Financial Firms

Investors of $7.7B NovaStar Mortgage-Backed Securities Can Move Forward with Fraud Claims Against Wells Fargo, Deutsche Bank, and RBS Securities

Published on: November 10, 2016 | by Shepherd Smith Edwards & Kantas, LLP

In New York, US District Judge Deborah A. Batts has certified a class of investors to go ahead with fraud claims that they’ve brought against Wells Fargo (WFC), RBS Securities (RBS), and Deutsche Bank (DB). The banks underwrote $7.7B of NovaStar mortgage-backed securities. The lead plaintiff in the MBS fraud case is the New Jersey Carpenters Health Fund. Wells Fargo Advisors LLC was previously Wachovia Capital Markets.

The plaintiffs contend that the defendant banks lied in the securities’ offering documents. Judge Batts held that the fundamental question at issue is whether the bank did, in fact, make the allegedly misleading or materially false statements.

NovaStar issued six residential mortgage backed-securities that the banks underwrote in 2006. These RMBS collectively held over $7.7B in assets. By mid-2009, in the wake of the housing collapse, over half the mortgages backing the securities had defaulted. Investors sustained major losses.

The New Jersey Carpenters Health Fund, which sued not just the banks in 2008 but also subprime lender NovaStar and credit rating agencies Standard & Poor’s and Moody’s, had invested $100K in one of the securities. The credit raters are no longer defendants in the case as the claims against them from this mortgage-backed securities case were dismissed in 2011. Because NovaStar’s successor has filed for Chapter 11 bankruptcy protection, the case against the subprime lender has been stayed.

Aozara Bank’s Mortgage-Backed Securities Case Against JPMorgan is Allowed to Proceed

Published on: November 7, 2016 | by Shepherd Smith Edwards & Kantas, LLP

In New York, the Appellate Division, First Department, a state appellate court, is allowing Aozara Bank’s (AOZOF) mortgage-backed securities fraud lawsuit against JPMorgan & Chase (JPM) to proceed. The Japanese bank, which had brought MBS claims against a number banks, is alleging aiding and abetting fraud and fraud related to the banks’ creation, marketing, and/or sale of high risk securities.

Aozara had invested close to $560M by 2009 in at least 35 collateralized debt obligations that a number of banks had structured. It sued not just JPMorgan but also Barclays Bank (BARC), Deutsche Bank Securities Inc. (DB), Credit Suisse (CS), UBS AG (UBS), Goldman Sachs Group (GS), Credit Agricole, and Morgan Stanley (MS) in 2013.

In the collateralized debt obligation lawsuit against JPMorgan, the First Department reversed a ruling issued earlier by the Manhattan Supreme Court. The appellate panel has now found that the Japanese bank had properly stated claims for breach of the duty of good faith and fair dealing and also fraud. Aozora contends that JPMorgan, which is Bear Stearns successor, depicted certain CDOs as legitimate investments even as it used them to get rid of risky assets that were toxic. The appellate panel said that JPMorgan has not demonstrated that its claims in offering documents gave Aozora proper notice that JPMorgan defendants had colluded to accept the toxic CDO assets from Bear Stearns’ balance sheets. The ruling said that Aozora’s lawsuit included enough facts to support its reasonable inference that fraud and scienter had occurred.

Goldman Sachs Settles Securities Fraud Lawsuit Over Abacus CDO

Published on: November 4, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Goldman Sachs Group Inc. (GS) has arrived at a settlement with ACA Financial Guaranty Corp. The bond insurer’s securities fraud lawsuit accuses the investment bank of fraudulently persuading it to guarantee payments on the , a collateralized debt obligation, prior to the financial crisis. ACA Financial Guaranty claims that Goldman and hedge fund Paulson & Co. fooled it into insuring the CDO. Details of the CDO fraud settlement have not been disclosed.

In its $120M CDO fraud case, ACA claimed it was deceived into thinking that Paulson & Co. would hold Abacus for the long-term, when, in fact, the fund played a part in choosing the CDO’s assets before taking a short position and bet that the mortgages underlying the securities would fail. ACA alleged that Abacus was set up in a manner to allow Paulson to make “huge profits” and Goldman to earn “huge fees.”

Although a NY judge had said that the case, brought in 2011, could proceed, an appeals court reversed that decision in 2013. The New York Supreme Court reversed the appeals court’s ruling in 2015.

SEC Probes Wells Fargo Over Allegations of Violations Involving Whistleblower Protections and Investor Disclosures

Published on: November 3, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. Securities and Exchange Commission is investigating whether Wells Fargo (WFC) violated whistleblower protections, in the wake of allegations of aggressive and illegal sales tactics, and misled investors over these allegations. The probe comes after Senators Jeff Merkeley (D-Ore), Elizabeth Warren (D-Mass), and Robert Menendez (D-NJ) sent the Commission a letter asking the regulator to examine whether the bank misled investigators over cross-selling claims.

In the letter, the US senators asked the SEC to look into whether Wells Fargo violated Sarbanes-Oxley’s internal control provisions and whistleblower protection laws by firing employees who attempted to report alleged misconduct involving fake accounts. The three senators also asked the Commission to look at whether the bank failed to properly disclose bogus accounts while marketing high figures related to the creation of accounts.

Wells Fargo recently came under fire for setting up some two million bogus accounts. It settled the case, which was brought by California prosecutors and federal regulators—including the Office of the Comptroller of the Currency and the Consumer Financial Protection Bureau— for $185M in penalties and $5M in customer restitution. Questions have since arisen over why the bank did not notify investors about these cross-selling allegations until it settled with regulators, even though Ex-CEO John Stumpf admitted that he knew about the problems going as far back as 2013.

Nomura To Pay Over $3M to Settle RMBS Fraud Claims brought by NCUA for Credit Unions

Published on: November 2, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Nomura Home Equity Loan, Inc. and Nomura Asset Acceptance Corporation have agreed to jointly pay over $3M to settle allegations that they engaged in the sale of faulty residential mortgage-backed securities (RMBS) to the Western Corporate Federal Credit Union and the U.S. Central Federal Credit Union. The National Credit Union Administration brought the RMBS fraud case on behalf of the two corporate credit unions.

It was in 2011 that the NCUA Board, while serving as liquidating agent for both financial institutions, brought the claims against the Nomura entities. The RMBS lawsuit was brought in federal district courts in Kansas and California.

The $3M settlement dismisses NCUA’s pending cases against the two firms. By settling, neither firm is denying or admitting to the alleged wrongdoing.

Voya Financial Advisors, Cetera Advisors, and Six Other Broker-Dealers to Pay $12.5M in Fines and Restitution For Allegedly Not Properly Supervising The Sale of L-Share Variable Annuities

Published on: November 2, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority is fining eight brokerage firms $6.2M for not supervising the sale of L-share variable annuities to customers. Five of the firms must pay another $6.3M to customers because the variable annuities that they were purchased were potentially not compatible with the latter’s investment goals and accounts.

The firms, and their sanctions, include: Voya Financial Advisors Inc., for $2.75M fine, First Allied Securities, Inc., for $950K fine, VSR Financial Services, for $400K fine, Cetera Financial Specialists LLC, for $350K fine, Cetera Advisors Networks LLC, for $750K fine, Summit Brokerage Services, Inc., for $500K fine, Kestra Investments, for $475K fine, and FTB Advisors, for $250K fine. The firms that have to pay restitution are: Voya, for $1.8M, while first Allied, Cetera Advisors Networks, VSR, and Summit Brokerage Services will collectively pay $4.5M. All the firms are settling, but they are not denying or admitting to any of the alleged claims.

At issue was the sale of the L-share annuities, which are “potentially incompatible, complex and expensive long-term minimum-income and withdrawal riders.” L-share annuities are more likely to pay registered representatives and their firms higher compensation than more traditional instruments.

Ex-Oppenheimer Broker Pleads Guilty in Insider Trading Case

Published on: October 25, 2016 | by Shepherd Smith Edwards & Kantas, LLP

David Hobson, an ex-Oppenheimer & Co (OPY) investment adviser, has pleaded guilty to the criminal charges of securities fraud and conspiracy to commit securities fraud. The 47-year-old Rhode Island broker admitted that he engaged in insider trading using information given to him by investment client Michael Maciocio in order to make illegal profits. Maciocio has already pleaded guilty to the charges in the insider trading case against him.

According to Preet Bharara, the United States Attorney for the Southern District of New York, between 5/2008 to 4/2014 Hobson and Maciocio sought to trade on insider information regarding acquisitions that a particular pharmaceutical company was considering. Although Bharara’s release doesn’t name the company, Law360 identified the company as Pfizer Inc. Bharara said that Maciocio, who was master planner in Pfizer’s active pharmaceutical ingredient supply chain group, would find out about the upcoming acquisitions and tip Hobson.

Bharara’s statement said that even though Maciocio was not given access to the acquisitions that the pharmaceutical company was targeting, he would use the code name of the acquisition, the drug indication, the dose, the clinical trial phase, and/or the drug’s chemical structure to find out the name of the company that Pfizer was considering acquiring. Maciocio would trade based on this information and share the information with Hobson. The two men have been friends since childhood.

Deutsche Bank Settles Silver Rigging Allegations for $38M

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

Deutsche Bank (DB) has agreed to pay $38M to settle a securities lawsuit alleging that it colluded with other banks to manipulate silver prices. According to Reuters, this agreement could compel other banks that have been accused of the same misconduct to settle.

According to the complaint, investors are accusing the German lender, Bank of Nova Scotia (BNS), and HSBC Holdings (HSBC) of fixing silver prices. They purportedly did this during a secret meeting conducted daily known as the Silver Fix. The silver manipulation scam allegedly began in 2009 and the alleged colluders suppressed prices on about $30B of silver financial instruments and silver that were traded annually. As a result of the alleged silver manipulation scam, banks were purportedly able to make returns that could exceed 100 percent annualized.

Investors claim that UBS AG (UBS) exploited the silver rigging. However, U.S. District Judge Valerie Caproni dismissed the Swiss lender from the case. She said that even if UBS profited from the silver manipulation there was no evidence provided to show that the Swiss bank had rigged prices.

Wells Fargo, Deutsche Bank, and Neuberger Berman Grapple with 401K lawsuits

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

A plaintiff who is a participant in Wells Fargo’s 401(K) plan is suing the bank. The individual claims that the company’s cross-selling scandal has caused its stock price to drop significantly and this has resulted in hundreds of millions of dollars in damages to the retirement plan.

It was just last month that regulators imposed a $185M fine on Wells Fargo for setting up 2.1 million credit card accounts and unauthorized deposits for banking customers so as to satisfy sales quotas. Some employees allegedly set up debit cards for customers without their knowledge, even assigning them PIN numbers.

Although Wells Fargo is settling with the Los Angeles City Attorney, the U.S. Office of the Comptroller of the Currency, and the U.S. Consumer Financial Protection Bureau, it is not denying or admitting to the allegations.

FINRA Actions: Former UBS Broker Is Barred for Overvaluing Customer’s Account by Up to $3M, Ex-Broker Allegedly Stole $400K From Parents, Wells Fargo Adviser is Suspended After Client is Victimized in Phishing Scam, and Former Stifel Broker is Accused of Unauthorized Payments

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

Ex-UBS Broker is Accused of Inflating Customer’s Account

The Financial Industry Regulatory Authority has barred Jeffrey Hamilton Howell from the broker-dealer industry. The former broker is accused of giving a customer bogus weekly account statements that overvalued an account by up to $3M. The alleged misconduct is said to have occurred between 9/2008 and 11/2014.

According to FINRA, Howell sent the customer over 300 Stock Tracking Reports that misstated the client’s portfolio in amounts ranging from $289K to approximately $3M. He purportedly used his personal e-mail to send the customer some of the fake reports. This left UBS with records and books that were not accurate.