Articles Posted in Financial Firms

Ameriprise to Sell Securities America Even as it Finalizes Securities Settlement with Investors of Medical Capital Holdings and Provident Royalties Private Placements

Published on: April 26, 2011 | by Shepherd Smith Edwards & Kantas, LLP

In its first quarter earnings report, Ameriprise Financial (NYSE: AMP) says it intends to sell Securities America. The news comes while the financial firm is still in the process of finalizing its securities fraud settlement with investors accusing the brokerage unit of selling allegedly fraudulent private placements of Medical Capital Holdings and Provident Royalties.

Investors sustained about $400 million in losses after taking part in Medical Capital Holdings-sponsored debt sales and shale gas investments with Provident Royalties. Although originally Securities America had about $400 million in outstanding obligations, the proposed settlement is worth $150 million. The independent broker-dealer unit is accused of failing to do proper due diligence on millions of dollars in investments that it sold, which later proved to be worthless.

Investors who filed securities arbitration cases against Securities America will receive $70 million. Those who are seeking to get back their losses through a class action securities lawsuit will get $80 million. The financial firm could be facing over $300 million more in arbitration claims over the fraudulent placements.

There is speculation over why Ameriprise’s decision to sell comes now. Does this mean that the financial firm has other issues of concern, beside the securities allegations, with Securities America? The sale may also mean that Ameriprise has decided to focus on its core business.

Per the earnings report, Securities America entered into the settlement agreements last month. This has resulted in a $118 million pre-tax charge for Ameriprise during 2011’s first quarter, as well as the $40 million pretax charge it incurred during last year’s fourth quarter.

Related Web Resources:
Securities America Agrees To Settlement With Investors-Sources, The Wall Street Journal, April 13, 2011
Ameriprise profit up, selling Securities America, AP/Bloomberg Businessweek, April 25, 2011
Ameriprise profit up, selling Securities America, Bloomberg Business Week, April 25, 2011

More Blog Posts:
Texas Securities Fraud: Three FINRA Cases Against Securities America Over Sale of Private Placements Halted, Stockbroker Fraud Blog, February 22, 2011
Securities America Inc. to Pay $1.2M in Compensatory and Punitive Damages Over Allegedly Fraudulent Medical Capital Notes, Stockbroker Fraud Blog, January 6, 2011
Securities America & Ameriprise Financial Inc. Sued For Selling Allegedly Faulty Private Settlements, Stockbroker Fraud Blog, November 10, 2009 Continue Reading ›

AIG Trying to Get More Investors to Buy Life Settlements

Published on: April 26, 2011 | by Shepherd Smith Edwards & Kantas, LLP

American International Group Inc. (AIG) is trying to get credit-ratings firms and investors to get behind the sale of life settlements, which are securities backed by the life insurance polices of older people. Per the insurer’s recent proposal, a subsidiary of AIG’s Chartis property casualty unit would collateralize notes valued at $900 million with 1,157 policies. AIG would like to sell $250 million to outside investors.

So far, AIG’s efforts have been met with resistance. It doesn’t help that Standard & Poor’s won’t rate the securities, which could help rally investors. In fact, S & P’s March report emphasizes the securities “unique risks.” It doesn’t help that some critics call these securities “collateralized death obligations,” “blood pools,” or “death bonds” because they pay off upon the insured’s death.

Investors who buy life settlements are betting that the benefits they get upon the insured’s death will be greater than the cash they’ve paid for both the policy and its premiums. However, due to the 2008 credit crisis or because some of the insured ended up living longer than expected, many life settlement investors have lost money on these securities. Securities lawsuits have followed and the market has stayed depressed. AIG says that as of the end of 2010, it has paid over $177.8 million to settle 479 claims. In exchange, it received the policies. Per AIG’s financial filings, the insurer has about $18 billion in anticipated death benefits. That’s more than 1/3rd of the approximately $45 billion in these benefits that have changed hands in the last decade.

The Wall Street Journal reports that generally, life insurers consider investor ownership of policies—especially involving those betting on someone’s death—as not good for the industry. There are even some insurance companies that have gone to court claiming that they were misled buy buyers who said they wanted policies for estate planning when, in fact, they actually wanted to flip them for investors.

Our institutional investment fraud law firm are dedicated to helping investors recoup their losses.

AIG Tries to Sell Death-Bet Securities, The Wall Street Journal, April 22, 2011

Seniors Beware: What you should know about life settlements, FINRA

Life Settlement Securitizations Present Unique Risks, Standard and Poor’s

More Blog Posts:
Texas Lawyer Pleads Guilty to Involvement in Alleged $100M Life Settlement Scheme, Stockbroker Fraud Blog, December 7, 2010

Life Settlements or Viaticals should be Considered “Securities,” Recommends the SEC to Congress , Stockbroker Fraud Blog, August 5, 2010

Securitization of Life Insurance Settlements Might Lead to Next Financial Crisis, Say Lawmakers, Stockbroker Fraud Blog, September 27, 2009

Morgan Keegan Ordered by FINRA to Pay RMK Fund Investors $881,000

Published on: April 24, 2011 | by Shepherd Smith Edwards & Kantas, LLP

A Financial Industry Regulatory Authority arbitration panel is ordering Morgan Keegan to pay a group of investors $881,000 for losses they sustained in Morgan Keegan’s proprietary funds that were concentrated in high-risk subprime mortgage assets. Customers lost about $2 billion.

The Morgan Keegan funds that investors had placed their money in included the:
• RMK High Income Fund
• RMK Multi-Sector High Income Fund
• RMK Advantage Income Fund
• RMK Select Intermediate Bond Fund
• RMK Strategic Income Fund

The claimants alleged misrepresentations and omissions, unsuitable investments, breach of fiduciary duty, failure to supervise, negligence, vicarious liability, breach of contract, FINRA rule violations, and Securities and Exchange Act violations. The FINRA panel found Morgan Keegan liable to the claimants on a number of the claims and ordered the financial firm to pay the following in compensatory damages:

• $33,382 to Palmer and Kathy Albertine • $105,844 to Jon Albright • $254,642 to Susan and Sam Davis • $458,625 to Kendall and Peter Tashie
FINRA also ordered Morgan Keegan to pay $26,850 for all of the forum fees for the arbitration against the financial firm, $28,500 for the Claimaints’ expert witness fee, and $600 for the portion of the filing fee that is non-refundable. Morgan Keegan is a Regions Financial Corporation subsidiary.

Related Web Resources:
FINRA Rules

Securities and Exchange Act of 1934, Cornell University Law School
More Blog Posts:
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 Funds, Stockbroker Fraud Blog, October 6, 2010
Morgan Keegan & Co., Inc., Morgan Asset Management, and Two Employees Face Subprime Mortgage Securities Fraud Charges by SEC, Stockbroker Fraud Blog, April 8, 2010 Continue Reading ›

Citigroup Chair Says Bank’s Crisis is Over

Published on: April 22, 2011 | by Shepherd Smith Edwards & Kantas, LLP

At the financial firm’s annual shareholder meeting, Citigroup chairman Richard D. Parsons says that even though there will be challenges this year, the investment bank is “clearly through the crisis.” Parsons statement reflects a significant shift for Citibank from last April when the financial firm made its first profit since the 2007 financial collapse and the government was still in possession of a large ownership stake. Citigroup, which received three government bailouts, has since paid back the Treasury Department and reported profits for five quarters in a row. Most recently, the investment bank has just reported a $3 billion profit.

The New York Times says that unlike in recent years when Citigroup shareholders that attended the annual meeting would complain about board members or former US Treasury Secretary Robert E. Rubin, this year, the shareholders that did show up primarily complained that Citi’s stock price would have to hit almost $600 for them to break even on shares.

The bank’s shares, which used to trade at over $50 each, now trade at under $5 dollars. After the reverse share split, share prices will rise to approximately $45. Each investor’s total, however, will go down by 90%.

Over 95% of shareholders had approved the stock split. At the meeting, Citi’s chief executive Vikram S. Pandit explained that while the share count was changing the value of ownership position was not. He also spoke of the benefits of drawing in institutional investors who couldn’t buy shares of companies that had stock that traded under $10. Pandit said there was potential for short-sellers to beat down the stock.

Related Web Resources:
Citi’s Annual Meeting Ceases to Be a Battleground, New York Times, April 21, 2011
Citi CEO tries to shed bank’s “survivor” image, Reuters, April 21, 2011

More Blog Posts:
Citigroup Ordered by FINRA to Pay $54.1M to Two Investors Over Municipal Bond Fund Losses, Stockbroker Fraud Blog, April 13, 2011

Ex-Smith Barney Adviser Pleads Guilty to Securities Fraud In $3.25M Scam to Bilk Citibank and Firm Clients, Stockbroker Fraud Blog, December 13, 2010
Securities Fraud Lawsuit Against Citigroup Involving Mortgage-Related Risk Results in Mixed Ruling, Institutional Investor Securities Blog, November 30, 2010 Continue Reading ›

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

Published on: April 21, 2011 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. District Court for the Northern District of California says that the auction securities fraud lawsuit filed by Anschutz Corp. against Deutsche Bank Securities Inc. and a number of credit rating agencies can proceed. Anschutz bought DBSI ARS between July 206 and August 2007 through Credit Suisse. The plaintiff is seeking damages and other relief related to the ARS it bought that was underwritten by DBSI, which also served as its broker-dealer.

Anschutz contends that it bought the securities believing that they were liquid because of the DBSI’s deceptive and manipulative activities. The plaintiff claims that by serving as market maker, DBSI ensured that the auctions would be successful as long as it kept supporting the bids. To make the ARS appear liquid, DBSI also allegedly “manipulated the market” by putting in support bids for every auction that the securities were involved in as well as for other ARS for which it was the lead or sole broker-dealer. When DBSI stopped making bids in July 2007, the auctions failed the following month. Anschutz contends that not only did DBSI know this would happen, but also, by acting as the only broker-dealer that could take part in certain securities’ auctions, the financial firm made it seem as if there was enough third-party demand and was able to lower the auctions’ interest rates.

Regarding its claims against rating agencies, Anschutz says that the latter relaxed their rating system to get DBSI’s business. The plaintiff contends that the AAA ratings that the agencies issued were misleading and false but knew that was the way to get paid. Anschutz also says that the agencies should have known or knew that DBSI was creating an artificial market for the ARS.

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

Credit Suisse Broker Previously Convicted for Selling High Risk ARS is Barred from Future Securities Law Violations, Institutional Investor Securities Blog, February 12, 2011

NASAA Says Investors with Frozen Auction-Rate Securities Should Ask Investment Firms About Buyback Opportunities, Stockbroker Fraud Blog, November 19, 2008

Ex-Goldman Sachs Board Member Accused of Insider Trading with Galleon Group Co-Founder Seeks to Have SEC Administrative Case Against Him Dropped

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

Our securities fraud attorneys had previously reported on the Securities and Exchange Commission’s case against Rajat Gupta, an ex-Goldman Sachs board member accused of passing on confidential information to Galleon Group Co-Founder Raj Rajaratnam about Berkshire Hathaway Inc.’s $5 billion investment in Goldman Sachs. Rajaratnam is accused of making $45 million from the scheme, which has been the target of what is being called one of the largest insider trading crackdowns involving a hedge fund. As part of its Galleon probe, the SEC has filed insider trading lawsuits against at least two dozen businesses and individuals.

The SEC is accusing Gupta of sharing with Rajaratnam details about the respective quarterly earnings of the investment bank and Proctor and Gamble, where Gupta also served as a director. Last month, agency filed its charges insider trading allegations against Gupta in administrative forum—a move that he is contesting.

On March 18, the ex-Goldman Sachs board member filed a lawsuit against the SEC denying the insider trading allegations and asking the federal court to block the SEC’s administrative claims and grant him a jury trial. Gupta contends that the SEC allegations took place at least a year and a half before the Dodd-Frank Wall Street Reform and Consumer Protection Act gave regulators permission to file such an action.

The Dodd-Frank Act has given the SEC the authority to use administrative proceedings to get monetary penalties from all individuals, regardless of whether or not they are connected to regulated entities. The SEC’s administrative trial in the Gupta case is scheduled for July 18. Gupta is the only defendant in the Galleon case that the SEC is pursuing administratively. He is a non-regulated person.

Related Web Resources:
Gupta Says U.S. Judge in New York Should Handle Suit to Block SEC’s Action, Bloomberg, April 11, 2011

Ex-Goldman director charged with insider trading, CBS News, March 1, 2011

Gupta v. Securities and Exchange Commission, Justia Docket Filings

U.S. v. Rajaratnam, SD New York 2011

More Blog Posts:
A Texan is Among Those Arrested in Insider Trading Crackdown Involving Apple Inc., Dell, and Advanced Micro Devices’ Confidential Data, Stockbroker Fraud Blog, December 16, 2010

3 Hedge Funds Raided by FBI in Insider Trading Case, Stockbroker Fraud Blog, November 23, 2010

Ex-Goldman Sachs Associate Will Serve Nearly Five Years in Prison for Insider Trading, Stockbroker Fraud Blog, January 10, 2008

FINRA Orders UBS Financial Services to Pay $8.25M for Misleading Investors About Security of Lehman Brothers Principal Protected Notes

Published on: April 15, 2011 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority is ordering UBS Financial Services to pay $8.25 million in restitution and a $2.5 million fine for misleading investors about Lehman Brothers principal protected notes (PPNs). The SRO says that the financial firm presented the investments in a way that caused clients to think that the notes came with 100% principal protection. Many brokers said that the notes, which were a hybrid financial product made up of currencies, bonds, stocks, commodities, and derivatives, were low-risk investments even though they knew (or should have known) that Lehman Brothers was in financial trouble. Also, investors did not know that the notes were only protected to the extent that Lehman Brothers was capable of paying. When Lehman Brothers filed for bankruptcy in September 2008, the PPNs became virtually worthless.

FINRA claims that UBS issued statements and made omissions that did not stress that the PPN’s were unsecured obligations of Lehman Brothers. The SRO is also questioning whether UBS fully understood the complexity of the notes and if this caused some of their mistakes when selling the financial product. FINRA says that not only did UBS lack the adequate supervisory system to overseee its financial advisers that were handling the Lehman notes, but also, the investment firm did not have appropriate suitability procedures to determine whether certain investors could handle the risks involved with the PPNs.

Numerous individual securities fraud arbitration claims and lawsuits have been submitted for investors over the Lehman Brothers structured notes. There was also a UBS class action complaint filed for all Lehman brothers PPN investors in 2008.

Our stockbroker fraud law firm want to remind you that filing your individual claim through FINRA arbitration increases your chances of recovering more than if you were a member of a securities class action case. If you sustained financial losses after investing in Lehman Brothers Principal Protected Notes, do not hesitate to contact Shepherd Smith Edward and Kantas, LLP and ask for your free case evaluation.

UBS Financial Services Fined $2.5M and Ordered to Pay $8.25M Over Lehman Brothers-Issued 100% Principal-Protection Notes, Institutional Investor Securities Blog , April 12, 2011
UBS to Pay $2.2M to CNA Financial Head for Lehman Brothers Structured Product Losses, Stockbroker Fraud Blog, January 4, 2011
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, 2010 Continue Reading ›

Goldman Sachs Group Made Money From Financial Crisis When it Bet Against the Subprime Mortgage Market, Says US Senate Panel

Published on: April 15, 2011 | by Shepherd Smith Edwards & Kantas, LLP

The Senate’s Permanent Subcommittee on Investigations says that because Goldman Sachs Group Inc. bet billions against the subprime mortgage market it profited from the financial crisis. The panel’s findings come following a two-year bipartisan probe and were released in a 639-page report on Wednesday.

The subcommittee released documents and emails that show executives and traders attempting to get rid of their subprime mortgage exposure, which was worth billions of dollars, and short the market for profit. Their actions ended up costing their clients that purchased the financial firm’s mortgage-related securities.

The panel says that Goldman allegedly deceived the investors when failing to tell them that the investment bank was simultaneously shorting or betting against the same investments. The subcommittee estimates that Goldman’s bets against the mortgage markets in 2007 did more than balance out the financial firm’s mortgage losses, causing it to garner a $1.2 billion profit that year in the mortgage department alone. Also, when Goldman executives, including Chief Executive Lloyd Blankfein appeared before the committee in 2010, the panel says that they allegedly misled panel members when they denied that the financial firm took an a position referred to as being “net short,” which involves heavily tilting one’s investments against the housing market.

It was just last year that the Securities and Exchange Commission ordered Goldman to pay $550 million to settle securities fraud charges over its actions related to the mortgage-securities market. The allegations in this report go beyond the claims covered by the SEC case. The report also names mortgage lender Washington Mutual, credit rating firms, the Office of Thrift Supervision, and a federal bank regulator as among those that contributed to the financial crisis.

Goldman is denying many of the subcommittee’s claims and says its executives did not mislead Congress.

Related Web Resources:
Goldman Sachs shares drop on Senate report, Reuters, April 14, 2011

Senate Panel: ‘Goldman Sachs Profited From Financial Crisis’, Los Angeles Times, April 14, 2011

Senate Permanent Subcommittee on Investigations

More Blog Posts:
Goldman Sachs Sued by ACA Financial Guaranty Over Failed Abacus Investment for $120M, Institutional Investor Securities Blog, January 10, 2011

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

Goldman Sachs COO Says Investment Firm Shorted 1% of CDOs Mortgage Bonds But Didn’t Bet Against Clients, Stockbroker Fraud Blog, July 14, 2010

Citigroup Ordered by FINRA to Pay $54.1M to Two Investors Over Municipal Bond Fund Losses

Published on: April 13, 2011 | by Shepherd Smith Edwards & Kantas, LLP

In what is being called the largest award that a major Wall Street broker-dealer has been ordered to pay individual investors, the Financial Industry Regulatory Authority has ordered Citigroup to pay $54.1 million to investors Suzanne Barlyn and Randall Smith over investment losses they sustained on high risk municipal bond funds that lost 77% of their value during the financial crisis.

Richard Zinman, formerly of Citi’s Smith Barney unit, was the broker for Murdock, a venture capital investor, and Hosier, a retired patent lawyer. Zinman left Citi soon after the funds blew up. During the arbitration hearing, he testified on behalf of the two men, saying that Citi did not tell its brokers how risky and volatile the funds in fact were. Zinman now works for Credit Suisse Group.

Citigroup has been under fire for awhile now over its municipal bond funds. Geared towards wealthier clients, investments were a minimum of $500,000. The bond funds were supposed to deliver returns a few percentage points above that of municipal bonds by borrowing up to $7 for every $1 invested. The proceeds were placed in mortgage debt and municipal bonds. Unfortunately, the municipal bond funds’ value dropped when the mortgage market started to fail. After Citi brokers complained, however, the financial firm offered share buybacks that lowered investor losses to approximately 61%.

As part of this case, Citi must pay $17 million in punitive damages, $3 million in legal fees, and $21,600 for the hearing free expense, which is normally divided between the parties involved. Prior to this award, the largest one Citi was ordered to pay against a bond-fund claimant was $6.4 million.

Related Web Resource:
Citigroup Loses Muni Case, The Wall Street Journal, April 13, 2011
Muni bonds hit by more selling on default fears, Los Angeles Times, January 12, 2011

More Blog Posts:
SEC to Examine Muni Bond Market Issues During Hearings in Texas and Other States, Stockbroker Fraud Blog, February 9, 2011
Ex-Portfolio Managers to Pay $700K to Settle SEC Charges that They Defrauded the Tax Free Fund for Utah, Stockbroker Fraud Blog, January 22, 2011
Federal Judge to Approve Citigroup’s $75M Securities Settlement with SEC Over Bank’s Subprime Mortgage Debt Reporting to Investors, Institutional Investor Securities Blog, September 29, 2010 Continue Reading ›

UBS Financial Services Fined $2.5M and Ordered to Pay $8.25M Over Lehman Brothers-Issued 100% Principal-Protection Notes

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

The Financial Industry Regulatory Authority is fining UBS Financial Services, Inc. $2.5 million and ordering it to pay $8.25 million in restitution for allegedly misleading investors about the “principal protection” feature of 100% Principal-Protection Notes. Lehman Brothers Holdings Inc. issued the PPNs Holdings Inc. before it filed for bankruptcy in 2008.

FINRA contends that even as the credit crisis was getting worse, between March and June 2008 UBS advertised and described the notes as investments that were principal-protected while failing to make sure clients knew that they PPNs were unsecured obligations of Lehman and that the principal protection feature was subject to issuer credit risk. UBS also allegedly failed to:

• Properly notify its financial advisers of the impact the widening of credit default swaps was having on Lehman’s financial strength
• Sufficiently analyze how appropriate the Lehman-issued PPNs were for certain clients
• Set up a proper supervisory system for the sale of the Lehman-issued PPNs
• Provide proper training or appropriate written supervisory procedures and policies
• Provide adequate suitability procedures for determining who should invest

FINRA also says that UBS developed and used advertising collateral about the PPNs that misled certain clients, such as the suggestion that a return of principal was certain as long as clients held the product until it matured. FINRA claims that the reason that some UBS financial advisers gave incorrect information to customers was because they themselves didn’t fully understand the product.

FINRA says that because UBS’s suitability procedures were inadequate and certain PPN’s lacked risk profile requirements, the product was sold to investors who were not willing or shouldn’t have been allowed to take on the risks involved. More often than not it was these investors who were likely to depend on the Lehman PPNs’ “100% principal protection” feature that were “risk averse.”

By agreeing to settle, UBS is not denying or admitting to the charges.

UBS to shell out $10.75M to settle Lehman-related row, Investment News, April 11, 2011

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

UBS Must Pay Couple $530,000 for Lehman Brothers-Backed Structured Notes, Institutional Investors Securities Blog, November 5, 2010

Lehman Brothers’ “Structured Products” Investigated by Stockbroker Fraud Law Firm Shepherd Smith Edwards & Kantas LTD LLP, Stockbroker Fraud Blog, September 30, 2008