Financial Firms

US Sues Ex-Head Deutsche Bank Trader for Subprime Mortgage Fraud

Published on: September 11, 2017 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. Justice Department has filed a civil securities fraud case against Paul Mangione, a former senior Deutsche Bank (DB) trader. According to the government, Mangione, who headed up the bank’s subprime trading, took part in a fraudulent scam that involved misrepresenting the loans backing two residential mortgage-backed securities that the bank was selling, resulting in investors losing hundreds of millions of dollars.

The DOJ’s RMBS fraud complaint contends that Mangione committed fraud when selling the ACE 2007-HE5 and ACE 2007-HE4, which were $400M and $1B securities, respectively. He allegedly did this by misleading investors about the loans backing the investments and the originating practices of DB Home Lending, which is a Deutsche Bank subsidiary and was the primary loan originator.

According to the US government, the former Deutsche Bank head trader “fraudulently induced” different investors, including financial institutions, pension plans, government-sponsored editions, and religious organizations, to invest almost $1.5B in the two RMBSs, resulting in “extraordinary losses” for them. Mangione allegedly provided offering documents for the HE5 and HE4 that he knew included misrepresentations about compliance lending guidelines, loan characteristics, appraisal accuracy, and other matters. The documents made it appear as if DB Home had put into place underwriting guidelines that “generated quality loans,” as well as processes to properly oversee loan production.

Ex-Morgan Stanley Broker Pleads Not Guilty to Insider Trading

Published on: September 5, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Michael Siva, a former Morgan Stanley broker (MS), has pleaded not guilty to criminal charges accusing him of insider trading. Siva is one of several people charged over their alleged participation in a group of “tipping chains” and trading on tips about upcoming acquisitions and mergers. The information was provided by Bank of America (BAC) consultant Daniel Rivas. Siva is said to have gotten the tips from the James Moodhe, who is the father of Rivas’ girlfriend.

Rivas and Moodhe have both pleaded guilty to the criminal charges accusing them of insider trading. They are cooperating with the government’s probe.

Moodhe is said to have shared Rivas’s tips with Siva from at least 2015 up through earlier this year. Siva allegedly used the information so he could make successful trades for clients as well as for himself. Moodhe and Siva allegedly met at eating places outside NYC during which time the former would read details about upcoming deals to Siva, including the value of the deals and when news about them was expected to go public. The two men allegedly made over $3M trading prior to and after the announcement of the deals.
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UBS Fights Insurers’ $20 Million Lawsuit Over Puerto Rico Bond Claims

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

In an effort to fight a $20 million coverage lawsuit brought by insurance carriers over Puerto Rico bond fraud cases, UBS Financial Services, Inc. (UBS) argued in court that the exclusions at issue cannot be applied to these investors’ claims. The plaintiffs in the case include XL Specialty Insurance Co., Hartford Fire, and Axis.

According to Law360, a Securities and Exchange Commission filing notes that as of last year UBS is contending with $1.9 billion in claims – including civil, arbitration, and regulatory cases – over its Puerto Rico closed-end bond funds, and to date has already paid $740 million to resolve some of those claims. The bank has come under fire for the way it handled $10 billion of these closed-end bond funds, including claims that they pushed the securities onto investors who could not handle the risks involved and, in some cases, encouraged them to borrow funds to buy even more.

The bank wants coverage under new subsidiary policies that the insurers agreed to even though it includes a specific exclusion for claims that involve the closed-end fund debacle in any way. In its opposite brief, submitted to Puerto Rico federal court, UBS argued that the plaintiffs have not made much of an effort to argue how the exclusion could preclude every related claim, of which there are more than 1600. UBS noted in its brief that insurance law in the U.S. territory mandates that an insurance company defend the whole action even if just one claim is potentially covered.
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FDIC’s Libor Rigging Lawsuit Against Deutsche Bank, UBS, Royal Bank of Scotland, and Others in the UK Accuses Defendant Banks of Lowballing Benchmark Interest Rate Figures

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

In the UK, the US government is suing several banks over Libor rigging allegations in High Court. The defendants in the London Interbank Offered Rate (Libor) manipulation lawsuit include Deutsche Bank (DB), Barclays (BARC), Royal Bank of Scotland (RBS), Lloyds Banking Group, UBS (UBS), Rabobank (RABO), and several other banks, in addition to the British Bankers Association.

According to the Federal Deposit Insurance Corporation’s claim, the banks would engage in lowballing by turning in estimates that were artificially low when participating in the daily process to set the Libor rate. The US agency said that it is suing for 39 US banks, which were once collectively valued at over $400M, that failed after they depended on the US dollar denominated-Libor variant for derivative and other transactions. FDIC contends that the inaccurate figures submitted by the European banks caused the US banks to sustain massive losses.

It believes that if the Libor rate had been set honestly, the benchmark’s rate would would have been higher and these banks would have achieved higher prices and larger returns on different mortgages, loans, options, swaps, and other Libor-tied agreements. Instead, the plaintiffs allegedly colluded together to keep borrowing rates down to make it appear as if the banks were in more robust financial health than what was actual. The FDIC argued that the joint efforts of the banks and the British Bankers Association resulted in the “sustained and material suppression of Libor” from August 2007 through at least 2009.

Securities Cases: FINRA Fines and Suspends Ex-Morgan Stanley Broker For Trying to Settle Without Firm Authorization, SEC Accuses Connecticut Financial Representative of Elder Financial Fraud and Freezes Assets of Ex-Colorado Broker for Allegedly Stealing Investor Funds

Published on: August 30, 2017 | by Shepherd Smith Edwards & Kantas, LLP

FINRA Fines Ex-Morgan Stanley Broker, Issues 15-Day Suspension

The Financial Industry Regulatory Authority has fined an ex-Morgan Stanley (MS) broker $10K and ordered him to serve a 15-day suspension after he allegedly tried to resolve a client’s complaint without the firm’s consent. The regulator is charging Lewis H. Robinson, who now works with BB & T Securities in Florida, with violating Rule 2010. The rule mandates that brokers satisfy “high standards” as they pertain to commercial honor and principles of trade.

According to FINRA, Robinson wrote $12,203 in checks to resolve three complaints made by the client. Advisor Hub reports that Robinson said that he notified Morgan Stanley as soon as the client noticed that the account was overcharged a higher commission rate than what had been agreed upon but that the firm refused to give a refund because the allegedly mistaken excess fee was charged too long ago.

Securities Cases: Bank of America and Deutsche Bank Settle Agency Bond Rigging Litigation for $65.5M & Pension Funds Sue Citigroup, JP Morgan, and Other Big Banks Over Stock Lending Market Rigging Allegations

Published on: August 25, 2017 | by Shepherd Smith Edwards & Kantas, LLP

In the U.S. District Court in Manhattan, preliminary settlements have been submitted in which Deutsche Bank (DB) will pay $48.5M and Bank of America (BAC) will pay $17M to resolve investor lawsuits accusing them of manipulating the agency bond market for years. A judge must still approve the settlements.

Despite settling, both banks maintain they did not engage in any wrongdoing. The lead plaintiff investors include the Sheet Metal Workers Pension Plan of Northern California and the Iron Workers Pension Plan of Western Pennsylvania, and KBC Asset Management NV.

According to court papers and as reported by Reuters, Bank of America and Deutsche Bank are two of the 10 banks accused of rigging the $9 trillion agency bond market for supranational, sub-sovereign and agency bonds, also known as SSA bonds. The plaintiffs contend that from 2005 to 2015 the banks shared price information with one another, worked as a “super-desk” together, and allowed traders to coordinate strategies in the name of profit. Meantime, customers had to accept bond prices that were unfair to them.

Massachusetts Regulator Galvin Investigates Whether Exchanges Are Giving Kickbacks to Brokers for Making Institutional Investor Trades

Published on: August 18, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Massachusetts Secretary of the Commonwealth William Galvin is probing whether there are brokers who are getting paid kickbacks by exchanges in return for investor trades. The investigation comes in the wake of an op-ed article published in The New York Times last month alleging that there are financial representatives who have been sending orders to specific exchanges for these kickbacks, referred to as “rebates,” even if it means poorer results for their institutional investors.

The op-ed was written by Yale Law Professor Jonathan Macey and Yale University Chief Investment Officer David Swensen. Already, the state regulator has sent inquiry letters to Morgan Stanley & Co. (MS), E*TRADE Securities, Charles Schwab & Co. (SCHW), and Fidelity Brokerage Services LLC.

According to the article, because of these “rebates,” brokers are frequently selecting less favorable trades for their institutional investors clients to use these exchanges. If this is true, then it would be distressing considering that institutional brokers are legally bound to make trades on the exchange that has the terms that are most favorable for a client. Failure to do so could be grounds for a securities case. Meantime, it is supposed to be up to the exchanges, all 12 of them, to compete to provide the best trading opportunities.

$5M Insider Trading Case Leads to Criminal Arrests

Published on: August 17, 2017 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission has brought insider trading case charges against seven people who made millions of dollars while insider trading on dozens of upcoming acquisitions and mergers involving 30 corporate deals. The regulator’s complaint contends that Daniel Rivas, who used to be a bank IT employee, misused the access he had to a computer system by tipping four people with information that they then used to trade. Some of the those whom Rivas tipped allegedly also tipped other people, who tipped others, too.

InvestmentNews identified the bank that Rivas worked for at the time of the misconduct as Bank of America (BAC). (Bank of America Merrill Lynch later fired Rivas, who was then hired by RBC Capital Markets. In the wake of the insider trading allegations against him, Rivas was suspended by RBC.)

Rivas often tipped James Moodhe, who is the father of his girlfriend, using handwritten notes. Moodhe made approximately $2M from trading on the tips and shared the information with financial adviser Michael Siva, whom InvestmentNews identifies as a former Morgan Stanley (MS) broker.

Securities News: Citigroup Settles Libor Lawsuit for $130M, Apollo Global is Sued for Fraud, and Ex-MSD Capital Analyst is Sentenced After Insider Trading

Published on: August 10, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Citigroup to Pay Plaintiffs Suing Over Libor Rigging

Citigroup Inc. (C) will resolve a private US antitrust lawsuit alleging Libor manipulation by paying plaintiffs $130M. The litigation was brought by “over-the-counter” investors who engaged in direct transactions with banks that belonged to the panel that determines London Interbank Offered Rate.

As part of the proposed preliminary settlement, the bank will pay the money to a fund for future class members. It also will cooperate with the lawsuits brought against other banks also accused of involvement in Libor rigging. Despite settling the case, however, Citigroup is not admitting or denying any wrongdoing.

Securities News: Deutsche Bank, Citigroup, JPMorgan, and Interactive Brokers Are Fined for Market Access Violations & Halliburton Settles FCPA Charges for $29.2M

Published on: July 28, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Four Firms Are Ordered to Pay $4.75M for Market Access Rule Violations

The Financial Industry Regulatory Authority, CBOE Holdings company Bats, the New York Stock Exchange, NASDAQ, and their affiliated Exchanges have fined four financial firms $4.75M collectively for violating the Securities Exchange Act of 1934’s Rule 15c3-5, which is also known as the Market Access Rule. The fines are: $2.5M for Deutsche Bank (DB), $800K for J.P. Morgan (JPM), $1M for Citigroup (C), and $450K for Interactive Brokers (IBKR).

The firms have given market access to quite a number clients that engage in millions of trades daily. However, according to FINRA, Bats, NASDAQ, and NYSE, when doing so, they purportedly did not comply with at least one of the Market Access Rule’s provisions when they did not put in place certain risk management controls and procedures so that orders that were “erroneous or duplicative,” or went beyond certain kinds of thresholds, could be detected or prevented. The firms are also accused of not having systems in place for properly supervising customer trading so that “potentially volatile and manipulative activity” could be avoided.