Financial Firms

FINRA Cases: Ameritas to Pay $180K Fine Over Variable Annuity Sales, UBS Ordered to Pay Former Broker $3M for Defamation, and 13 Investors Awarded $5M After Losses Allegedly Caused by Ex-LPL Financial/Edward Jones Broker

Published on: November 4, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Ameritas Investment Corp. Must Pay $180K for Inadequate Supervision Involving VA Sales
The Financial Industry Regulatory Authority is ordering Ameritas to pay $180K for an inadequate supervisory system that oversaw its multi-share class variable annuity sales. The self-regulatory organization claims that between 9/2013 and 7/2015, the brokerage firm failed in its supervision of the VA sales and did not have adequate written supervisory procedures in place.

It was during this period that the firm sold almost 4,100 variable annuity contracts, making more than $58M in the process. 697 of the sales were L-share contracts, rendering approximately $11M. These types of contracts usually come with a shorter surrender period than the more common B-share contracts. FINRA believes that the broker-dealer failed to provide its registered representatives proper guidance on the different share classes that were for sale or on how to discern which ones would be best for each customer.

Fired Broker Will be Paid $3M by UBS
A FINRA arbitration panel is ordering UBS Financial Services (UBS) to pay $3M in compensatory damages to a broker that it fired. The Claimant, James L. Springer, had made numerous claims, including wrongful termination, emotional distress, negligence, unfair competition, breach of fiduciary duty, unpaid wages, and others.

Credit Suisse and MBIA Insurance Continue to Fight Over Mortgage-Backed Securities Fraud Claims in Court

Published on: November 2, 2017 | by Shepherd Smith Edwards & Kantas, LLP

In New York Court of Appeals, MBIA Insurance Corp. and Credit Suisse Securities USA LLC (CS) presented arguments over whether to resuscitate part of the $235M mortgage-backed securities case brought by the insurer against the financial firm. NY Supreme Court Judge Shirley Werner Kornreich previously took out the fraud claim in MBIA’s case after finding that bond insurer wanted the same damages from both that claim and its contract claim. MBIA has since appealed, arguing that Kornreich misread the facts presented, as well as the applicable case law.

The bond insurer contends that both the contract and fraud claims are separate and valid. Credit Suisse, meantime, maintains that contract and fraud claims are “duplicative.”

In addition to cutting the insurer’s fraud claim from the lawsuit, Kornreich rejected MBIA’s request that she find that Credit Suisse breached its warranties regarding the mortgages’ quality in about 29% of instances. The judge also called MBIA to task for not doing its own due diligence regarding the loans’ quality.

Securities Fraud Settlements: HSBC, Deutsche Bank, and Citi Settle Libor Class Action for $132M & RBS Settles Mortgage Bond Trading Case for $44M

Published on: October 31, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Royal Bank of Scotland Settles DOJ RMBS Fraud Probe for $44M
Royal Bank of Scotland Group Plc (RBS) has agreed to a non-prosecution deal with the US Justice Department to resolve a criminal probe accusing traders of defrauding residential mortgage-backed securities (RMBS) and collateralized loan obligation (CLO) customers. As part of the settlement, RBS will pay a $35M fine. It will also pay at least $9M to over 30 customers, including affiliates of Barclays (BARC), Goldman Sachs (GS), Bank of America (BAC), Citigroup (C) and Morgan Stanley (MS), as well as to the Soros Fund Management and Pacific Investment Management Co. RBS admitted to the misconduct.

The bank’s fraud involved mortgage-backed securities, asset-backed securities, and commercial mortgage-backed securities. The group that handled these securities for the bank is no longer in operation.

According to prosecutors, from ’08 to ’13, RBS lied about bond prices, charged unwarranted commissions, and hid the fraud, all the while enhancing its own profits and costing customers money. In a joint press release, the DOJ and the Special Inspector General for the Troubled Asset Relief Program said that the bank’s employees were encouraged to engage in the wrongful behavior, including misrepresenting material facts to customers, lying about the seller’s asking price to the buyer and lying about the buyer’s asking price to the seller, pocketing the difference between what the buyer paid and what the seller received, and misrepresenting that a non-existent third party was involved in the bond sales so that the bank could charge the extra, unwarranted commission. RBS is also accused of training its CLO and RMBS traders to engage in the fraudulent practices, lying to customers that suspected the fraud, and disregarding its employees who complained about the fraud.

Securities Cases: NYSE Regulation Files Complaint Against Wedbush Securities, Ex-Apollo Management Sr. Partner is Accused of Billing Investors for Salon Visits & Vacations, and NY Money Manager & Ex-Investment Adviser Get Prison Sentences for Fraud

Published on: October 31, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Wedbush Securities Accused of Failing to Oversee Owner, Who May Have Cherry Picked Investments
The NYSE Regulation has filed a disciplinary case against Wedbush Securities Inc. accusing the firm of not properly overseeing the trading activities of firm owner and principal Edward Wedbush. According to the complaint, Mr. Wedbush, “actively” managed and traded in over 70 accounts and he had limited power over attorney over the accounts of relatives, friends, and some staff members. NYSE contends that he was never properly overseen, which increased the possibility of conflicts and manipulation, including cherry picking. For example, the regulator believes that the inadequate supervision of Mr. Wedbush gave him the “unchecked ability” to give the best trades to family members and himself because there was no system in place to make sure trades were fairly allocated.

Wedbush Securities has previously been subject to at least $4.1M over supervisory deficiencies. Last year, the Financial Industry Regulatory Authority ordered Mr. Wedbush to pay $50K for supervisory deficiencies involving regulatory filings. He also was suspended for 31 days from serving as a principal.

Wedbush Securities has been named in investor fraud complaints over the handling of their money.

Deutsche Bank Agrees to Pay $220M to Resolve Libor Rigging Probe

Published on: October 26, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Deutsche Bank AG (DB) has settled with 45 US states and will now pay $220M to resolve allegations that it engaged in rigging the London Interbank Offered (LIBOR) rate and other benchmark interest rates. According to the settlement, the bank admitted that its managers and traders took part in benchmark rigging from ’05 to ’09.

A press release issued by New York Attorney General Eric Schneiderman states that Deutsche Bank “acted unlawfully,” including that:

· The bank defrauded counterparties when it didn’t disclose that it was making LIBOR submissions that were “false or misleading.”

· Its traders tried to influence the LIBOR submissions of other banks so that Deutsche Bank would benefit.

· The bank knew that other banks were rigging LIBOR, too.

· Deutsche Bank didn’t disclose that the other banks’ LIBOR submissions were not accurate reflections of their borrowing rates or that the published rates were not accurate to the submitting banks’ real borrowing costs.

Two Ex-Ameriprise Financial Services Brokers Settle With FINRA Over Margin Trades

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

Former Ameriprise (AMP) Jack McBride has been ordered by the Financial Industry Regulatory Authority to pay a $12,500 fine and serve a 40-day suspension over alleged violations involving margin trades. He was registered with Ameriprise from 1994 to 2014.

FINRA contends that it was during this period that he committed a number of violations, including settling a customer complaint without telling Ameriprise, sending emails that had inflated account values to two clients, and mismarking order tickets as unsolicited when they had been solicited.

Regarding the margin trade violations, the regulator notes in the Letter of Acceptance, Waiver, and Consent that McBride settled with one couple by sending them almost $12,845 from his personal account rather than reporting their complaint to Ameriprise. The couple was charged margin interest after incurring a margin balance because McBride mistakenly bought $320K in securities for them using their Ameriprise account that did not have the balance to cover the cost. They had multiple accounts with the brokerage firm.

Securities News: Ex- HSBC Executive Found Guilty of Fraud Involving $3.5B Currency Trading & Hedge Fund Sues Barclays For Copper Market Rigging

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

A federal jury in New York has found Mark Johnson guilty on criminal charges accusing him of front-running involving a $3.5B currency trade. HSBC’s ex-foreign-exchange cash trading global head is the first banker that the US Justice Department charged over forex rate rigging.

Johnson was convicted on eight counts of wire fraud and one count of wire fraud conspiracy, and he reportedly will appeal the verdict. Johnson maintains that he was acting in the best interest of the client involved and he did not do anything wrong or irregular.

According to acting US Attorney in Brooklyn Bridget M. Rohde, Johnson used confidential information given to him by an HSBC client to make trades in an attempt to earn millions of dollars for the bank and himself while costing the client money. He and ex-HSBC European currency trading head Stuart Scott allegedly engaged in front running, which involves making trades based on advanced information about a big market order, with the advanced trades rendering huge profits once the bigger transaction has upped the price. Scott is currently in the UK battling extradition efforts to bring him back to the US.

California Extends Sanctions Imposed Against Wells Fargo Following More Bad Practice Disclosures

Published on: October 23, 2017 | by Shepherd Smith Edwards & Kantas, LLP

California Treasurer John Chiang announced this week that the state has decided to extend the sanctions it imposed against Wells Fargo & Co. (WFC) for one more year. The bank is barred from doing business with California in the wake of the sales practice scandal involving the set up of at least two million unauthorized credit card and bank accounts. Wells Fargo agreed to pay $185M to regulators to resolve related charges.

As the country’s largest municipal debt issuer, California oversees a $75B investment portfolio. Its sanctions include suspending the state’s investments in Wells Fargo Securities, barring the bank from being used as a brokerage firm to buy investments, and prohibiting it from serving as bond underwriter whenever Chiang is authorized to appoint said underwriter.

When explaining why he sought to extend the state’s sanctions, Chiang pointed to recent disclosures, including that Wells Fargo overcharged veterans in a federal mortgage-refinancing program and, in another program, made loan borrowers pay for unnecessary insurance. The state treasurer sent a letter to Wells Fargo’s board and its Chief Executive Tim Sloan noting that a number of demands have to be fulfilled before he will lift the sanctions.

Jury Rules Against Former F-Squared CEO in SEC’s ETF Fraud Case

Published on: October 16, 2017 | by Shepherd Smith Edwards & Kantas, LLP

A federal jury in Boston has found Howard Present, the ex-CEO of F-Squared Investments Inc., liable in the US Securities and Exchange Commission’s civil lawsuit alleging exchange-traded fund fraud. The ruling determined that Present was in violation of the Investment Advisers Act.

According to the regulator, Present sought to defraud investors and acted recklessly in the way he marketed the history of the AlphaSector, which was F-Squared’s flagship product.

The SEC filed its securities fraud lawsuit against Present in 2014. That was when the regulator announced a $35M settlement reached with F-Squared, in which the firm admitted wrongdoing over claims that it misled investors in the way that it falsely marketed AlphaSector as having a lengthy and successful track record that utilized a strategy that a multibillion-dollar wealth manager had developed.

Wells Fargo Brokerage Firms Ordered to Pay $3.4M Over Unsuitable Exchange-Traded Product Recommendations

Published on: October 16, 2017 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority said that Wells Fargo Advisors Financial Network and Wells Fargo Clearing Services LLC must pay over $3.4M in restitution to customers who were impacted by unsuitable recommendations involving exchange-traded products and the supervisory failures involved. By settling, Wells Fargo (WFC) is not denying or admitting to the regulator’s charges.

According to FINRA, between 7/1/200 and 5/1/2012, there were registered representatives at Wells Fargo (WFC) who recommended these volatility-linked ETPs without fully comprehending the investments’ features and risks. The self-regulatory organization also found that the broker-dealer did not put into place a supervisory system that was reasonable enough to properly supervise the ETP sales during the period at issue.

The regulator said that the brokers did not have reasonable grounds for recommending these ETPs to customers whose risk profiles and investment goals were considered moderate or conservative. The representatives are accused of making inappropriate recommendations about when to leave these positions in a “timely manner.”