgan to Pay Lehman Brokerage $861 Million in Bankruptcy Court Settlement, FNN, June 23, 2011
Securities Investor Protection Act , US Courts

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UBS Financial Services Fined $2.5M and Ordered to Pay $8.25M Over Lehman Brothers-Issued 100% Principal-Protection Notes, Institutional Investors Securities Blog, April 12, 2011
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Lehman Brothers Lawsuit Claims Its Bankruptcy Was In Part Due to JP Morgan Chase’s Seizure of $8.6 Billion in Cash Reserves, Stockbroker Fraud Blog, June 14, 2011 Continue Reading ›

Mortgage-Backed Securities Lawsuit Against Bank of America’s Merrill Lynch Now a Class Action Case

Published on: June 25, 2011 | by Shepherd Smith Edwards & Kantas, LLP

Merrill Lynch, a unit of Bank of America Corp. (BAC) is now the defendant of a class action securities fraud lawsuit filed on behalf of at least 1,800 investors. A federal judge certified the class status, which involves all investors in mortgage-backed securities that were sold beginning February 2006 through September 2007.

The named plaintiffs of the MBS lawsuit are the Connecticut Carpenters Annuity Fund, the Wyoming state treasurer, Mississippi Public Employees’ Retirement System, the Connecticut Carpenters Pension Fund, and the Los Angeles County Employees Retirement Association. The investors are accusing Merrill of misleading them in the offering documents for $16.5 billion of certificates.

While including yourself as a class action plaintiff may seem like an easy way to recoup your losses, Shepherd Smith Edwards & Kantas LTD LLP founder and stockbroker fraud attorney William Shepherd says, “On average, victims with securities class action claims usually get back a net recovery of about 8% of their losses.” Such claims often face numerous obstacles. Also, only federal securities claims can be brought in class action cases, and these can be challenging to prove. “Some securities class action complaints end up settled but with the terms favoring the defendants and with large fees going to the investors’/victims’ attorneys,” notes Shepherd. Many consider the investor class the losers when such a case is concluded. ** It is important, however, to note that our securities fraud law firm has no information at this time to suggest that this is going to be the result in this matter.

One alternative you should explore is filing your own, individual claim. While many securities class action cases have very short “opt out” dates, if you “opt out” of the class in a timely manner, you can file an individual case ( claims under state law are often easier to prove). Our securities fraud law firm has represented many investors who have done both.

Merrill Must Face Class Action Over Mortgage Securities, Bloomberg, June 20, 2011

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Bank of America Cop. (BAC)’s Merrill Lynch a Defendant of Class-Action Mortgage-Backed Securities Lawsuit Against at Least 1,800 Investors

Published on: June 25, 2011 | by Shepherd Smith Edwards & Kantas, LLP

U.S. District Judge Jed S. Rakoff has ruled that Merrill Lynch must face a class action securities fraud lawsuit over mortgage-backed securities. The class of at least 1,800 investors consists of the buyers of 31 tranches of MBS in 18 different offerings that were sold between February 2006 and September 2007. Merrill Lynch is a unit of Bank of America Corp. (BAC).

The investors, who filed their litigation in 2008, are accusing Merrill of misleading them in the offering documents for certificate valued at $16.5 billion and of falsely claiming that the underlying mortgages were in compliance with underwriting guidelines. Plaintiffs include the Los Angeles County Employees Retirement Association, the Mississippi Public Employees’ Retirement System, the Wyoming state treasurer, the Connecticut Carpenters Annuity Fund, and the Connecticut Carpenters Pension Fund. The class action certification lets the investors put their claims together into one lawsuit rather than having to individually push their cases through.

Meantime, Bloomberg.com is reporting that in a separate securities fraud lawsuit, also against Bank of America, U.S. District Judge William Pauley in Manhattan consolidated three cases accusing the investment bank of hiding the risks involved in mortgage-backed securities and of not using appropriate controls in processing foreclosures. The lead plaintiff in this case is Pennsylvania Public School Employees’ Retirement System.

Securities Class Actions
“The average net recovery for victims in securities class action claims is about 8% of their losses because such claims face many problems,” says Shepherd Smith Edwards and Kantas founder and securities fraud attorney William Shepherd. “For example, only federal securities fraud claims can be made in such cases, which are often difficult to prove. However, investors who “opt out” of the class in a timely manner can file their own individual claims, including under state law claims often easier to prove. Our stockbroker fraud lawyers has represented many investors who have opted-out of securities class actions.”

Shepherd continues, “Unfortunately, many securities class action claims are filed with very short “opt out” dates and some of these cases are later settled on terms that arguably favor the defendants while large payments end up going to the lawyers representing the investor/ victims in the class. Many believe the true losers in such cases are the members of the investor class who suffered the losses. [We have no information at this time to suggest such a result in this matter.] ”

Related Web Resources:
Merrill Must Face Class Action Over Mortgage Securities, Bloomberg, January 20, 2011

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National Credit Union Administration Board Files $800M Mortgage-Backed Securities Fraud Lawsuits Against JP Morgan Securities, RBS Securities, and Other Financial Institutions, Institutional Investor Securities Blog, June 23, 2011

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Dow Corning Corp.’s $165M Securities Fraud Lawsuit Against Merrill Lynch & Co. Can Proceed, Says District Court Judge, Stockbroker Fraud Blog, April 7, 2011

National Credit Union Administration Board Files $800M Mortgage-Backed Securities Fraud Lawsuits Against JP Morgan Securities, RBS Securities, and Other Financial Institutions

Published on: June 23, 2011 | by Shepherd Smith Edwards & Kantas, LLP

This week, the National Credit Union Administration Board filed two securities fraud lawsuits accusing a number of financial institutions of misrepresenting the risks involved in the mortgage-securities that they sold to investors. The federal credit union is seeking a combined $800 million.

JP Morgan Securities LLC, Novastar Mortgage Funding Corp, and RBS Securities Inc. are just a few of the defendants, who are accused of committing securities fraud against five wholesale credit unions. Both mortgage-backed securities lawsuits claim that large investment banks sold securities to institutional investors that held subprime loans as Triple-A rated investments. The financial firms allegedly omitted material facts, including that the securities were larded with loans issued to borrowers at high risk of default. The defendants are accused of getting the wholesale credit unions to purchase over $3 billion in mortgage-backed securities that, according to The Wall Street Journal, were “destined to perform poorly.” Subsequently, the credit unions became 5 of the over 40 in the US that have failed since 2009. It has since been up to the approximately 7,000 remaining credit unions to take on some of the loans, while charging higher interest rates to stay in operation. Meantime, the failures of the credit unions have forced NCUA to take on about $50 billion in battered bonds that are currently valued at a fraction of their original value.

When a borrower defaults on a loan payment, the value of the mortgage-backed security suffers. The NCUA’s complaint says that as a result, the credit ratings assigned too many mortgage-backed securities that the credit union purchased collapsed in short order. The NCUA plans to file more securities fraud complaints. Goldman Sachs will likely be among the new defendants.

Feds Sue Bankers Over Fall in Bonds, The Wall Street Journal, June 21, 2011

National Credit Union Administration Board sues big banks for $800M, Biz Journals, June 20, 2011

National Credit Union Administration

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Morgan Stanley, Barclays, and Merrill Lynch Lose ‘Hot News’ Misappropriation Case Against Theflyonthewall.com Inc. in Appeals Court

Published on: June 20, 2011 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. Court of Appeals for the Second Circuit has reversed a lower court’s ruling and decided that under New York law, Theflyonthewall.com Inc., an online financial news service, may not be held liable for disseminating the equity research recommendations found in reports of plaintiffs Barclays Capital Inc., Morgan Stanley & Co. Inc., and Merrill Lynch Pierce Fenner & Smith Inc. The appeals court’s Judge Robert D. Sack concluded that federal copyright law preempts the ‘Hot News’ misappropriation claim.

The financial firms’ reports contain research about public companies, their securities and business prospects, and their respective industries. The reports summarize these findings, which often include recommendations about holding, selling, and buying the subjects’ securities. The firms give clients and prospective ones these reports before the US securities markets open daily as an “informational advantage.”

The plaintiffs accused Fly, which has managed to get a hold of these recommendations and issue them before the brokerage firms had given them to the public or before the exchanges that the securities are traded have opened, of copyright infringement. Concurring with the plaintiffs, a lower court then barred the news service from both infringing on the copyrighted aspects of the brokerage firms’ research reports and publishing their recommendations until after the New York Stock Exchange opened.

Now, however, the appeals court is saying that “a firm’s ability to make news… does not give rise to a right for it to control who breaks the news and how.” The court reversed and remanded the earlier claim and told the district court to dismiss the brokerage firms’ misappropriation claim under New York law.

Related Web Resources:
Theflyonthewall.com Inc.

Read the district court’s opinion (PDF)

Brokerages Lose in Appeals Court On N.Y. ‘Hot News’ Misappropriation Claim, BNA Securities Law Daily, June 20, 2011

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