Financial Firms

Goldman Sachs Subpoenaed Over Financial Crisis

Published on: May 31, 2011 | by Shepherd Smith Edwards & Kantas, LLP

Manhattan District Attorney Cyrus R. Vance Jr. has subpoenaed Goldman Sachs. The New York Times says that someone familiar with this matter told the newspaper that the prosecutor is seeking information related to the financial crisis. The District Attorney’s request comes following the Senate investigators’ report last April accusing the financial firm of abusive conduct.

The Senate Permanent Subcommittee on Investigations produced the report, which claims that Goldman Sachs contributed to the financial crisis when it developed mortgage-linked investments that allowed it to make money even as its clients sustained financial losses. Per the NY Times, this subpoena, which comes nearly three years after the height of the crisis, is a clear indicator that officials are continuing to probe the role that Wall Street might have played.

It was last year that Goldman Sachs consented to settle for $550 million the Securities and Exchange Commission charges accusing it of misleading investors about an investment package linked to subprime mortgages. Even as it bet against the package, the financial firm neglected to disclose that Paulson & Co. helped choose the loans. While investors in the Abacus 2007-AC1 collateralized debt obligation (CDO) lost over $1 billion, Paulson made approximately $1 billion.

The report is also alleging a wider scope of abusive conduct by Goldman. For example, when the mortgage market was failing in 2007, the financial firm allegedly sold mortgage-related investments to buyers but neglected to tell them that it was betting against the subprime market and would make money if some of these securities lost value. Goldman also allegedly minted CDOs with assets that it thought might “lose money,” while selling them at prices higher than what they thought they were worth.

Per the report, these arrangements resulted in a number of conflicts of interests and allegedly allowed Goldman to put its interests before its clients. One example involves Goldman choosing assets for the Hudson 1, which is a $2 billion CDO. The report says that the financial firm neglected to reveal that it’s $2 billion short position far outweighed the $6 million investment it made on the same side as the buyers of the CDO.

Goldman has said that it disagrees with many of the report’s findings.

Goldman Sachs subpoenaed, Washington Post, June 2, 2011

Wall Street and the Financial Crisis: The Role of Investment Banks, Senate Permanent Subcommittee on Investigations

More Blog Posts:
Goldman Sachs Ordered by FINRA to Pay $650K Fine For Not Disclosing that Broker Responsible for CDO ABACUS 2007-ACI Was Target of SEC Investigation, Stockbroker Fraud Blog, November 12, 2010

Goldman Sachs Settles SEC Subprime Mortgage-CDO Related Charges for $550 Million, Stockbroker Fraud Blog, July 30, 2010

Securities Practices of JPMorgan Chase & Goldman Sachs Under Investigation by Federal Investigators, Institutional Investors Securities Blog, May 19, 2011

Goldman Sachs and Wells Fargo Investments Repurchase $26.9M in Auction-Rate Securities from New Jersey Investors

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

According to the New Jersey Bureau of Securities, Wells Fargo Investments Inc. (WFC) and Goldman Sachs & Co. (GS) has repurchased $26.9 million in ARS tosettle securities allegations that they sold auction-rate securities to New Jersey investors without disclosing the risks involved. Goldman bought back $25.5 million in ARS (it will also pay a $959,794 civil penalty), while Wells Fargo Investments repurchased $1.37 million in ARS.

The Bureau says that Goldman Sachs did not properly supervise and train its salespeople to make sure that all of its clients knew of the mechanics involved in the auction market and that the ARS could become illiquid. The financial firm also is accused of failing to disclose to investors the risks involved in buying or owning ARS even as it was becoming aware that the market was in trouble. The Bureau also accused Wells Fargo Investments of not properly supervising or training its agents that marketed the securities.

The two Consent Orders against Goldman Sachs and Wells Fargo Investments are the 11th and 12th that the state’s Bureau of Securities has reached with financial firms over ARS that were sold to investors in New Jersey. As part of the settlements, several firms that sold and marketed ARS have offered to buy back $2.8 billion of these securities.

It was in 2008 that state offices started getting complaints from investors about problems related to ARS investments. New Jersey was one of the 12 states that became part of a task force that looked into whether financial firms misled investors that bought ARS, which were sold and marketed as liquid, safe, and like cash. When the ARS market did fail, many investors were unable to access their money as the securities became illiquid.

New Jersey Bureau of Securities

More Blog Posts:
Anschutz Corp.’s Securities Fraud Lawsuit Against Deutsche Bank and Credit Rating Agencies Over Their Alleged Mishandling of Auction-Rate Securities Can Proceed, Says District Court, Institutional Investor Securities Blog, April 21, 2011

Akamai Technologies Inc’s ARS Lawsuit Against Deutsche Bank Can Proceed, Institutional Investor Securities Blog, March 4, 2011

Auction-Rate Securities Investigations by SEC and NY Attorney General Are Ongoing, Stockbroker Fraud Blog, April 21, 2011

Securities Practices of JPMorgan Chase & Goldman Sachs Under Investigation by Federal Investigators

Published on: May 19, 2011 | by Shepherd Smith Edwards & Kantas, LLP

Federal investigators are taking an even closer took at the securities-related practices of JPMorgan Chase & Co. (JPM) and Goldman Sachs Group Inc. (GS ). In a May 6 Filing with the Securities and Exchange Commission, JPMorgan reported that an investigation into its municipal derivatives securities practices is being conducted by the SEC, the US Justice Department, the Office of the Comptroller of the Currency, the Internal Revenue Service, and a number of state attorneys general. The investment bank and Bear Stearns are under investigation for possible tax, antitrust, and securities-related violations related to “the sale or bidding of guaranteed investment contracts and derivatives to municipal issuers.” The SEC’s Philadelphia office is recommending that the commission file civil charges against JPMorgan.

Meantime, in its May 9 filing to the SEC Goldman Sachs revealed that the Commodity Futures Trading Commission is looking at the clearing-services practices that Goldman subsidiary Goldman Sachs Execution and Clearing LP provided to a broker-dealer. Goldman is also being investigated by the Justice Department over matters “similar” to a European Commission probe into anti-competitive practices involving credit default swap transactions.

Goldman’s filing notes that CFTC staffers verbally notified GSEC that it will recommend that the commission bring charges related to supervision, aiding and abetting, and civil fraud over the financial firm providing a broker-dealer client with clearing services. The charges are being recommended because of allegations that GSEC knew or should have known that subaccounts belonged to the broker-dealer’s customers and were not the client’s “proprietary accounts.”

Related Web Resources:

Wall Street inquiry expands beyond Goldman Sachs, Los Angeles Times, May 14, 2011

Office of the Comptroller of the Currency

Commodity Futures Trading Commission

More Blog Posts:

Motion for Class Certification in Lawsuit Against J.P. Morgan Securities Inc. Over Alleged Market Manipulation Scam Granted in Part by Court, Stockbroker Fraud Blog, July 23, 2010

Ambac Financial Group, Insurers, and Bank Underwriters to Pay $33M to Settle Securities Lawsuits Alleging Concealed Risks Related to its Bond-Insurance Business

Published on: May 18, 2011 | by Shepherd Smith Edwards & Kantas, LLP

Ambac Financial Group Inc. (ABKFQ), a number of its bank underwriters, and its insurers will pay $33 million to settle securities lawsuits accusing the bond insurer of concealing the risks it engaged in when it guaranteed risky mortgage debt. Ambac will pay $2.5 million, four insurance companies will pay $24.5 million, and the banks that will pay $5.9 million include Citigroup Inc. (C), Goldman Sachs Group Inc. (GS), UBS AG (UBS), J.P. Morgan Chase & Co. (JPM), Merrill Lynch Pierce Fenner & Smith Inc. (now part of Bank of America Corp. (BAC)), HSBC Holdings PLC (HBC), and the former Wachovia, (now part of Wells Fargo & Co. ( WFC)). A federal court has to approve the proposed settlement. The lead plaintiffs of the securities fraud case are The Public Employees’ Retirement System of Mississippi, the Public School Teachers’ Pension and Retirement Fund of Chicago, and the Arkansas Teachers Retirement System. The investors covered those that purchased Ambac stock and bonds between October 25, 2006 and April 22, 2008.

It was in 2008 that the housing market crisis revealed the trouble that Ambac, an insurer of instruments related to risky mortgages, was in. Investors had accused Ambac of both giving misleading information to the market to inflate the prices of its securities and concealing the full scope of its involvement in the subprime loan debacle. They claim that the bond insurer and its officials made it appear as if the company was only insuring the transactions that were “safest,” when it was actually looking to profit by guaranteeing billions in high risk collateralized debt obligations and residential mortgage debt, as well as writing credit default swaps to protect investors in the debt against default.

Documents filed in the US Bankruptcy Court in Manhattan reports that the holding company in bankruptcy has $1.6 billion in unresolved debts. Financial guarantee insurer Ambac Assurance Corp., which is its chief asset, has $300 billion in potential exposure.

Related Web Resources:
Ambac, banks settle investor suits for $33 mln, Reuters, May 6, 2011
Ambac Financial In $27.1M Deal To Settle Securities Lawsuits, Dow Jones, May 9, 2011
The Public Employees’ Retirement System of Mississippi

Public School Teachers’ Pension and Retirement Fund of Chicago

Arkansas Teachers Retirement System

More Blog Posts:
Insurer Claims that JP Morgan and Bear Stearns Bilked Clients Of Billions of Dollars with Handling of Mortgage Repurchases, Institutional Investor Securities Blog, February 3, 2011
SEC to Examine Muni Bond Market Issues During Hearings in Texas and Other States, Institutional Investor Securities Blog, February 9, 2011
SEC to Examine Muni Bond Market Issues During Hearings in Texas and Other States, Stockbroker Fraud Blog, February 9, 2011 Continue Reading ›

UBS Financial Reaches $160M Settlement with the SEC and Justice Department Over Securities Fraud, Antitrust, and Other Charges Related to Municipal Bond Market

Published on: May 16, 2011 | by Shepherd Smith Edwards & Kantas, LLP

UBS Financial Services Inc. has consented to a $160 million settlement over charges that it took part in anticompetitive practices in the municipal bond market. The Securities and Exchange Commission and the US Justice Department announced the settlement together. 25 state attorneys generals and 3 federal agencies had accused the financial firm of rigging a minimum of 100 reinvestment transactions in 36 states, which placed the tax-exempt status of over $16.5 billion in municipal bonds at peril. Justice officials say that the unlawful conduct at issue, which involved former UBS officials, took place between June 2001 and June 2006.

According to SEC municipal securities and public pensions enforcement unit chief Elaine Greenberg, ex-UBS officials engaged in “secret arrangements,” played various roles, and took part in “illegal courtesy bids, last looks for favored bidders, and money to bidding engagements” in the guise of “swap payments” to “defraud municipalities” and “win business.” The SEC contends that between October 2000 until at least November 2004, the financial firm rigged a minimum of 12 transactions while serving as bidding agents for contract providers, won at least 22 muni reinvestment instruments, entered at least 64 “courtesy” bids for contracts, and paid undisclosed kickbacks to bidding agents at least seven times. The SEC says that UBS indirectly deceived municipalities and their agents with their fraudulent misrepresentations and omissions and rigged bids to make them appear as if they were competitive when they actually weren’t.

UBS, which left the municipal bond market in 2008, says that the “underlying transactions” involved were in a business that is no longer a part of the financial firm and that the employees who were involved don’t work there anymore. Of the $160 million settlement, $47.2 million will go to the SEC, which in turn will give the money to the 100 muni issuers as restitution, about $91 million will go to the states, and $22.3 million will go to the IRS.

Related Web Resources:

United States Justice Department

Internal Revenue Service

Securities and Exchange Commission

More Blog Posts:
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

Securities Fraud Lawsuit Against UBS Securities LLC by Detroit Pension Funds Won’t Be Remanded to State Court, Says District Court, Institutional Investors Securities Blog, January 17, 2011

UBS to Pay $2.2M to CNA Financial Head for Lehman Brothers Structured Product Losses, Stockbroker Fraud Blog, January 4, 2011

Wells Fargo Advisors LLC Agrees to $1 Million FINRA Fine for Securities Charges Related to Mutual Fund Prospectus Delivery

Published on: May 12, 2011 | by Shepherd Smith Edwards & Kantas, LLP

FINRA is fining Wells Fargo Advisors LLC $1 million over the allegations that the financial firm did not deliver mutual fund prospectuses within the three days (as required by federal securities laws) and delays in the updating of material information about former and current representatives. Wells Fargo has agreed to the fine.

Per FINRA, about 934,000 clients who bought mutual funds two years ago were affected when Wells Fargo did not deliver prospectuses within three days of the transactions. Prospectuses were given to clients anywhere from one to 153 days late. The SRO contends that even after a 3rd provider notified the broker-dealer about the delay, Wells Fargo allegedly did not take corrective action to remedy the problem.

FINRA also says that the financial firm did not abide by the SRO’s rules when it wasn’t prompt in reporting required information about its representatives, both past and present. Securities firms must make sure that the information on their representatives’ applications for registration on Forms U4 are current in FINRA’s CRD (Central Registration Depository). Termination notices, known as Forms U5, must also be updated. Financial firms have 30 days from finding out about a “significant event” to update the forms. Examples of such events are customer complaints, formal investigations, or an arbitration claim against a representative. FINRA says that Wells Fargo did not update 7.6% of its Forms U5 and about 8% of its Forms U4 between 7/1/08 and 6/30/09. This resulted in almost 190 late amendments.

By agreeing to settle, Wells Fargo is not denying or admitting to the securities charges. The broker-dealer has, however, consented to the entry of FINRA’s findings.

Related Web Resources:
FINRA Fines Wells Fargo Advisors $1 Million for Delays in Delivering Prospectuses to More Than 900,000 Customers, FINRA, May 5, 2011
FINRA fines Wells Fargo $1M for prospectus delays, Forbes/AP, May 5, 2011
CRD, Financial Industry Regulatory Authority

More Blog Posts:
AG Edwards & Sons (Wells Fargo Advisors) to Settle Securities Charges it Sold Variable Annuities that Lacked Proper Documentation to Elderly Client, Stockbroker Fraud Blog, May 4, 2011
Wells Fargo Settles SEC Securities Fraud Allegations Over Sale of Complex Mortgage-Backed Securities by Wachovia for $11.2M, Institutional Investor Securities Blog, April 7, 2011
Wells Fargo to Pay $30M in Compensatory Damages to Four Nonprofits for Securities Fraud, Stockbroker Fraud Blog, June 30, 2010 Continue Reading ›

Whistleblower Lawsuit Claims Taxpayers Were Defrauded When Federal Government Bailed Out Houston-Based American International Group in 2008

Published on: May 5, 2011 | by Shepherd Smith Edwards & Kantas, LLP

Last week, a whistleblower lawsuit claiming that taxpayers were defrauded when the federal government bailed out American International Group was unsealed. The complaint accuses the Houston-based AIG and two banks of taking part in speculative and fraudulent transactions that resulted in losses worth billions of dollars. They then allegedly convinced the Federal Reserve Bank of New York to bail them out with two rescue loans for AIG that were used to unwind hundreds of failed loans.

The complaint focuses on the two emergency loans of about $44 billion that AIG received in October 2008 (The remaining $138 that it got in bailout funds are not part of this case). The money went toward settling trades involving complex, mortgage-linked securities. Some of the AIG-guaranteed securities were underwritten by Goldman Sachs and Deutsche Bank. Both financial institutions join AIG as defendants in this case. The two loans were extended to buy the troubled securities and place them in Maiden Lane II and Maiden Lane III, both special-purpose vehicles, until AIG’s crisis subsided.

The plaintiffs, veteran political activists Nancy and Derek Casady, contend that the rescue loans were improper because the government made them without obtaining a pledge of high-quality collateral from AIG. They maintain that the Fed board does not have the authority to “cover losses of those engaged in fraudulent financial transactions.”

Their whistleblower lawsuit was filed under the False Claims Act. This federal law lets private citizens sue on behalf of government agencies if they know of a fraud that occurred. Plaintiffs are able to attempt to recover money for the government and its taxpayers. Plaintiffs usually receive a percentage if their claim succeeds.

According to the New York Times, senior fed officials have admitted to taking unusual actions in 2008 because the global financial system was on the verge of falling apart.

Related Web Resources:
Claiming Fraud in A.I.G. Bailout, Whistle-Blower Lawsuit Names 3 Companies, The New York Times, May 4, 2011
False Claims Act, Cornell University Law School

Related Web Resources:
Texas Commodity Trading Advisor FIN FX LLC Now Subject to NFA Emergency Enforcement Action, Stockbroker Fraud Blog, April 27, 2011
Texas Securities Fraud: FINRA Suspends Pinnacle Partners Over Failure to Comply with Temporary Cease and Desist Order Involving “Boiler Room” Operation, Stockbroker Fraud Blog, April 19, 2011
SEC is Finalizing Its Whistleblower Rules, Says Chairman Schapiro, Stockbroker Fraud Blog, April 28, 2011 Continue Reading ›

AG Edwards & Sons (Wells Fargo Advisors) to Settle Securities Charges it Sold Variable Annuities that Lacked Proper Documentation to Elderly Clients

Published on: May 4, 2011 | by Shepherd Smith Edwards & Kantas, LLP

Missouri Secretary of State Robin Carnahan says that A.G. Edwards & Sons LLC will pay $755,000 to settle charges over improper annuity sales. The financial firm allegedly sold variable annuities without the necessary documentation to elderly clients. The Missouri’s Securities Division, AG began its investigation because an 18-year-old Missouri resident reported noticing irregularities after the liquidation of a variable annuity.

Per the investigation’s findings, AG Edwards, now known as Wells Fargo Advisors after Wachovia Corp. acquired it and the latter was later acquired by Wells Fargo & Co. (WFC), sold the annuities to elderly clients but failed to maintain proper records of transactions. This lack of proper documentation prevented the annuity sales, which occurred between July 2006 and June 2007, from being in compliance with company policy and state law.

At least 31 Missouri investors were affected by this oversight. They will receive $381,993. The Missouri Investor Education and Protection Fund will get $375,000. The Missouri’s Securities Division will be reimbursed the $50,000 it cost to probe the investor complaint.

In a release issued last month, Carnahan said that she appreciated AG Edwards’s willingness “to work with my office.” She also reminded investors that if they believe their investment is at risk, they can always contact her office for help. Meantime, Wells Fargo Advisors says it is pleased that these “legacy issues” have been resolved.

More Blog Posts:
Protect Yourself from Texas Securities Fraud by Making Sure that the Company or Agent that Sells You Annuities Has a Valid Insurance License, Stockbroker Fraud Blog, March 13, 2010
Market Timing Violations Against AG Edwards & Sons Inc. Supervisors and Broker Upheld by the SEC, Stockbroker Fraud Blog, October 17, 2009 Continue Reading ›

Morgan Stanley & Co. and TD Ameritrade Inc. to Repurchase Over $338M in Auction Rate Securities from New Jersey Investors

Published on: May 4, 2011 | by Shepherd Smith Edwards & Kantas, LLP

Morgan Stanley & Co. Inc. (MS) and TD Ameritrade Inc. (AMTD) will buy back over $338 million in auction rate securities from New Jersey investors. The repurchase is to settle securities allegations by the state’s attorney general that the financial firms did not adequately disclose the risks involved with investing in ARS.

Per the settlement, Morgan Stanley (the ARS underwriters) will repurchase $322.27 in ARS that it sold to retail investors and pay civil penalties of $1.56 million. The New Jersey Bureau of Securities claims that not only did the financial firm fail to tell investors of the risks involved in the financial instruments—even after knowing the ARS market was in trouble—but Morgan Stanley also failed to adequately train financial advisers and brokers about the possible illiquidity that could impact ARS.

TD Ameritrade (the ARS distributor) will buy back $16.1 million in ARS. The bureau claims that the broker-dealer’s registered representatives failed to inform clients of the risks involving ARS.

In a release issued late last month, Thomas R. Calcagni, Acting Director of the Division of Consumer Affairs, said that efforts have led to financial firms either buying back or offering to repurchase over $2.7 billion in ARS. The settlements with Morgan Stanley and TD Ameritrade are the ninth and tenth ones that the Division has reached with firms that sold ARS to investors. Earlier this year, UBS agreed to buy back $1.5 billion in ARS from New Jersey investors.

Morgan Stanley Consent Order (PDF)

TD Ameritrade Consent Order (PDF)

More Blog Posts:
Anschutz Corp.’s Securities Fraud Lawsuit Against Deutsche Bank and Credit Rating Agencies Over Their Alleged Mishandling of Auction-Rate Securities Can Proceed, Says District Court, Institutional Investor Securities Blog, April 21, 2011

Class Auction-Rate Securities Lawsuit Against Raymond James Financial Survives Dismissal, Stockbroker Fraud Blog, September 27, 2010

Lincoln Financial Advisors Corp. Ordered by FINRA to Pay Wright Family Trust $1.6M

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

A Financial Industry Regulatory Authority arbitration panel says that Lincoln Financial Advisors Corporation must pay the Wright Family Trust $1.6M over securities claims related to investments that were made in a number of funds. Andrew and Blenda Wright, the claimants, alleged fraud, negligent misrepresentation, intentional misrepresentation, breach of fiduciary duty, failure to supervise, elder abuse, unauthorized and unsuitable transactions, and breach of contract. Other respondents named in the claim are Rollance Vekennis and John Marshall.

The claims are related to the investments made in:
• Rye Select Broad Market Fund, which is a Bernard L. Madoff Investment Services LLC feeder fund
• Johnston Asset Management International Equity Fund
• Mount Yale Large Cap Growth Fund
• Mount Yale Mid Cap Growth Qualified Fund
• Mount Yale Large Cap Value Qualified Fund
• Mount Yale Small Cap Qualified Fund
• Kinetics Advisers Institutional Partners Fund

The claimants had sought $1.5 million in compensatory damages.

The FINRA panel has ordered the respondents to pay $1.17 million in compensatory damages, including 10% annual interest between the date of the award and the time it is paid. Lincoln Financial must also pay another $590,000 in compensatory damages (also with 10% yearly interest until paid), the $600 initial filing fee, $22,800 in hearing session fees, and $8,550 in member fees.

Related Web Resources:

FINRA

More Blog Posts:
SEC Approves FINRA’s Proposal to Give Investors an All-Public Arbitration Panel Option, Stockbroker Fraud Blog, February 12, 2011

Linsco Private Ledger Clients File FINRA Arbitration Claims Accusing Former Financial Adviser Raymond Londo of Running Multi-Million Dollar Ponzi Scam, Stockbroker Fraud Blog, April 13, 2010