Financial Firms

Deutsche Bank Reaches $9.5B Settlement With the SEC For Not Properly Safeguarding Information

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

Deutsche Bank Securities (DB) will pay a $9.5B penalty to the U.S. Securities and Exchange Commission for not properly safeguarding material nonpublic research information. Even though it is settling, Deutsche Bank is not denying or admitting to the findings.

According to the regulator, Deutsche Bank urged its equity research analysts to communicate often with trading personnel, sales staff, and customers, but it did not have in place the proper procedures and policies to stop analysts from disclosing certain information, such as analyses and views that hadn’t been published yet, estimate changes, trading day squawks, short-term trading recommendations, non-deal road shows, and idea dinners. The SEC’s order also found that the bank had put out a research report that had a “BUY” rating for Big Lots, the discount retailer, but that the rating did not line up with the perspective of the analyst who had prepared and certified it as accurate.

This particular individual, analyst Charles Grom, had told others that the discount retailer should have gotten a downgrade. Grom was eventually charged by the SEC with certifying a stock rating in a manner that was not consistent with his own views. He settled the charges with a suspension from the securities industry and by agreeing to pay a $100K penalty.

RBS Securities Settles MBS Fraud Case With Connecticut for $120M

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

Royal Bank of Scotland (RBS) subsidiary RBS Securities Inc. will pay the state of Connecticut $120M to settle allegations related to its dealings with mortgage-backed securities leading up to the 2008 financial crisis. According to state officials, RBS played a part in the crisis when it neglected to do the proper due diligence around certain tools for mortgage-backed investments. They accused the subsidiary of unethical and dishonest behavior, as well as of making false statements.

They contend that RBS, which was one of the largest underwriters of residential mortgage-backed securities, did not make sure that the information it offered about RMBS deals was accurate. Connecticut Attorney General George Jepsen said that he and the state’s Department of Banking worked together in investigating this matter.

RBS doesn’t securitize newly originated RMBSs anymore. It was, however, the lead underwriter for approximately 250 residential mortgage-backed securities between ’05 and ’08. Part of its job was to perform the due diligence on mortgage loans used for collateral. However, Connecticut claims that RBS’s due diligence was “inadequate,” causing “omissions and misstatements” to be made to the public and investors. They even contend that in certain instance, RBS rated certain loans that had already been lower rated by third-party vendors with higher-grade ratings.

Securities Cases: Hawaii-Based Investment Adviser is Accused of Cherry-Picking Trades, Broker Ordered to Pay $600K for Elder Financial Fraud, and FINRA Bars Ex-Axa Advisors Broker

Published on: October 6, 2016 | by Shepherd Smith Edwards & Kantas, LLP

SEC Charges Hawaii-Based Investment Adviser for Misleading Clients and Cherry Picking

The U.S. Securities and Exchange Commission has filed civil charges against Oracle Investment Research, which is based in Hawaii, and its owner Laurence I. Balter. The regulator claims that the investment adviser cherry picked trades that were profitable for his own accounts. He is also accused is misleading clients, including senior citizens, about the risks involved in the investments he recommended, as well as about the fees they would be charged.

According to the SEC Enforcement Division, Balter and Oracle Investment Research bought options and equities in an omnibus account but waited to distribute the trades until their execution. Then, he would allegedly move the profitable trades into his accounts and the unprofitable ones to the accounts of clients.

Credit Suisse Settles for $90M Allegations that It Misrepresented Performance Metric

Published on: October 5, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Credit Suisse Group AG (CS) has admitted wrongdoing and will pay a penalty of $90 M to the SEC settle civil claims accusing the firm of misrepresenting how much it brought into its wealth management business.

According to the regulator’s probe, Credit Suisse strayed from its methodology for figuring out NNA (net new assets), which it disclosed to the public. This is the metric that investors value to gauge a financial institution’s success in bringing in new business.

Although disclosures said that the bank was assessing assets individually according to each client’s goals and intentions, Credit Suisse would occasionally employ an undisclosed approach that was “results-driven” to determine NNA to satisfy specific targets that senior management had set. SEC Enforcement Division Director Andrew J. Ceresney said that the bank’s failure to reveal that it was employing a results-driven approach prevented investors from having the chance to properly judge Credit Suisse’ success in drawing in new money.

RBS Will Pay NCUA $1.1B in Mortgage-Backed Securities Probe

Published on: September 28, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Royal Bank of Scotland Group (RBS) will settle two civil residential mortgage-backed securities lawsuits for $1.1B. The payment will go to the National Credit Union Administration (NCUA) and resolves claims accusing the bank of selling faulty MBSs to two corporate credit unions, causing their failure. The federal actions were brought in California and Kansas, respectively. This is one of the largest settlements reached in mortgage-backed securities cases brought against banks.

The allegedly toxic RMBSs were sold to Western Corporate Federal Credit Union and the Central Federal Credit Union. By settling, however, RBS is not admitting fault.

It was just last year that Royal Bank of Scotland agreed to pay $129.6M to NCUA to resolve claims over its sale of mortgage-backed securities to Members United Corporate Federal Credit Union and Southwest Corporate Federal Credit Union. Both are now defunct, too.

Aozora Bank Asks NY Appeals Court to Revive $1.5B CDO Fraud Case Against Credit Suisse

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

Aozora Bank Ltd. has asked a New York appeals court to allow it to sue Credit Suisse (CS) again over losses that it claims it sustained from a $1.5B collateralized debt obligation. The Japanese lender claims that a lower court erred in dismissing the claims it had previously brought on the grounds that they were submitted too late.

It was last year that New York Supreme Court Judge Charles E. Ramos threw out the CDO fraud lawsuit on the grounds that the state’s statute of limitations had already passed. In New York, fraud claims can be brought within two years from when a plaintiff could have, with reasonable diligence, realized that it was defrauded or within six years of when a transaction had closed.

Aozora believes that Credit Suisse employed a “trash bin” for its assets that were toxic. The Japanese lender purchased the Jupiter High-Grade CDO V Ltd CDO notes for $40M on 5/11/07 but did not file it’s case until 6/26/13. Ramos said that Aozara failed to prove that there was no way it could have discovered the problems with the Jupiter V notes that it purchased from Credit Suisse before that filing date.

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SEC Awards Whistleblower $4M

Published on: September 17, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. Securities and Exchange Commission is awarding over $4M to a whistleblower for providing original information that led to a successful fraud case. This is individual is the 34th whistleblower that the SEC’s program has awarded since 2011, upping the total amount granted in such awards to over $111M.

In what was the second biggest award issued by the regulator to date, he SEC awarded $22M to an to an ex- Monsanto Co. financial executive last month. The individual had reported alleged accounting violations involving Roundup, the company’s weed killer. According to media reports, Monsanto offered distributor rebates to raise sales but moved the costs into the following fiscal year. As a result, the company moved up its revenue while postponing the reduction that resulted from the costs.

Under the SEC Whistleblower program, individuals who voluntarily give the regulator unique information that leads to a successful enforcement case are entitled to 10-30% of the sanctions collected when that amount is over $1M. Since the program’s inception five years ago, the Commission has received over 14,000 tips.

Deutsche Bank and DOJ Still In Negotiations Over Mortgage-Backed Securities Case

Published on: September 16, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Deutsche Bank (DB) and the U.S. Department of Justice have yet to reach a settlement over allegations about the way that the German lender packaged toxic mortgages leading up to the 2008 financial crisis. According to The Wall Street Journal, The DOJ wants the bank to pay $14B. Deutsche Bank, however, said it has no plans to pay “anywhere near the number cited” and sees that figure as a starting point in negotiations.

In a statement, the firm said that it expected the final figure to be much lower and closer to what other banks have paid over similar allegations. InvestmentNews reports that it has not been uncommon for the DOJ in its investigation into MBSs to first put forward higher penalties than the eventual settlement that is reached.

Other firms and their deals over their mortgage lending activities include Bank of America (BAC) for $16.7B, Citigroup (C) for $7B, JPMorgan Chase (JPM) for $9B, Goldman Sachs (GS) for $5.1B, and Morgan Stanley (MS) for $3.2B. Goldman Sachs admitted to wrongdoing when it settled claims that it did not properly vet MBS before selling them as quality debt to investors.

Voya Sued in 401(K) Lawsuit, is Accused of Partaking of Investment Advice Fee Charge

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

Voya Financial Inc. (VOYA) is the defendant in a 401(k) lawsuit alleging excessive fees. According to a Nestle 401(k) Savings Plan participant, Voya and managed-account provider Financial Engines came up with an arrangement that allowed Voya to collect excessive fees for service related to investment advice, but without disclosing that this was part of their deal. In Patrico v. Voya Financial, Inc. et al., the plaintiff is claiming breach of fiduciary duty under ERISA.

The proposed class action lawsuit contends that Voya offered participants an advice program via the Voya Retirement Advisers but subcontracted to have Financial Engines give the advice. The plaintiff contends that even though Voya didn’t provide “material services” related to the advice that participants were given through the program, the company collected a fee to which it purportedly had no right. Voya allegedly keeps a “substantial” part of the fee, while giving some of the fee to Financial Engines.

Voya denies any wrongdoing.

UBS Ordered To Pay Three Investors $750K in Puerto Rico Bond Fraud Case

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

The Financial Industry Regulatory Authority announced that UBS Financial Services and its Puerto Rico subsidiary (UBS) must collectively pay three investors $750,000 in damages for losses they sustained from investing in UBS’s proprietary Puerto Rico closed-end bond funds and Puerto Rico bonds. The claimants are Jenny Robles Adorno, Desarrollos Jarra SE, and Jose A. Rivera.

The investors accused UBS of recklessness, fraud, and negligence. They sought compensatory damages, punitive damages, and reimbursement of commissions that they said were unlawful. In San Juan, the FINRA arbitration panel awarded Rivera $562,500, Robles $30,000 and Jarra $157,500. UBS said it was “disappointed” with the panel’s decision to award any damages to the claimants.

This is not the first Puerto Rico bond fraud arbitration case in which UBS has been ordered to pay investors. Just this March, the firm had to pay over $470,000 to three investors who said their accounts were over-concentrated in the same Puerto Rico focused investments. The claimants in that particular case alleged negligent supervision and fraud. Similarly, UBS was ordered to pay a former television executive over $1,400,000 in the fall of 2015 for over-concentrating the former customer in UBS’s proprietary funds and misrepresenting the risks of those investments.