Financial Firms

Merrill Lynch, UBS, & Morgan Stanley Are Among Firms Ordered to Pay Investors Approximately $30M Collectively Over Puerto Rico Bond Fund Losses in 2016

Published on: December 26, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Even after more than three years since the Puerto Rico bonds and closed-end bond funds originally dropped in their initial value, many investors are still waiting to recoup losses they sustained from investing in these securities. Meantime, the U.S. territory continues to deal with its financial woes as it struggles to pay back its $70 billion of debt. At Shepherd Smith Edwards and Kantas, our Puerto Rico municipal bond fraud attorneys have worked hard this year in helping our clients, who are among the thousands of investors from the Commonwealth that suffered significant losses when the island’s securities plunged in value in 2013, in trying to recoup their money.

Below is a recap of some of the significant claims recovered for Puerto Rico investors this year that made the headlines:

A Financial Industry Regulatory Authority (FINRA) Arbitration panel ordered Morgan Stanley (MS) to pay a New Jersey widow over $95,000. Morrisa Schiffman accused the broker-dealer of making unsuitable recommendations to her, as well as of inadequate supervision and disclosure failures. Her FINRA Panel ultimately agreed.

Merrill Lynch was ordered to pay $780,000 in restitution to customers who invested in Puerto Rico closed-end bond funds and municipal bonds. FINRA found that the brokerage firm did not have the proper procedures and supervisory systems in place to ensure that all of the transactions were suitable for a number of these investors. Customers affected, in particular, are those with holdings that were heavily concentrated in Puerto Rico municipal bonds, as well as with holdings were highly leveraged via loan managed accounts or margin. FINRA said that from 1/2010 through 7/2013, 25 leveraged customers who had moderate or conservative investment objectives and modest net worths saw the securities they’d invested in sustain aggregate losses of nearly $1.2M. The customers had at least 75% of their assets in Puerto Rico securities that were ultimately liquidated to meet margin calls.

Mortgage Fraud Settlements Reached With Deutsche Bank for $7.2B, Credit Suisse for $5.3B

Published on: December 24, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The US government has arrived at multibillion-dollar settlements with Credit Suisse Group AG (CS) and Deutsche Bank AG (DB) to settle allegations involving toxic securities. It also has filed a separate lawsuit against Barclays (BARC) over its alleged sales of toxic mortgage-backed securities.

In the Deutsche Bank case, the US Justice Department had sought $14B to settle allegations that the bank sold investors toxic mortgage securities. Now, the German lender will have to pay $3.1B immediately. It has promised to pay $4.1B over five years to a US consumer relief fund. However, Deutsche Bank remains under investigation by US and UK regulator over suspect trades involving Russian stock, foreign exchange rate rigging, precious metal-related price violations, and alleged violations of US sanctions against number of countries, including Iran.

In the settlement with Credit Suisse, the bank will pay a $2.48B penalty and $2.8B in relief to communities and homeowners impacted by the drop in home prices during the financial crisis. The consumer relief will be paid over five years.

Whistleblower Cases: SEC Issues Almost $1MK Award to Another Tipster, JPMorgan is Defendant in IRS Whistleblower Case Involving Pension Funds, and Prudential Stops Selling Certain Term Life Insurance Policies Through Wells Fargo Following Employees’ Lawsuit

Published on: December 23, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. Securities and Exchange Commission said that it has awarded a whistleblower over $900K for a tip that allowed the regulator to bring multiple enforcement actions. The regulator announced the award just a days after it awarded another whistleblower $3.5M, also for coming forward with information resulting in an enforcement action.

Since 2012, the regulator’s whistleblower program has awarded about $136M to 37 individuals. The SEC protects the identities of whistleblowers, which is one reason it doesn’t disclose details about the enforcement cases.

It is against the law for companies to retaliate against employers for turning whistleblower, and there are protections, as well as remedies in place in the event of retaliation. Whistleblowers who provide the SEC with unique and helpful information that makes it possible for a successful enforcement action rendering over $1M in monetary sanctions are entitled to 10-30% of the funds collected.

FINRA Fines 12 Firms, including RBS Securities, Wells Fargo, and LPL Financial $14.4M for Record Preservation-Related Violations

Published on: December 22, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority is ordering 12 firms to pay a collective total of $14.4M in fines over deficiencies involving the way they preserved customer and brokerage firm records. The firms who are subject to these sanctions include:

· RBS Securities (RBS) for $2M
· LPL Financial (LPLA) for $750K
· Wells Fargo Prime Services and Wells Fargo Securities (WFC) for a collective $4M fine
· Wells Fargo Advisors, First Clearing LLC, and Wells Fargo Advisors Financial Network for a joint fine of $1.5M
· RBS Capital Markets Arbitrage and RBC Capital Markets for $3.5M
· SunTrust Robinson Humphrey for $1.5M
· PNC Capital Markets for $500K

Under FINRA rules and federal securities laws, electronic records that are business-related have to be maintained in WORM format so that they cannot be modified. According to the US Securities and Exchange Commission, this is necessary to protect investors because monitoring compliance by firms occurs primarily through their records and books.

Morgan Stanley Settles Margin Account-Related Violations with FINRA & The SEC for $10.3M

Published on: December 21, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Two US regulators have fined Morgan Stanley (MS) for margin account violations that purportedly resulted in the firm using customer funds and securities for its benefit. The US Securities and Exchange Commission fined the firm $7.5M, while the Financial Industry Regulatory Authority imposed a $2.75M fine.

According to the SEC, Morgan Stanley used trades that involved customer money to decrease its borrowing costs. The Commission said that this violates the agency’s Customer Protection rule, which is meant to keep customer money and securities safe so that they can be given back to customers in the event that a brokerage firm were to fail.

The SEC said that from 5/2013 to 5/2015, the firm’s broker-dealer in the US used transactions with an affiliate to decrease the amount it had to deposit in its customer reserve account. Under the Customer Protection Rule, brokerage firms are not allowed to use affiliates to lower their customer reserve account deposit requirements.

Goldman Sachs Pays $120M Penalty to Settle USD ISDAFIX Rigging Allegations

Published on: December 18, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Goldman Sachs Group and Goldman, Sachs & Co. (GS) will pay a $120M penalty to settle Commodity Futures Trading Commission Charges accusing the firm of trying to manipulate the U.S. Dollar International Swaps and Derivatives Association Fix, as well as of falsifying related reports to enhance its derivatives positions. The USD ISDAFIX is the global benchmark is for interest rate products. Its rates and spreads are tied to benchmarks for interest swaps and related derivatives, which in turn impact a number or currencies’ daily market rate. A number of local and state governments in this country, as well as pension funds, depend on instruments determined by USD ISDAFIX when hedging against certain interest rate changes.

Now, the CFTC wants Goldman to not only pay the civil penalty but also to cease and desist from the violations charged. The regulator contends that multiple Goldman traders, including the firm’s Interest Rate Products Trading Group head in the US, were involved in the alleged misconduct.

The CFTC said that Goldman, via its traders, engaged in transactions involving US treasuries, interest rate swap spreads, and Eurodollar futures contracts in a way specifically designed to impact the published interest rate benchmark. Goldman also purportedly tried to rig and make false reports about the USD ISDAFIX through these employees’ actions. These alleged acts were at the expense of clients and derivatives counterparties.

Deutsche Bank Ends Dark Pool Probe with $37M Settlement to the NY AG and the SEC, as well as a $3.25M Fine to FINRA

Published on: December 15, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Deutsche Bank AG (DB) has agreed to pay $37M to conclude the US government probes into its handling of trades in dark pool trading venues. The German bank also admitted that between 1/2012 and 2/2014 traders were misled about the way the it ranked its SuperX dark pool and other trading venues. The government settlements were reached with the US Securities and Exchange Commission and the New York Attorney General. Meantime, the Financial Industry Regulatory Authority fined Deutsche Bank $3.25M, noting “deficient disclosures” involving dark pool trading.

According to the NY AG and the SEC, Deutsche Bank told investors that it ranked its dark pools according to a number of factors, including transaction costs. However, some its technology purportedly wasn’t functioning correctly which means that the order-routing choices were not organized according to the factors noted. The German bank also is accused of disregarding its own method for ranking dark pools and placing its own dark pool in a preferred tier.

The government believes that between 1/2012 and 2/2013, Deutsche Bank employed outdated dark-pool rankings to decide how to route orders rather than updating its ranking model on a regular basis.The bank discovered the technical glitch in 2013, but did not fully correct the issue and waited until the following year to notify clients.

Former LPL Financial Adviser/North Carolina Broker Is Sentenced in $1.4M Ponzi Scam

Published on: December 14, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Charles Caleb Fackrell is sentenced 63 months behind bars and three years of court supervision. The 36-year-old former North Carolina financial adviser, who worked with LPL Financial (LPLA), pleaded guilty to one count of securities fraud earlier this year. He now must pay his victims nearly $820K in restitution.

According to court documents, Fackrell ran an investment scam from approximately 5/2012 to 12/2014. During this time, he solicited about $1.4M from at least 20 investors. The companies he ran included Robin Hood LLC, Robin Hood Holdings LLC, Robinhood LLC, and Robinhood Holdings LLC.

Prosecutors contend that instead of using investors’ money as intended, Fackrell enriched himself in what North Carolina Secretary of State Elaine Marshall has described as “one of the most vicious financial crimes” the state has seen.

$11B RMBS Fraud Lawsuit Against Credit Suisse to Proceed

Published on: December 13, 2016 | by Shepherd Smith Edwards & Kantas, LLP

According to the Appellate Division, First Department in New York, the state’s attorney general can move forward with his $11B investor fraud case against Credit Suisse (CS). The state appeals court decided that in this residential mortgage-backed securities lawsuit, a six-year statute of limitations and not a three-year one was applicable.

The civil case was brought in Manhattan Supreme Court four years ago. It accuses the several of the bank’s units of wrongly persuading investors to buy toxic residential mortgage-backed-securities in 2006 and 2007. The complaint states that 24% of Credit Suisse’s loans that were tied to RMBS from those two years were liquidated. Investors went on to sustain $11.2B in losses.

In a 3-2 ruling, the justice’s panel said that NY AG Eric Schneiderman’s fraud claims are ones that may have been brought prior to the writing of the statute. As a result, wrote the justices, the lengthier statute of limitations is to what this case is subject.

Prudential Stops Selling My Term Life Insurance Policies Through Wells Fargo

Published on: December 12, 2016 | by Shepherd Smith Edwards & Kantas, LLP

This week, Prudential Financial Inc. (PRU) announced that is no longer distributing certain term life insurance policies, including its My Term product, through Wells Fargo’s (WFC) retail bank. The decision comes after Prudential employees filed a complaint claiming they were let go because they reported certain sales practices related to insurance policies. The insurer says it intends to probe the “full extent of abuses” that may have resulted from the Wells Fargo-related transactions. Prudential sold about 15,000 My Term accounts through the bank.

The employee lawsuit is Julie Han Broderick et al v. The Prudential Insurance Co. of America et al. The three plaintiffs, which include Han Broderick, Thomas Schreck, and Darron Smith, are seeking unspecified damages for wrongful termination. Prudential, however, claims that the reasons they were let go have nothing to do with its business with Wells Fargo but, rather, were related to an ethics complaint.

According to the NY Times, the ex-employees filed their complaint against Prudential and a regulatory officer, contending the following:

They were let go as retaliation for their whistleblowing activities involving Wells Fargo’s allegedly fraudulent practices around the sales of My Term insurance policies
The plaintiffs (formerly supervisors in Prudential’s investigative division of its legal department) believe the purported fraud was due to Wells Fargo cross-selling programs
They were fired because they would not take part in PRudential’s alleged cover-up of fraudulent and unlawful business practices it engages in with Wells Fargo Bank